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Uniwersytet Ekonomiczny we Wrocławiu
Wroclaw University of Economics and Business
https://www.wir.ue.wroc.pl
Publikacja / Publication
Sustainable Performance in Business Organisations and Institutions: Measurement,
Reporting and Management,
Dyczkowska Joanna
DOI wersji wydawcy / Published
version DOI http://dx.doi.org/10.15611/2023.83.1
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Deposited in Repository on Sep 21, 2023
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(eds.): Sustainable Performance in Business Organisations and Dyczkowska Joanna
Institutions: Measurement, Reporting and Management, 2023, Wydawnictwo
Uniwersytetu Ekonomicznego we Wrocławiu, ISBN 9788367400824,
[9788367400831], 282 p. DOI:10.15611/2023.83.1 Opening in a new tab
Sustainable Performance
in Business Organisations and Institutions:
Measurement, Reporting and Management
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Sustainable Performance
in Business Organisations and Institutions:
Measurement, Reporting and Management
edited by Joanna Dyczkowska
Publishing House of Wroclaw University of Economics and Business
Wroclaw 2023
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ISBN 978-83-67400-82-4 (for the paper version)
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DOI: 10.15611/2023.83.1
Quote as: Dyczkowska, J. (Ed.). (2023). Sustainable Performance in Business Organisations and Institutions:
Measurement, Reporting and Management. Wroclaw: Publishing House of Wroclaw University
of Economics and Business.
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Contents
Preface (Joanna Dyczkowska) ................................................................................................. 9
Chapter 1. Non-Financial Disclosure and Sustainability Regulation: Vol-
untary or Mandatory Effectiveness (Maurizio Comoli, Patrizia Tettamanzi,
Francesco Bavagnoli, Michael Murgolo) ............................................................................ 15
1.1. Introduction to Non-Financial (or ESG) Disclosure ................................................ 16
1.2. Research Aim and Methodology .................................................................................. 19
1.3. Voluntary or Mandatory: The Sustainability Disclosure ‘Dilemma’ ................... 20
1.4. International Initiatives on ESG Disclosure ............................................................... 23
1.5 European Initiatives on Sustainability Reporting ................................................... 29
1.6. Sustainability, SMEs Criticalities and the Value Chain ........................................... 33
1.7. Conclusions, Limitations and Practical Implications ............................................. 36
References ...................................................................................................................................... 38
Chapter 2. Sustainable Performance Measurement under the New
European Regulation for Corporate Sustainability Reporting: What Will
Be the Impact of the European Sustainability Reporting Standards (Beyond
New KPIs)? (Josef Baumüller, Susanne Leitner-Hanetseder, Christoph Eisl)......... 41
2.1. CSRD and ESRS – a New Framework for Reporting on Sustainable Per-
formance ............................................................................................................................... 43
2.2. Decision Usefulness of ESG Reporting: The Case for a New Management
Approach? ............................................................................................................................. 46
2.3. Implications for Management Reporting Systems ................................................ 51
2.4. Conclusions .......................................................................................................................... 52
References ...................................................................................................................................... 53
Chapter 3. Cost and Benefits of Sustainability Reporting: Literature
Review (Kristina Rudžionienė, Šarūnas Brazdžius) ........................................................ 56
3.1. Costs of Sustainability Reporting ................................................................................. 58
3.2. Benefits of Sustainability Reporting ............................................................................ 61
3.3. Conclusions .......................................................................................................................... 68
References ...................................................................................................................................... 70
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6 Sustainable Performance in Business Organisations and Institutions...
Chapter 4. Valuable Information for Stakeholders or Corporate Spin?
The View of Non-Financial Reports Potential Preparers and Users (Marta
Nowak) ............................................................................................................................................ 73
4.1. Stakeholder Theory ........................................................................................................... 74
4.2. Friedman versus Freeman Debate ............................................................................... 74
4.3. Accounting for Stakeholders ......................................................................................... 75
4.4. Research Method ............................................................................................................... 76
4.5. Study’s Findings .................................................................................................................. 77
4.6. Conclusions .......................................................................................................................... 87
References ...................................................................................................................................... 87
Chapter 5. Gaining Competitive Advantage through Social Responsibility
Reporting – a Lesson from the Non-Profit Sector (Tomasz Dyczkowski) ........... 89
5.1. NGO Disclosures – Areas of Interest ............................................................................ 90
5.2. Research Methodology .................................................................................................... 92
5.3. Assessment of the Internet Disclosures in the Research Sample ..................... 95
5.4. Influence of Social Responsibility Disclosures on Stakeholders ....................... 98
5.5. Evaluation of Website Content by External Stakeholders ................................... 101
5.6. Conclusions .......................................................................................................................... 103
References ...................................................................................................................................... 105
Chapter 6. The Balanced Scorecard for a Museum as a Non-Profit
Organisation (Robert Kowalak) ........................................................................................... 107
6.1. The Concept of the Balanced Scorecard .................................................................... 107
6.2. Performance Measurement in Non-Profit Organisation ...................................... 112
6.3. Balanced Scorecards in Museums ................................................................................ 114
6.4. Conclusions .......................................................................................................................... 119
References ...................................................................................................................................... 120
Chapter 7. Roadmap to Extension of the Balanced Scorecard with an ESG
Perspective: The Concept for Large Cities (Maria Nieplowicz) ........................... 122
7.1. Traditional Balanced Scorecard for the City ............................................................. 124
7.2. ESG Implementation in the City’s Strategy ............................................................... 127
7.3. ESG Perspective in the City – Case Study .................................................................. 130
References ...................................................................................................................................... 134
Chapter 8. Eco-Efficiency Indicators in District Heating Companies
(Marcin Wierzbiński) .................................................................................................................. 136
8.1. The Essence of Environmental Accounting .............................................................. 137
8.2. Eco-Efficiency Indicators in Sustainable Development ........................................ 141
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Contents 7
8.3. Eco-Efficiency Indicators in District Heating ............................................................ 143
8.4. Conclusions .......................................................................................................................... 147
References ...................................................................................................................................... 148
Chapter 9. Sustainability and Sustainability Performance: Empirical
Findings from the German Banking and Insurance Sectors (Petra Kroflin,
Claudius Kroflin) .......................................................................................................................... 149
9.1. Sustainability Reporting in Europe – an Overview ................................................ 152
9.2. Sustainability Performance............................................................................................. 153
9.3. The Two-Way Interaction between Sustainability Reporting and Sustain-
ability Performance ........................................................................................................... 154
9.4. Financial Institutions in the Context of Sustainability Reporting ..................... 155
9.5. Research Sample and Research Method ................................................................... 159
9.6. Research Findings and Discussion ............................................................................... 165
9.7. Conclusions .......................................................................................................................... 168
References ...................................................................................................................................... 169
Chapter 10. Sustainable Performance Reporting: Are Banks Ready? The
Case of Italy (Luca Brusati, Viviana Capurso, Elena Francescon) ............................. 171
10.1. Research Objective and Methodology .................................................................... 173
10.2. Comparison of the Non-Financial Reports of the Largest Italian Banks ...... 175
10.3. Discussion of Research Findings ................................................................................ 181
10.4. Conclusions ....................................................................................................................... 183
References ...................................................................................................................................... 184
Chapter 11. Sustainability Reporting in the Construction Industry:
Evidence from Poland (Paweł Szalacha) ......................................................................... 187
11.1. Sustainable Development Goals of the Construction Industry ...................... 189
11.2. Sustainability Reporting Standards, Frameworks and Guidelines ................. 190
11.3. Reporting in Skanska Construction Company: Case Study of European
Leader in Sustainability Performance and Reporting ........................................ 193
11.4. Sustainability Reporting in Poland: Legal Regulations, Guidelines and
Recommendations from the Perspective of the Construction Sector ......... 194
11.5. Design of the Empirical Study ..................................................................................... 196
11.6. Discussion of the Research Findings ........................................................................ 196
11.7. Conclusions ....................................................................................................................... 201
References ...................................................................................................................................... 202
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8 Sustainable Performance in Business Organisations and Institutions...
Chapter 12. Is ESG Strategy in ESG-Risk-Sensitive Companies a Myth
or a Reality? Evidence from Poland (Joanna Dyczkowska) ................................... 204
12.1. From Global Risks and Stakeholder Pressures to the ESG Transformation ... 205
12.2. Formulation of ESG Strategy as a Prerequisite for Business Model
Reinvention and Sustainable Performance Management ................................ 215
12.3. ESG Strategy in ESG-Risk-Sensitive Companies – Evidence from Poland.... 219
12.4. Conclusions ....................................................................................................................... 224
References ...................................................................................................................................... 225
Chapter 13. Green Controlling Methods in Hungarian Corporate Practices
(Hajnalka Fekete-Berzsenyi, Dorottya Edina Kozma) .................................................... 229
13.1. Controlling – Green Controlling and Its Tools ....................................................... 230
13.2. Research Question and Hypotheses ......................................................................... 231
13.3. Data and Methodology ................................................................................................. 232
13.4. Research Results .............................................................................................................. 233
13.5. Conclusions ....................................................................................................................... 241
References ...................................................................................................................................... 243
Chapter 14. Digitization and Sustainable Performance in Brazil: Policies,
Actions and the Role of Legal Framework (Ricardo Luiz Sichel, Debora Lacs
Sichel, Gabriel Ralile de Figueiredo Magalhães) .............................................................. 245
14.1. Impacts of the Digitalization Processes and the Use of the New Tech-
nologies on the Sustainability Development ........................................................ 246
14.2. Policies and Actions in Brazil towards Digitisation for Sustainable
Development .................................................................................................................... 249
14.3. The Legal Framework Supporting Sustainability Process ................................. 251
14.4. Conclusions ....................................................................................................................... 257
References ...................................................................................................................................... 258
Chapter 15. How to Boost Sustainability through Intellectual Property?
(Debora Lacs Sichel, Clara Passeri Rebouças de Oliveira)............................................. 260
15.1. Sustainability, Business, and Intellectual Property .............................................. 262
15.2. Contribution of Organisations Acting in the IP Field to Sustainable
Development .................................................................................................................... 265
15.3. Recommendations on How IP Can Boost Sustainable Development .......... 270
15.4. Conclusions ....................................................................................................................... 271
References ...................................................................................................................................... 272
Summary ........................................................................................................................................ 274
List of Figures ............................................................................................................................... 280
List of Tables .................................................................................................................................. 281
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Preface
Sustainable performance in business organisations and institutions is a topical
issue for top management and operational managers. The excellent sustainable
performance will be challenging to achieve in a silo business culture. Therefore,
many business leaders are standing now in front of the meaningful transformation
that requires creating a clear roadmap, indicating how to build a strategy that
embeds ‘sustainability’ into an organisation’s performance measurement systems,
how to operationalise, track and report on sustainability performance and finally
how to manage sustainability performance in the longer-term.
There is no doubt that the interest in the sustainable performance of business
organisations will be growing. It is enough to note that the new Corporate
Sustainability Reporting Directive (CSRD) includes the mandate to report sus-
tainability information under the European Sustainability Reporting Standards
(ESRS). It is estimated that the provisions will apply to over 50,000 large and listed
companies (except listed micro-companies) based in the EU and third-country
companies based outside the EU with undertakings within the EU (subsidiaries or
branches). This is a huge impact that, together with the European Green Deal and
its policy initiatives’ package, will change the mindset of many business
organisations and public institutions. Nevertheless, the green transition will bring
many challenges for nations, regions, and organisations. Lack of capacity to
develop the required policies, lack of knowledge, infrastructure, technologies,
and insufficient incentives to boost green and social innovations are only a few
burning issues. Also, cultural barriers may cause a radical shift towards sustainable
development difficult. There will also be questions about the cost-effectiveness of
new solutions and their longevity and whether they are socially balanced and fair.
This monograph addresses critical aspects of sustainable performance: its
measurement, reporting and management. It consists of fifteen chapters written
by authors from various countries, including Austria, Brazil, Germany, Hungary,
Italy, Lithuania and Poland. The reference to the current regulatory framework,
international context, and cross-sectional analyses hopefully makes this work
valuable and interesting for broader stakeholders.
The first chapter, written by M. Comoli et al., presents the general directions
taken by international and European institutions from the viewpoint of account-
ing, reporting and disclosure activities. The Authors address the current ‘ESG’
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10 Sustainable Performance in Business Organisations and Institutions...
challenges, from the health emergency to the most pressing environmental and
social issues, such as climate change and the energy crisis. By referring to theoreti-
cal grounds in the extant literature, they discuss what is considered to be the most
effective way of imprinting disclosure activities on a ‘mandatory’ or a ‘voluntary’
basis. Their study also investigates what international and European institutions
have planned to do to align corporate objectives (with a special focus on SMEs)
with the environmental and societal requirements over the coming years.
In the second chapter, J. Baumüller et al. debate the impact of the CSRD
on management control systems. The Authors claim that by directly referring
to policies, actions, metrics and targets set up by organisations, the CSRD intends
to embed sustainability issues into the core elements of management control
systems. The chapter also focuses on the management approach that the ESRS
require. Based on a literature review and the analysis of the new reporting
framework, the Authors discuss the relevant requirements for European
companies. Furthermore, they indicate implications for companies concerning
the aspects of management control systems already established and those that
must be developed further. J. Baumüller et al. recommend how this development
can be fostered to benefit companies and the primary objective – sustainable
development.
The third chapter is dedicated to investigating the cost and benefits
of sustainability reporting. K. Rudžionienė and Š. Brazdžius conducted a literature
review of the publications from the period of 2010 to March 2023. They found that
the costs of sustainability reporting can be related to the resources required to
collect and report data and potential reputational risks associated with disclosing
negative information. The Authors identified that the financial benefits of
sustainability reporting are associated with building long-term corporate value.
Other benefits of sustainability reporting include improved reputation, enhanced
stakeholder relations, increased access to capital and lower capital costs, and
improved internal management of ESG issues. Moreover, sustainability reporting
can help organisations identify, mitigate and manage risks and meet the growing
demand for information about their environmental, social, and governance
performance.
In the fourth chapter, M. Nowak debates the concept of accounting for
stakeholders, focusing on non-financial reporting that reveals the organisation’s
social and environmental performance. The Author raises the question of whether
the non-financial reports can really serve stakeholders or are just used by business
entities as a corporate spin applied to boost their image. The inquiry presented in
this chapter takes the form of qualitative investigation, with the use of narrative
and content analysis. The study does not analyse the legal aspects of reporting
but focuses on stakeholders’ (potential users and preparators) perceptions of such
reports.
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Preface 11
The fifth chapter evaluates the usefulness of Internet reporting on the example
of Polish public benefit organisations (PBOs) and refers to the entire information
flow between an organisation and its stakeholders via electronic channels,
including websites and social media. T. Dyczkowski remarks that this group of
organisations is worth investigating due to two reasons. First, PBOs intend to find
supporters among a broad range of institutions and individuals, including
taxpayers entitled to transfer 1% (1.5% since the fiscal year of 2022) of their tax to
an organisation of their choice. Second, the Internet communication of PBOs is
not legally regulated nor structured by ‘recommended practices’. Thus, the
selection of information (non-financial, financial), a form of presentation (reports,
statistics, narratives, multimedia), as well as regularity of reporting (static page,
occasional updates, regular posts, online interaction) may matter in encouraging
supporters to make their donation.
The next chapter discusses the idea of applying a balanced record of
achievements in a museum. Museums are specific organisations whose main
tasks are to permanently protect and collect the heritage of humanity, disseminate
information about the value of the collected collections, and make the collections
available to the public. Museums carry out specific missions in strategic terms and
for which it is essential to obtain various sources of financing (subsidies, donations
and own revenues). R. Kowalak confers various concepts of the Balanced
Scorecard (BSC) and refers to the solutions used by worldwide museums such as
the Benaki Museum in Athens, the British Museum in London, and the Tate Gallery
chain. Then, the Author presents case studies of museums from Poland, discussing
and assessing the structures and contents of their BSC.
M. Nieplowicz, in her chapter, develops the concept of a roadmap for
implementing environmental, social and governance (ESG) perspectives in the
BSCs of Polish cities. The Author emphasises that public administration can play
a special role in disseminating the ESG concept. Local governments can do this
through a set of smart voluntary policy solutions. The primary benefit is that
striving to create the image of a trusted and transparent partner may become
means for faster development. At the same time, on the internal ground,
it becomes a factor in increasing the quality of life of the local community.
M. Nieplowicz stresses that revising the strategy map should be the starting point
for implementing the ESG perspective. While designing and developing the ESG
perspective, communication with the local community and their active
participation in reviewing project activities are also essential. Moreover, the
chapter also draws attention to the role of control measures that should be
applied at the BSC design stage since successive control seems inevitable while
creating solutions that fit the dynamic environment.
The eighth chapter discusses the possibilities of using environmental
accounting in District Heating Companies (DHCs) in Poland and the methodology
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12 Sustainable Performance in Business Organisations and Institutions...
for calculating basic eco-efficiency indicators that can be used in this industry.
DHCs play an important role in meeting city dwellers’ demand for heat in Poland
and Central European and Nordic countries. To a large extent, this heat is produced
from fossil fuels, so these companies significantly impact the natural environment.
However, in the common opinion, district heating systems are considered more
ecological than individual heating, also based on fossil fuels. M. Wierzbiński
presents in this chapter various eco-efficiency indicators, explains how they
should be calculated, and points out that these indicators should be used in
integrated and ESG reports to build a competitive advantage in the district
heating market and support the energy transformation of that industry.
In the next chapter, P. Kroflin and C. Kroflin analyse the sustainability reports
of the most important German financial institutions published from 2017 to 2022.
The Authors use two perspectives. The first focuses on the suitability of the
reported content regarding the specifics of financial institutions’ business models.
The second refers to the interaction between sustainability reporting and
sustainability performance. According to the Federal Financial Supervisory
Authority (BaFin), financial institutions have a central role in mastering global
sustainability risks. P. Kroflin and C. Kroflin claim that external pressures rather
than intrinsic concerns drive the awareness of sustainability topics in financial
institutions. Therefore, financial institutions face public control of their sustain-
ability strategies and performance since they are public interest organisations.
The legislation in Germany reflects this public interest since the publication
of sustainability reports is mandatory for all corporations with more than 500
employees, irrespective of their legal form and capital-market orientation.
This group also includes credit institutions and insurers. Thus, as P. Kroflin and
C. Kroflin remark, German financial institutions may be seen as a reference group
for sustainability reporting, its utilisation by the other reporting entities, and its
impact on sustainability performance.
The role of financial institutions in transitioning to a more sustainable global
economy was also remarked on by L. Brusati et al. The Authors argue that more
and more banks are currently under pressure to boost their lending to sustainable
investments while reducing funding and increasing interest rates for borrowers
who fail to demonstrate their sustainability. Nevertheless, L. Brusati et al. raise the
question: Do banks live up to the promise of effectively disclosing their own track
record regarding sustainable performance? Their chapter addresses this question
by analysing the sustainability reporting practices of the ten largest Italian banks.
The non-financial reports of the selected banks are compared using the analytical
framework designed and tested by the European consortium that implemented
the ‘INTEREST’ Erasmus+ project.
The next chapter takes readers from the financial to the construction sector,
which significantly contributes to the economy and substantially impacts the
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Preface 13
environment and society as one of the most resource-intensive branches of
business. P. Szałacha notes that presently, increasing pressure is observed to
execute construction investments in line with sustainable development goals,
whereas transparent and comprehensive sustainability reporting, including
business impact on stakeholders, has become an important issue. The chapter
presents reporting requirements about construction industry-specific sustainable
action fields, including environmental impact, social impact and promotion of
sustainable building practices. In this context, the chapter assesses the
sustainability reporting practices of leading Polish construction companies listed
on the Warsaw Stock Exchange (WSE).
The waves of changes initiated by the European Green Deal and the
implementation of the CSRD and the ESRS have formally directed many
organisations on the path of incremental or transformational adaptation due to
the need to include ESG issues in their strategies and business models. The twelfth
chapter emphasises the importance of building an ESG strategy and its
antecedents and aftermaths. J. Dyczkowska raises a question on how to build
a sound ESG strategy and the major connections of that strategy with various
concepts and layers of business activity. Her study examines the existence and
components of ESG strategy in Polish ESG-risk-sensitive companies, selected
based on Sustainalytics rating. The Author claims that, so far, some organisations
in Poland might have treated ESG activities as a ‘bolt-on’ set of initiatives detached
from the overall corporate strategy. This approach, however, is changing in
response to global risks and stakeholder pressures shaping the current ESG
landscape.
The next chapter is dedicated to green controlling methods in Hungarian
corporate practices. Green controlling may be defined as a subsystem of corporate
management that systematically coordinates planning, monitoring and the
provision of environmental information. The study by H. Fekete-Berzsenyi and
D.E. Kozma aims to map the green controlling systems applied in corporate
practice. The Authors examine the prevalence of different methods and determine
the extent to which environmental protection is an aspect of corporate governance
processes. The study investigates what environmental control tools are used by
organisations in order to implement environmental strategies. The Authors
developed a questionnaire survey directed at the largest enterprises in Hungary.
In chapter fourteenth, R.L. Sichel et al. examine the relationship between the
digitisation of services and processes by companies and sustainable development
in Brazil, considering the importance of the regulatory framework. Sustainability
is a term that has gained strength over the last few years, especially with the
advent of the concept of sustainable development and its goals determined
by the United Nations. In this context, the concept of sustainability goes beyond
preserving the natural environment, including economic and social issues.
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14 Sustainable Performance in Business Organisations and Institutions...
R.L. Sichel et al. highlight that the digitisation of services, fostered by technological
advances and the pandemic crisis, stands out as a solution both from the point
of view of business efficiency and for achieving sustainability goals. The chapter
investigates how the regulatory framework contributes to the implementation
of changes directed at sustainable development. The Authors highlight the role
of the General Data Protection Law (LGPD) and regulations dealing with legal
liability, e-commerce and labour issues.
The last chapter of D.L. Sichel and C. Passeri Rebouças de Oliveira discusses
the links between sustainability, sustainable development, and intellectual
property (IP). The Authors outline the roles of three organisations (the World
Intellectual Property Organization (WIPO), the European Union Intellectual
Property Office (EUIPO) and the Industrial Property National Institute (INPI) in
Brazil) in terms of their sustainable and environmental initiatives and actions
made. Finally, the study put forward recommendations on how IP can promote
sustainability.
In conclusion, the monograph offers a deep insight into the topic of sustain-
ability in business organisations and institutions. The Authors address several
issues regarding sustainable performance measurement, reporting and manage-
ment, present broad perspectives and different opinions, refer to various business
sectors and indicate how the regulatory framework and various institutions
support the sustainable development of business and public organisations. With
this focus and scope, this publication may be intriguing and absorbing for
accounting and management scholars, doctoral and master’s students of socio-
-economic studies, and business practitioners. The book can also be used as
supplementary material for accounting and management courses at the graduate
and postgraduate levels.
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DOI: 10.15611/2023.83.1.01
Chapter 1
Non-Financial Disclosure
and Sustainability Regulaon:
Voluntary or Mandatory Eecveness
Maurizio Comoli
University of Eastern Piedmont ‘A. Avogadro’
e-mail: maurizio.comoli@uniupo.it
ORCID: 0000-0002-2662-3295
Patrizia Tettamanzi
LIUC – Cattaneo University
e-mail: ptettamanzi@liuc.it
ORCID: 0000-0002-3871-4397
Francesco Bavagnoli
University of Eastern Piedmont ‘A. Avogadro’
e-mail: francesco.bavagnoli@uniupo.it
ORCID: 0000-0002-6626-3175
Michael Murgolo
LIUC – Cattaneo University
e-mail: mmurgolo@liuc.it
ORCID: 0000-0001-6328-4053
Quote as: Comoli, M., Tettamanzi, P., Bavagnoli, F., & Murgolo, M. (2023). Non-Financial Disclosure and
Sustainability Regulation: Voluntary or Mandatory Effectiveness. In J. Dyczkowska (Ed.), Sustainable
Performance in Business Organisations and Institutions: Measurement, Reporting and Management
(pp. 15-40). Wroclaw: Publishing House of Wroclaw University of Economics and Business.
This chapter provides a representation of what are the general directions taken by
international and European institutions, from the point of view of accounting,
reporting and disclosure activities, in order to address the current ‘ESG’ challenges,
from the health emergency to the most pressing environmental and social issues,
such as climate change and the energy crisis. In fact, corporations – made of assets
and people – play a central role even and especially in extraordinary circumstances,
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16 Sustainable Performance in Business Organisations and Institutions...
such as a crisis or, keeping with the times, a pandemic, and the pursuit of the
shareholder value cannot be the sole objective in the execution of economic
activities anymore, as ESG (i.e., Environmental, Social and Governance) dynamics
must also be given due consideration. Adequate and effective corporate
governance should, in fact, lead to a higher quality of disclosure, which might
represent an incisive tool in order to protect the entire planet and ecosystems.
The main role of accounting, reporting, and disclosure activities should, therefore,
be increasingly geared toward the goal of bringing out what is and what is not
being done by companies in their operations, and along their entire value chain,
since the disclosure of merely financial information is increasingly deemed
inappropriate for pursuing sustainable growth in the medium and long term.
The objective of this chapter is, therefore, to investigate – after a brief theoretical
overview on what is considered, in the extant literature, to be the most effective
to the mentioned purposes between enforcing disclosure on a ‘mandatory’ basis
or a ‘voluntary’ one (i.e., structured, for instance, on the ‘comply or explain’
paradigm) – and by means of archival data and bibliographic analysis techniques,
what international and European institutions have planned to do so to align
corporate objectives (and with a focus on SMEs) with the environmental and
societal requirements over the coming years.
1.1. Introduction to Non-Financial (or ESG) Disclosure
Understanding the evolution of non-financial disclosure regulations globally is, in
fact, crucial. It would provide a representation of the general directions taken by
international institutions from the perspective of reporting and disclosure1
activities in addressing current ‘ESG’ challenges. Corporations and small/medium-
sized enterprises (SMEs) and economic stability, in general, all play central roles in
this context, even in extraordinary circumstances, such as an economic crisis or
the COVID-19 pandemic. Thus, the ultimate goal of a company is not solely the
creation of economic value for shareholders. It must also take ESG dynamics into
account in carrying out its business activities. Adequate and effective corporate
governance systems could, in fact, help the upper echelons make informed
decisions, possibly leading to a better quality of disclosure as well. Corporate
governance and accounting/reporting mechanisms influence and inform each
other virtuously. The main role of accounting, reporting and disclosure activities
should, therefore, be increasingly focused on bringing out the actual impacts of
1 The title of this chapter refers to the topic of ‘non-nancial disclosure’, which could be perceived
as ancillary and secondary to the traditional ‘nancial disclosure’. This choice is not accidental.
In fact, in the current landscape, non-nancial disclosure has reached an equal and integrated level
– ‘nancial reporting & disclosure’ activities now stand beside ‘sustainability reporting & disclosure’
ones.
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business operations with reference to the entire value chain. The disclosure
of mere financial information is, indeed, no longer deemed to be sufficient since
– in order to pursue sustainable growth in the medium and long term – companies’
objectives must go hand in hand with the pursuit of social and environmental
ones, disseminated through the so-called ‘non-financial disclosure’ (Comoli,
Tettamanzi, & Murgolo, 2023; Tettamanzi, Venturini, & Murgolo, 2022).
Hence, highlighting whether disclosure activities are more effective on
a ‘mandatory’ basis (i.e., compulsory as required by law) or on a ‘voluntary’ one – as
a free choice of the company to provide a corporate disclosure statement to users
and structured, for instance, on the ‘comply or explain’ paradigm – is deemed
timely and necessary. The latter stance has been chosen by most international,
European and national institutions, which have opted for voluntary disclosure
to enable companies to align their business objectives with environmental and
social requirements. To date, the IFRS (International Financial Reporting Standards)
Foundation (at the global level) and the EFRAG – European Financial Reporting
Advisory Group (at the European one) are operationally addressing the above
issues in order to propose ‘non-financial’ disclosure standards in line with the
necessary improvements required by the sustainable revolution.
In this context, the 2030 UN (United Nations) Agenda and the most important
international organizations have also been working to find an explicit solution
to these various issues so as to finally define a limit to economic activities that –
although profitable from a purely financial standpoint – actually have a negative
impact on the environment and/or on the communities they serve. At the same
time, the academic and scientific community has confirmed that reporting and
disclosure practices play a key role in aligning the goals and strategies adopted
at the corporate level with the needs of different stakeholders (Christensen, 2022;
Ruiz-Blanco, Romero, & Fernandez-Feijoo, 2022; Saini et al., 2022; Saxena et al.,
2023; Tettamanzi et al., 2022).
One of the first goals of COP26 (i.e., the 26th United Nations Conference of the
Parties on Climate Change) was to call attention to the need for ‘transparency
and accountability’, defining a set of rules under which countries should be held
accountable for achieving (or not) results related to their climate action plans
and self-defined targets among the nationally determined contributions (NDCs).
At the same time, at COP262, in 2021, the Trustees of the IFRS Foundation announ-
2 In 2022, COP27 rearmed these objectives, whose ve main achievements could be
synthesized as follows: (a) establishing a dedicated fund for loss and damage, (b) maintaining a clear
intention to keep 1.5°C within reach, (c) holding businesses and institutions to account, (d) mobi-
lizing more nancial support for developing countries, and (e) making the pivot toward imple-
mentation. In November 2023, COP28 will be held, whose intention appears to be to unite, in this
decisive decade for climate action, the world towards agreement on bold, practical, and ambitious
solutions to the most pressing global challenges of our time.
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ced the creation of a new board alongside the IASB – International Accounting
Standards Board: the so-called ISSB – International Sustainability Standards Board.
International investors with global investment portfolios were increasingly asking
companies for high-quality, transparent, reliable and comparable reporting on
Environmental, Social and Governance (ESG) issues. In November 2021, the IFRS
Foundation, therefore, opted for the aforementioned creation of the ISSB with the
ultimate goal of meeting this demand. The objective of the ISSB is to determine
a comprehensive global foundation of sustainability disclosure standards that will
provide investors and other capital market participants with information on the
risks and opportunities related to corporate sustainability in order to help them
make informed decisions. Moreover, in 2022, the US Securities and Exchange
Commission (SEC) proposed changes to existing rules that would require listed
entities to include climate-related information in their registration statements
and periodic reports, including information on ‘climate-related’ risks that could
have a material impact on their business, results from corporate operations or
their financial condition, and climate-related financial statement metrics that
would then be externally audited. This information would also include disclosure
of greenhouse gas emissions, which have become a commonly used metric for
assessing the exposure of reporting entities to such risks (Rüger & Maertens,
2023).
At the European level, on the other hand, in 2021, the European Commission
proposed a draft for a sustainability directive (i.e., CSRD or Corporate Sustainability
Reporting Directive or Directive 2022/2464/EU) to essentially amend the requi-
rements already defined for ‘non-financial disclosure’ under another directive,
i.e., the NFRD – Non-Financial Reporting Directive or Directive 2014/95/EU. At the
end of its implementation process, a first set of sustainability accounting principles
and standards would be in place. In November 2022, the European Parliament
approved this directive, which will result – for the European context – in (a)
reporting for transparent ESG information becoming an integral part of corporate
economic and financial disclosure, (b) setting the EU itself as a benchmark in
global sustainability reporting standards, and (c) initially impacting about 50,000
companies with the new standards, up from the current 11,700, although the
range of companies involved may be even wider over time. Therefore, it will be
necessary to have suitable and timely accounting systems in place to meet this
increasing information demand, especially in the context of less structured
companies and SMEs.
In this endeavour, EFRAG3 has been tasked, through the Sustainability
Reporting Board (SRB), to define the above standards. The EFRAG SRB, with the
3 EFRAG is an association founded in 2001 with the support of the European Commission,
whose purpose is to serve the public interest in international nancial reporting standards
initiatives at the European level. As of 2022, EFRAG’s activities are organized into two pillars:
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support of the EFRAG Sustainability Reporting Technical Expert Group (EFRAG SR
TEG), has arrived at the definition of twelve draft ESRS (i.e., European Sustainability
Reporting Standards) that have been also recently adopted (at the end of July
2023) by the European Commission. That said, these final standards are not in
force until the delegated regulation has passed the scrutiny of the European
Parliament and the Council.
This chapter is structured as follows. First, we clarify the methodological
approach (Section 1.2) that stands behind the proposed literature/documentary
review. After having synthesized the main findings emerging from the extant
literature (Section 1.3), we delved into, from a more practical standpoint, the most
relevant advances on the wide topic of ESG disclosure internationally (Section 1.4),
at the European level (Section 1.5), and in relation to SMEs issues and the value
chain (Section 1.6). At the end of the paper (Section 1.7), we put forward some
final thought-provoking insights, the limitations and some practical implications
for policy-makers emerging from our analysis.
1.2. Research Aim and Methodology
As anticipated, the ongoing development of the International and EU regulatory
framework on sustainability related issues and the several policy-making attempts
in the area of non-financial reporting (NFR) have highlighted the necessity for
the academic community to contribute towards understanding the multitude
of implications resulting from the several sustainability disclosure frameworks
currently available. The risk could, indeed, be an oversimplification of a complex
issue that cannot easily be solved without considering its practical implications
on each category of stakeholders. Hence, through this critical analysis, we have
delved into a few crucial points pertaining to the general topic of ESG disclosure,
with the aim of providing the academic community – but also policymakers
and regulators – with a balanced report between theory and practice. By means
of archival data, content analysis and bibliometric techniques, we conducted
a review of the extant literature4 concerning the issue under investigation,
(a) a nancial pillar (i.e., Financial Reporting Pillar) that contributes to the IASB’s standard-setting
process by providing European advice, including proactive research activities and technical advice
to the European Commission on the endorsement of IFRS standards, and (b) a sustainability one
(i.e., Sustainability Reporting Pillar) that is currently providing technical advice to the European
Commission in the form of draft EU sustainability reporting standards and/or draft amendments
to them.
4 The methodological approach employed in this chapter is based on the application of some
specic bibliographic techniques pertaining to the systematic literature network analysis (SLNA)
protocol.
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providing an overview on the rationale concerning a possible optimal solution
between voluntary or mandatory systems on the sustainability reporting dilemma.
Sub-sequently, we examined in depth professional and official documents
published by the most prominent bodies worldwide, mainly focusing our
attention on the ISSB and EFRAG activities. First, we further investigated to what
extent the international initiatives put in place by the International Sustainability
Standards Board (ISSB) could improve the environmental performance of com-
panies, investors and institutions. Second, we explored the role played by the
European Financial Reporting Advisory Group (EFRAG), by means of its sus-
tainability pillar activities, on the same issues in the European context. The analysis
closes by presenting possible future improvements of international and EU policy
and frameworks so as to support an efficient achievement of the ‘Twin Transition’
objectives, also in light of SMEs criticalities and, therefore, along the entire value
chains which stud the current economic systems.
1.3. Voluntary or Mandatory:
The Sustainability Disclosure ‘Dilemma’
In recent years, environmental, social, and governance (ESG) dynamics have become
critical to institutional and retail investors. Increased demand for ESG performance
indicators from the latter has, in particular, led some companies to disclose
information voluntarily. Indeed, most US companies included in the S&P 500 now
publish sustainability or corporate responsibility reports. Moreover, at least
25 countries have so far imposed mandatory ESG disclosure requirements on
publicly traded companies, and similar legislative attempts have been made by
the US Congress (Aghamolla & An, 2021; Comoli et al., 2023; Saxena et al., 2023;
Zhou, 2022).
Understanding the extent to which such disclosure requirements influence
ESG activities and investment decisions is essential, as is the question of whether
they are likely to improve the overall quality of information. Indeed, despite the
growing popularity of sustainability reporting and mandatory environmental,
social, and governance (ESG) disclosure requirements, theoretical investigations
of ESG disclosure and investment are relatively scarce (Zhou, 2022). The aim of this
chapter is, therefore, to provide a theoretical overview of the topic of ESG
reporting, both in mandatory and voluntary disclosure regimes.
Reviewing the extant relevant scientific literature from the period 2002–2022,
only 34 research studies specifically addressed the analysis of ‘non-financial’
disclosure in both ‘mandatory’ and ‘voluntary’ contexts. We tested to see which
contributions dealt with the following topics in both contexts: ‘sustainability
reporting’, ‘integrated reporting’, ‘ESG reporting’, ‘climate-related disclosure’,
and ‘non-financial disclosure’.
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In addition, a bibliometric network5 of the keywords used in these contributions
was created with the ultimate aim of bringing out the prevalent topics addressed
in this context (see Figure 1.1), as well as in relation to their temporal relevance
(see Figure 1.2).
Figure 1.1. Keyword Network in the area of Non-Financial Disclosure, organized by thematic clusters
Source: (Tettamanzi, 2023).
Figure 1.2. Keyword Network in the area of Non-Financial Disclosure, organized by temporal
relevance
Source: (Tettamanzi, 2023).
From the perspective of investors, there is as yet no framework that can be
considered ‘optimal’ in terms of disclosure, leaning toward neither mandatory nor
voluntary disclosure (Nicolò, Zanellato, & Tiron-Tudor, 2020; Rüger & Maertens,
2023). That said, although voluntary disclosure of ESG performance has increased
5 VOSviewer is a software used for the construction and visualization of bibliometric networks.
These networks can include, for instance, journals, researchers, or individual publications, and can
be constructed based on connections between citations and/or authors. VOSviewer also oers text
mining capabilities that can be used to construct and visualize co-occurrence networks of important
terms extracted from a body of scholarly literature.
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exponentially over time, several countries have implemented regulations
governing the disclosure of non-financial information. From a microeconomic
point of view, in the voluntary regime, the company would withhold negative
signals, releasing only positive ones. In short, it would be biased against the ‘first-
-best’ scenario since the company can always deviate privately in an attempt
to manipulate the market (Aghamolla & An, 2021; Shin, 2003). However, the
mandatory regime often leads to overinvestment, which suggests that mandatory
ESG regulation may also have undesirable effects anyway due to, among others,
the presence of voluntary disclosure in specific reporting areas (Saxena et al.,
2023; Zhou, 2022). In this context, the company would continue to have the
discretion to disclose information regarding future corporate performance.
As a result, the company would, once again, have a greater incentive to deviate –
as it would under the voluntary regime – from a sustainable to an unsustainable
project. Therefore, clearly identifying the conditions under which voluntary
or mandatory disclosure is more efficient for investors has been deemed crucial
(Sullivan & Gouldson, 2012; Vigorito, 2022). In particular, previous studies have
shown that when the fraction of shareholders concerned about the quality
of ‘ESG’ information is not sufficiently high, the voluntary regime appears
more efficient, improving overall shareholder welfare than the mandatory one
(Loprevite, Rupo, & Ricca, 2019). This result is, perhaps, surprising since we could
have expected the company would have less incentive to deviate privately from
the ‘sustainable project’6 when it has no discretion on this dimension. However,
if high-quality ESG information is always disclosed in the mandatory regime,
it would also intensify the entity’s incentive to privately deviate from the un-
sustainable project whenever the market expects such an investment. This ‘over-
reaction’ could, as a result, result in lower overall efficiency and a greater variance
from the ‘first-best’ scenario.
When the share of investors interested in ESG dynamics is high, the company’s
lower incentive to deviate privately from the sustainable project, once again,
prevails, but voluntary disclosure would overall be, also in this case, more efficient
for shareholders (Camilleri, 2015; Ferguson, Sales de Aguiar, & Fearfull, 2016; Gabe,
2016; Saxena et al., 2023). The implications described so far can also be applied to
sectors that have seen changes (‘shifts’) in their ESG-matrix disclosure regimes as
well as across sectors: high-growth sectors should, in fact, have higher ‘ESG’
disclosure than low-growth or stable sectors (Aghamolla & An, 2021). In short, the
proposed forecasts of investment efficiency should be non-monotonic following
a change in the disclosure regime, and an increase, on average, in sustainable
6 In this chapter, we have generally referred to the concept of ‘sustainable project’ as a micro-
economic simplication of any activity that is incremental in positive externality or decremental in
negative externality, in line with the nomenclature generally used in the eld of sustainability.
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projects is highly likely following a shift from voluntary to mandatory ESG
reporting (Comoli et al., 2023; Vigorito, 2022).
That said, information is, in general, the currency of market economies: it is
a cost for the companies for it has to be produced, but it is value for them that,
if diffused, is depleted. A market participant will always, except in virtuous cases
or in a monopoly context, seek to retain its valuable information. In a ‘mandatory’
regime, therefore, a ‘minimum’ level of disclosure – equal to the amount of
information mandatorily requested – should be expected. The dilemma for policy-
-makers lies precisely in this recess: on the one hand, in order to obtain en-
vironmental, social and governance (ESG) information, they could increase the
level of detail of the information request; on the other hand, they will always be
confronted with the uniqueness and distinctiveness of each entity whose valuable
information – and specifically the ‘ESG’ one – is difficult to standardize. When such
information is provided, they will not even be certain that it meets, at the present
time, the expected standards of quality due to, among others, a lack of official and
accepted auditing and assurance procedures. In any case, these considerations
should offer a number of perspectives for further discussion, helping inform the
policy debate on the disclosure effectiveness of ‘ESG’ data and information.
1.4. International Initiatives on ESG Disclosure
Over the past few years, there has been not only a change in the socio-economic
environment but also the enhancement, at the global level, of a new public
awareness with regard to ethical and environmental issues. This has been leading
to revisions and adjustments on the companies’ expected behavioural level, both
in terms of pursuing stakeholder interests and communicating non-financial
information. This phenomenon enabled the emergence of social and envi-
ronmental reporting practices, leading to the development of the first standardized
guidelines for ESG and sustainability reporting. For instance, reporting for the
organization and stakeholders (including employees, the referential community,
customers and others) interactions, together with the description and analysis
of their overall consequences, has been termed ‘social accounting’ (Gray &
Bebbington, 2000). From this standpoint, the purpose of social accounting
is identified with the ‘need’ or ‘desire’ to make the social (and environmental)
impacts of a certain economic entity evident to stakeholders or, in general, the
society as a whole in order to meet their expectations regarding corporate
responsibility (Pyatt, 1991).
That said, awareness regarding the environmental and social ‘non-sustain-
ability’ of economic activities can be formally associated with the first accomplished
definition of ‘sustainability’ in terms of sustainable development, presented in the
Our Common Future Report (also known as Brundtland Report), published in 1987,
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24 Sustainable Performance in Business Organisations and Institutions...
by the World Commission on Environment and Development (WCED). In parti-
cular, the report in analysis proposed an original long-term strategy with regard
to sustainable action, dictating guidelines that are still valid today. In fact, it states
that the concept of sustainability must be brought back to the definition of
development to ensure the needs of present generations without compromising
those of future ones. Moreover, in response to community and stakeholder
concerns that, over time, have increasingly taken on the role of real ‘legitimate
expectations’, companies began to adopt approaches marked by increasing
transparency regarding the impacts – beyond the financial ones – generated.
Thus, transparency in communicating economic strategies that were less
impactful to humans and the environment started to be, between the 1980s and
1990s, increasingly promoted by large industrial groups, which sought to reaffirm
their importance and role in society as they came under particular criticism from
civil society more and more aware of the environmental and social costs they
were generating (Comoli et al., 2023). In short, transparency of information has
become, over the years, a key requirement as a result of increased societal
attention to environmental and social issues, leading to an overall increase in the
frequency of disclosure by companies of information relating to dimensions that
are not strictly financial (Frias-Aceituno, Rodríguez-Ariza, & Garcia-Sánchez, 2014).
The transition from mere financial information disclosure to the gradual expansion
to other relevant dimensions (i.e., ESG) has not only been fostered by the attention
of stakeholders and civil society in general but also by the emergence of a gradual
awareness of financial markets with regards to the usefulness that social,
environmental and governance (ESG) information can also have in the current
panorama (Graham, 2005; Rüger & Maertens, 2023).
According to a historical reconstruction based on the extant literature, the
transition in the analysis is characterized by four phases, each of which is marked
by a progressive modification and extension of the previous one. Several
contributions have, in fact, made it possible to reconstruct the stages that have
historically been the most relevant to non-financial reporting and disclosure
(Eccles & Spiesshofer, 2015; Rinaldi, Unerman, & De Villiers, 2018).
The first phase, also named ‘corporate experimentation’, originated in the early
2000s. In this period, some listed companies voluntarily began supplementing
financial information with non-financial disclosure. Over time, these companies
have periodically published information on financial performance and governance,
enriched with non-financial data, even in the absence of relevant standards for
reporting. The second phase is referred to be the ‘critical’ one, as there were still no
unambiguous standards to which companies could refer when preparing their
corporate reports. Consultants, academics and experts were, therefore, involved
in this phase in order to identify basic principles capable of standardizing non-
-financial disclosure: one of the first attempts that allowed the identification
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of the costs, benefits and challenges that ESG reporting tools generate for
companies that use them dates finally back to 2005. Moreover, in these very years,
the idea that this practice generates, in the long run, a substantial improvement
in company performance began to take hold. The beginning of the third phase,
the so-called ‘codification’, can be chronologically placed at the end of the 2000s.
The intervention of non-governmental organizations in collaboration with com-
panies, investors and auditing firms led to the emergence, among others, of the
Integrated Reporting (IR) framework and the Global Reporting Initiative (GRI).
The broadening of the audience of actors in the reporting process characterizes
this third phase, which also involves the relevant economic and financial
communities: associations, local authorities and non-profit organizations. The last
phase – identified as ‘institutionalization’ – is the result of the efforts made by
pioneering companies in recent years to codify and foster non-financial reporting
practices. It is precisely at this stage that voluntary codes of conduct, increasingly
sophisticated reference standards, and relevant laws and regulations have been
diffused (Pearson & Seyfang, 2001; Saxena et al., 2023).
Fundamental to the establishment of the NFD (Non-Financial Disclosure)
at the global level was the action of the UN Assembly, which, at the end of World
War II, published the Declaration of Human Rights (1948), thus making it possible
to delineate better the basic concepts of dignity and equality (i.e., rights that are
incumbent on the individual, even when establishing relationships with social
groups) and to define fundamental freedom, economic, social and cultural rights.
Subsequently, by means of the publication of the Global Compact (2006), it indi-
cated 10 fundamental principles to which institutions, public bodies, economic
entities and organizations should have aligned their strategies of action. These
principles cover the protection of human rights, the environment, occupational
safety, and the fight against corruption. Economic entities that voluntarily adhere
to the Global Compact have to release annual communications that must make
explicit the sustainability policies implemented, the practical actions taken, the
evaluation of the results achieved, and the future goals to be achieved by them,
using as indicators those developed by the Global Reporting Initiative (GRI). These
communications represent evidence of the commitment that companies have
made towards global ESG objectives. In addition, in 2015, the UN Assembly also
adopted the 2030 UN Agenda, a universal program that aims to contribute
to global development, promote human well-being and protect the environment.
In particular, the Sustainable Development Goals (SDGs) were presented through
a UN resolution and then unanimously adopted by 193 member countries. The
SDGs are addressed to the so-called ‘major groups’ identified by women, children,
indigenous peoples, non-governmental organizations, local authorities, workers
and trade unions, industry and business, the science and technology community,
and citizens. In addition, the mentioned resolution also provided, on a voluntary
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26 Sustainable Performance in Business Organisations and Institutions...
basis, an annual monitoring report designed to record progress made in the
pursuit of the goals. Thus, 17 UN SDGs have been becoming, with the GRI indices,
beacons of social responsibility reporting for large and medium-sized global
companies.
Another major contribution in this regard has been made by the Organization
for Economic Cooperation and Development (OECD), which aims to promote
economic coordination among member countries: i.e., the OECD Guidelines
for Multinational Enterprises (OECD, 2011). These guidelines bring together re-
commendations that countries should instil in their enterprises, defining their
corporate principles and setting standards to promote their responsible behaviour
in the execution of economic activities, including the disclosure of information.
The aforementioned guidelines stipulate that companies must contribute to
economic progress by (a) developing a form of governance capable of taking
ethical actions that involve relevant stakeholders, (b) seeking to do the least harm
to the environment, and (c) developing a high-quality communication strategy
capable of providing additional information to that related to merely financial
and operational results. In this context, the International Standard Organization
(ISO) is defined as one of the world’s most important organizations for drafting
technical standards based on the will of various stakeholders such as governments,
public and private enterprises, workers, consumers and non-governmental orga-
nizations, published in 2010 the Guidelines on Social Responsibility (International
Standard Organization [ISO] 2010). In detail, ISO 26000 is an international standard
that provides guidelines on Corporate Social Responsibility (CSR) for economic
and non-economic organizations, proposing the definition of concepts, standards
and ways of implementing and promoting CSR at the corporate level.
Social Accountability International (SAI), a global non-governmental orga-
nization that promotes human rights at work, published from 1989 to 2014 the SA
8000 certification standards which encourage organizations to develop, imple-
ment and maintain business practices consistent with CSR. Finally, the Global
Reporting Initiative (GRI), made public in 1997 by the Coalition for Environmentally
Responsible Economies and the UN Environment Program, is worth mentioning.
For instance, the GRI standards, published in 2002, are now one of the most widely
used reporting systems in the world. These standards allow for the identification
of sustainability metrics – the GRI indices – that are used in annual corporate
reports to demonstrate the commitment that GRI adopters invest in implementing
social responsibility policies and in measuring corporate performance with
respect to the environment, society, and governance dimensions. As already said,
due to the increasing importance of the institution itself and the volume of
adoptions, GRI standards are currently the most widely used.
All that said, the actual definition of Environmental, Social and Governance
(ESG) is associated with the field of socially responsible investments (SRIs), dating
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back to 2005. The term was, in fact, coined in a landmark report entitled Who cares
wins, resulting from the conference between the United Nations and 50 CEOs
of major financial institutions from around the world. The goal of the conference,
in the wake of the Global Compact, was to integrate ESG factors into the financial
sector. Unlike SRIs – which are based on ethical and moral values and use mostly
negative screens such as, for instance, not investing in tobacco, alcohol, or
weapons companies – ESG investments rest on the assumption that ‘ESG factors
are financially relevant’ (Kell, 2018). In short, ESG factors have introduced the topic
of sustainability in a more structured way in the financial world (Comoli et al.,
2023).
However, the concept of ESG is often confused with CSR (Corporate Social
Responsibility), although they refer to two very different areas. The European
Federation of Financial Analysts (EFFAS), in fact, asserts that ESG is a generic term
used in financial markets, which is often mistakenly confused with terms such as
CSR or sustainability. Specifically, ESG indices focus on two key aspects: the risks
due to poor ESG performance and the opportunities due to good ESG performance.
In contrast, corporate social responsibility reports deal with the latter’s sustainable
approach on multiple levels and target all stakeholders, not just investors or
financial analysts like ESG indices.
In conclusion, ESG factors should be seen as integrative financial indicators
used to determine the degree of risk of an investment. In this context, the attempts
and initiatives of the IFRS Foundation and the SEC (through the ‘SEC Response
to Climate and ESG Risks and Opportunities’) emerge, which are dealing
internationally with the translation of these factors, and related risks, into
performance measurement and subsequent reporting (Saxena et al., 2023;
Tettamanzi et al., 2022). In fact, the IFRS Foundation only recently saw fit to provide
a supplement to international accounting and reporting guidelines, working
on the introduction of specific standards that would address the assessment
of climate and sustainability effects on financial statement recognition, measu-
rement and disclosure activities. At COP26, the IFRS Foundation announced the
creation of the new International Sustainability Standards Board (ISSB), to which
it entrusted, together with the Climate Disclosure Standards Board (CDSB), the
task of defining the standards that would enable environmental measurement
and reporting as well as the consolidation of the Value Reporting Foundation
(VRF), which would be grafted onto the Integrated Reporting Framework and
SASB standards (McBrien, Zimonyi, & Astley, 2021). With this choice, the ISSB will
be able to work toward the realization of a comprehensive base of sustainability
disclosure standards and will be able to provide a broader and more shared
reference point so as to meet the information needs of investors and other
ESG-conscious stakeholders. In December 2022, the ISSB presented an official
update through which it highlighted some preliminary decisions in relation to
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its ongoing projects in this regard. In particular, the projects affected by these
decisions are listed in the IFRS Foundation Work Plan (IFRS, n.d.). The ISSB’s final
decisions on the IFRS Sustainability Disclosure Standards are currently being
voted on, as set out in the IFRS Foundation Due Process Handbook (IFRS, 2020).
At that meeting, deliberations were also held with reference to the proposed
Exposure Drafts (ED) called IFRS S1 General requirements for disclosure of
sustainability-related financial information (Draft S1) and IFRS S2 Climate-related
disclosures (Draft S2). ISSB redeliberated the proposals after considering the
feedback on the ED, issuing the first two IFRS Sustainability Disclosure Standards
(IFRS, 2023), in their official version, in June 2023. This issue is considered to usher
in a new era of sustainability-related disclosures in capital markets worldwide. The
Standards shall help to improve trust and confidence in company disclosures
about sustainability to inform investment decisions. And for the first time, the
Standards create a common language for disclosing the effect of climate-related
risks and opportunities on a company’s prospects.
In particular, the objective of IFRS S1 is to require an entity to disclose
information about its sustainability-related risks and opportunities that is useful
to users of general purpose financial reports in making decisions relating to
providing resources to the entity. IFRS S1 requires an entity to disclose information
about all sustainability-related risks and opportunities that could reasonably be
expected to affect the entity’s cash flows, its access to finance or cost of capital
over the short, medium or long term (collectively referred to as ‘sustainability-
-related risks and opportunities that could reasonably be expected to affect the
entity’s prospects’). It also prescribes how an entity prepares and reports its
sustainability-related financial disclosures, setting out general requirements for
the content and presentation of those disclosures so that the information
disclosed is useful to users in making decisions relating to providing resources to
the entity. On the other hand, IFRS S2 sets out specific climate-related disclosures
and is designed to be used with IFRS S1. More in detail, IFRS S2 is effective for
annual reporting periods beginning on or after January 1, 2024 with earlier
application permitted as long as IFRS S1 is also applied. The objective of IFRS S2 is
to require an entity to disclose information about its climate-related risks and
opportunities that is useful to users of general purpose financial reports in making
decisions relating to providing resources to the entity. Both fully incorporate the
recommendations of the Task Force on Climate-related Financial Disclosures
(TCFD).
Now that IFRS S1 and IFRS S2 are issued, the ISSB will work with jurisdictions
and companies to support adoption. The first steps will be creating a Transition
Implementation Group (TIG) to support companies that apply the standards and
launching capacity-building initiatives to support effective implementation. The
ISSB will also continue to work with jurisdictions wishing to require incremental
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disclosures beyond the global baseline and with GRI to support efficient and
effective reporting when the ISSB Standards are applied in combination with
other reporting standards.
1.5. European Initiatives on Sustainability Reporting
Several initiatives on ‘non-financial disclosure’ have been put forward at the
European level throughout the years. The need for companies to pay attention to
environmental and social issues had already been recognized by the European
legislator in Communication 1999/263/EC on the common market and the
environment. Moreover, Directive 2003/51/EC contemplated some considerations
on the need to integrate financial information in annual reports with non-financial
one. Since 2011, the European Union’s action has intensified and has been directed
toward the establishment of a modern conception of corporate and entrepreneurial
activity in order to achieve a new CSR approach which would have, finally,
configured more transparent, virtuous and efficient economic systems (Saxena
et al., 2023). This was done, among others, first with some communications (such
as ‘The Single Market Act. Twelve Levers to Stimulate Growth and Strengthen
Confidence – Together for New Growth’ and ‘Renewed EU Strategy 2011–2014 on
Corporate Social Responsibility’) and, later (in 2013), with a European Parliament
resolution, i.e., ‘Corporate Social Responsibility: Transparent and Accountable
Business Behaviour and Sustainable Growth’. In 2014, Directive 2014/95/EU,
amending Directive 2013/34/EU concerning the disclosure of non-financial and
diversity information by certain companies and certain large groups, was issued
by the European Parliament and the Council. This directive, also known as the
‘Non-Financial Reporting Directive’ (NFRD), aimed to include, in the information
flows addressed to consumers and investors, non-financial and diversity data by
a certain group of entities. Even though it did not represent a real novelty in the
European landscape, the directive in analysis introduced for larger Public Interest
Entities (PIEs)7 an obligation in order to provide (a) in the annual management
report, a statement covering a much broader range of non-financial information
than just environmental and personnel issues, and (b) in the report on corporate
governance and ownership structures, a statement about the policies to be
adopted regarding the composition of management and supervisory bodies so
to ensure adequate gender diversity and professionalism, also specifying the
objectives, implementation methods and results of this policy in the reporting
period.
7 The Directive 2014/95/EU states that large enterprises, which constitute public interest entities,
with at least 500 employees must include in the management report at the end of the nancial year
a non-nancial statement containing environmental, social, personnel-related, human rights, and active
or passive anti-corruption information to understand the performance of the enterprise, its results,
and on the situation and impact of its business.
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Thus, the NFRD started to impose non-financial disclosure requirements
on certain entities, namely the largest or most significant Public Interest Entities.
The innovative scope of this directive is evident and, to a certain extent, anticipa-
tory of similar initiatives undertaken globally and even more extensive in scope.
Subsequently, the Commission intervened on the same directive, expanding it.
In fact, Art. 2 of Directive 2014/95/EU already made reference to later actions
undergone by the Commission, as it was aware of the incompleteness of the pro-
visions. Therefore, following the stakeholder consultation, in 2019, the Commission
issued the document Guidance on the Disclosure of Non-financial Information:
Integration concerning the Disclosure of Climate-Related Information, also known
as Non-Binding Guidelines in the area of climate change-related disclosures.
The effectiveness of the aforementioned actions will be greater depending on
their successfulness in developing common international reporting standards
capable of ensuring a high level of comparability of NFIs (Non-Financial Informa-
tion), which is the only way to effectively guarantee equal treatment for EU
companies and those operating in the same area. Such convergence could be
ensured through international bodies such as the Financial Stability Board,
the Task Force on Climate-related Financial Disclosure, the IASB (in particular,
the ISSB) and the EU’s technical bodies (EFRAG).
In December 2015, G20 finance ministers and central bank governors indeed
asked the Financial Stability Board (FSB) to examine how the financial sector could
take climate-related issues into account. As part of its remit, the FSB identified the
need for better information to support informed choices in investment, lending,
and insurance coverage and to improve understanding and analysis of climate-
-related risks and opportunities, particularly climate change (Gadinis, 2012).
In order to improve the quality of disclosures, the Task Force on Climate-related
Financial Disclosures (TCFD) was formed and tasked by the FSB with issuing
recommendations and guidance on climate-related risk disclosures. After exten-
sive public consultation, the TCFD issued in 2017 a first set of recommendations
on climate-related risk disclosure, i.e., Recommendations of the Task Force on
Climate-related Financial Disclosures, with a focus on four topical areas: governance,
strategy, risk management, and metrics and targets. These recommendations
could be adopted by a wide range of organizations pertaining to all sectors and
jurisdictions.
In this context, among the key initiatives promoted by the European
Commission’s Sustainable Finance Plan, ‘Strengthening Sustainability Reporting
and Accounting Standards Development’ communication is worth mentioning.
This task, in the European context, was entrusted to EFRAG8 with the establishment
8 EFRAG (European Financial Reporting Advisory Group) is the European Commission’s advisory
body in the eld of both nancial and sustainability corporate reporting.
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of a European corporate reporting body aimed at promoting innovation and the
development of best practices in corporate reporting, such as environmental
accounting. The first project resulted in the establishment of the European Lab
Task Force on Climate-related Reporting (Lab PTF CRR) on the topic of climate
change-related reporting, which drafted in 2020 the document How to improve
climate-related reporting (EFRAG, 2020), providing an analysis of a few best
practices on the topic in analysis. The European Commission, partly as a result
of the insights conducted by PTF-CRR, also requested EFRAG to examine the
possible development of common European-wide standards for non-financial
information reporting by companies. To carry out this task, EFRAG formed the
Project Task Force – Non-Financial Reporting Standards (PTF-NFRS). At the end of
the first phase of its work, the Task Force (TF) organized a series of online events
with the aim of presenting principles and guidelines for the development of the
standards and gathering insights from key financial stakeholders in reporting
(David & Giordano-Spring, 2022; Saxena et al., 2023).
In giving this task to the new TF, the Commission was keen to point out
that the findings of the assigned work would have represented an in-depth
technical study that must have been developed in an open manner, i.e., taking
into account existing reporting standards and frameworks as broadly as possible.
The connection with the NFRD review process is, therefore, evident, although the
decision to include any reporting standards is, in fact, political and must always be
taken by the Council and the European Parliament. The work of the PTF-NFRS was,
in any case, completed with the publication in 2021 of the Report on the devel-
opment of common European standards for reporting non-financial information
and the so-called ‘Roadmap’ to achieve these goals (Comoli et al., 2023). In more
detail, two documents have been published: (a) one on the more technical aspects
of European standardization of this type of reporting, and (b) one, on the other
hand, concerning the political-institutional aspects related to the necessary
transformation of EFRAG to accommodate a second ‘Board’ dedicated to European
standardization of non-financial information. In this regard, in 2022, EFRAG’s
General Assembly approved the latter revision, integrating the new reporting
body (Sustainability Reporting Pillar) into its organizational structure. In addition,
it appointed the members of the aforementioned board named the EFRAG
Sustainability Reporting Board.
From a technical and substantial point of view, in 2021, the European Commi-
ssion accepted a legislative proposal for a Corporate Sustainability Reporting
Directive (CSRD). This requires companies within its scope to report using a dual
materiality perspective in accordance with the European Sustainability Reporting
Standards (ESRS) adopted by the European Commission as delegated acts. As part
of the CSRD proposal, EFRAG was officially appointed as a technical advisor to the
European Commission for the development of the draft ESRS.
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The Exposure Drafts (EDs) of the ESRSs prepared by the EFRAG Project
Task Force on European Sustainability Reporting Standards (EFRAG PTF-ESRS)
in the period from June 2021 to April 2022 were published for feedback from
April 30 to August 8, 2022. The EFRAG Sustainability Reporting Board (EFRAG SRB),
with the advice of the EFRAG Sustainability Reporting Technical Expert Group
(EFRAG SR TEG), took this feedback into consideration and amended accordingly
the 12 draft ESRSs that were subsequently submitted to the European Commission.
In this regard, the European Commission had consulted EU bodies and Member
States on the drafts of the various standards before adopting the final version
as delegated acts. Reporting requirements will be phased in for different types
of companies. In fact, the first companies subject to these obligations will ideally
have to implement the standards for annual reports pertaining to 2024, published
in 2025. Listed SMEs will be obliged to prepare financial statements starting
in 2026, with an additional possibility of voluntary ‘opt-out’ until 2028, and will be
able to prepare financial statements according to separate and proportionate
standards that EFRAG is in the process of developing. Finally, it should be noted
that the twelve drafts mentioned are grouped as follows: (a) two concern general
traits (i.e., ESRS 1 General requirements and ESRS 2 General disclosures), (b) five deal
with environmental issues (i.e., ESRS E1 Climate change, ESRS E2 Pollution, ESRS E3
Water and marine resources, ESRS E4 Biodiversity and ecosystems, and ESRS E5
Resource use and circular economy), (c) four deal with social issues (i.e., ESRS S1
Own workforce, ESRS S2 Workers in the value chain, ESRS S3 Affected communities,
and ESRS S4 Consumers and end-users), and (d) one focuses on the area of
governance (see ESRS G1 Business conduct). In July 2023, the European Commission
has closed the comment period of the standards developed for the Corporate
Sustainability Reporting Directive (CSRD). Subsequently, the European Com-
mission adopted the final version of the European Sustainability Reporting
Standards (ESRS) for political approval at the end of the same month. This adoption
process is expected to result in the official ESRS publication before the end of
2023, in time for companies to begin reporting in 2024. In fact, these standards
will be in force once the delegated regulation passes also the scrutiny of the
European Parliament and the Council.
In the European context, therefore, significant progress has been made in the
area of ‘non-financial disclosure’, both through the development of common
standards for accounting and reporting of non-financial information by companies
and, prospectively, by laying the groundwork for the future development of
standards aimed at better environmental, social and governance practice
measurement and reporting at least in the European panorama.
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1.6. Sustainability, SMEs Criticalities and the Value Chain
That anticipated, at the national level, in a multitude of jurisdictions, the level
of regulation on mandatory non-financial disclosure still concerns a very limi-
ted group of companies, basically ‘large sized’ – leaving aside (and, therefore, out
of scope) a plethora of companies which are, on the other hand, small to medium-
-sized. However, the ESG ‘revolution’ has been pushing towards improvements
in the accessibility to non-financial data by the so-called corporate stakeholders
on multiple levels. In fact, thanks to the publication of more transparent and
inclusive disclosure documents, potentially throughout the entire value chain,
which would describe all the capital invested in the company and the related
performance and provide a brief and concise image, encapsulating within it all
the actual value created and destroyed by a certain entity, stakeholders would
be put in the condition of taking informed and aware decisions (Tettamanzi
et al., 2022). From a different standpoint, this would lead companies to adopt
more virtuous behaviour, with a view to improving their reputation in the eyes
of investors and maintaining a competitive edge over their competitors over time.
At a general level, therefore, non-financial disclosure should contain evidence
of the main variables of the company’s business model, especially with regard
to social, environmental and governance aspects, measuring them through
appropriate key indicators that illustrate both its short-term and expected
medium- to long-term performance from a forward-looking perspective. In some
contexts, this information has to be provided by means of the ‘comply or explain’
principle, according to which companies that fail to adopt the specific requirements
should provide adequate justification for these choices. In fact, as has been
previously argued (see Section 1.3), non-financial disclosure appears to be a very
useful tool not only from the perspective of mandatory disclosure but also for
companies that want to make disclosures voluntarily. Some substantial objectives
related to this choice could be, for instance, (a) the ongoing measurement of their
sustainability performance, (b) the judicious adoption of a long-term strategy
that allows for well-calibrated decisions in terms of cost efficiencies or innovation
input, and (c) meeting certain stakeholder acquisition and retention objectives
(Rüger & Maertens, 2023).
Both companies are obliged to disclose NFIs, and organizations that voluntarily
decide to do so, however, must address a fairly critical issue with regard to non-
-financial aspects, namely the measurement of sustainability performance, and
this holds true irrespective of the reporting tool and/or framework actually
adopted. In fact, in order for the non-financial disclosure to concretely report
a value that by its nature is intangible – such as social and environmental aspects,
and not (at least temporarily) objective and quantifiable as the financial ones –
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it is necessary for organizations to develop advanced performance measure-
ment and information systems internally. These mechanisms must especially en-
hance a few critical aspects of the business model to be disclosed internally
and transparently to all business areas and departments so that decisions are
always taken wisely and capable of maximizing effectiveness and efficiency accord-
ing to the new ESG paradigms (Comoli et al., 2023; Rüger & Maertens, 2023).
In contrast to traditional financial accounting systems, such as financial
statements, management accounting systems are totally voluntary and internal
to the company, as well as useful primarily to fulfil managerial functions and only
secondarily to produce useful information for external disclosure.
In this context, however, their presence and effectiveness are crucial to the
success of an effective sustainability report – be it voluntary or mandatory – that
concretely reflects the state of the organization and the overall value created both
internally and externally, evidently based on a ‘new’ definition of value, which
cannot be only financial anymore (Tettamanzi et al., 2022). In this context, consider,
as mentioned earlier, those national landscapes which are mostly characterized
by small- to medium-sized companies, often inadequately structured at the
information system level and with a culture that is not particularly oriented
towards the ‘best-suited-to-the-purposes’ managerial accounting tools. Hence,
when considering sustainability at large, several levels of criticality related to the
absence of such suitability at the SME level should be considered since the value
chain itself is part of the problem and of the solution to the issues in discussion.
The first concerns the incorrect valuation of costs related to products, processes
and the resources needed to materialize them. This, subsequently, leads to making
incorrect assessments of cost-effectiveness with respect to the main pillars
of sustainable business strategies, also having major repercussions in terms
of ‘cost-benefit’ assessments of processes that can lead to significant benefits and
positive externalities (or dramatic costs and negative ones) at the level of social
and environmental sustainability. This ties in with a second major critical issue,
again related to the SME dimension that characterizes a multitude of European
(and international) landscapes: it is, at times, difficult to measure what is hard to
track, especially when this is done in relation to the production/value chain in
order to understand the overall impact generated by upstream (and downstream)
supply chain partners. To cope with this, implementing extremely prudent
supplier selection strategies is crucial, allowing companies to define a strategic
supplier base with which to maintain an ongoing sustainability-oriented rela-
tionship. Some key indicators in this context may be sustainability certifications or
other parameters that, thanks to the non-financial disclosure required to be
compliant with regulations, ensure transparency and traceability over time and
space.
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With regard to sustainability regulations and certifications, in addition to ISO
systems, there are at least two initiatives worth mentioning when it comes to
speaking about solutions at the moment accessible also to companies of any size
that are willing to introduce a sustainable business model from both environmental
and social perspectives: the B Corp certification9 and the benefit corporation
legislative acts nationally imposed. The spread of B Corp has, in fact, alerted and
inspired several national jurisdictions at the global level so to take into due
consideration a number of aspects related to the direct and indirect impacts of
companies on society and the local areas, leading to the enactment of pieces of
legislation aimed at regulating legally the ways in which companies could achieve
social objectives related to corporate sustainability (i.e., pursuing the so-called
dual mission)10. In short, in several legal systems, entities can now be transformed
or incorporated as benefit corporations, which are exactly business organizations
that, as part of their economic activity, must combine a profit-making purpose
with the pursuit of one or more purposes of common (or shared) benefit operating
in a responsible, sustainable and transparent manner towards people, communities,
territories and the environment, entities and associations, and other stakeholders by
providing them with cultural and social goods and activities. In order to preserve
this status, benefit corporations are required, among others, to mandatory
disclosure an annual report certifying congruent and pertinent managerial and
strategic choices with the achievement of the ‘shared benefit’, providing specific
details on the following aspects: (a) the objectives pursued, the methods used,
and the action plans implemented in the reporting year, (b) the assessment of the
company’s impact, by means of appropriate indicators and materiality analysis of
the externalities produced by the company on the environment and society, and
(c) any new objectives that would be introduced in the following reporting year
(Tettamanzi & Murgolo, 2022).
In order to ensure the publication of true and correct information that
conforms to the activity actually carried out by the entity, some jurisdictions
have stipulated that this disclosure must be monitored by external and
independent bodies to the company, such as the Antitrust Authority. The effect
9 The B Corp certication mandatorily requires the periodic disclosure of an impact assessment
on certain social, environmental and governance aspects, certifying the company’s commitment
and progress on its sustainability practices. Regardless of obtaining this certication, however,
a number of entities use the B Impact Assessment, i.e., the specic reporting tool required for
obtaining the certication, as a framework for non-nancial disclosure, due to its measurement
eectiveness and comprehensiveness that make it optimal for measuring corporate progress in the
area under analysis.
10 US regulations, unlike other jurisdictions, refer, in this context, to ‘corporations’ whereas, in
other parts of the world, regulators have tended to prefer wider denitions such as ‘companies’,
‘entities’ and ‘organisations’.
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of misleading information is equated with the exercise of unfair business
practices, assuming that the benefit corporation has been, in fact, implementing
greenwashing practices so as to appear to investors and other stakeholders as an
environmentally and socially conscious company for mere reputational and
commercial purposes.
1.7. Conclusions, Limitations and Practical Implications
ESG issues are now at the heart of various legislative changes, both at the
international and European levels, also from the non-financial disclosure
standpoint. It is, indeed, evident that disclosing non-financial (or, rather, sus-
tainability) information, especially related to its societal and local impact, is in-
creasingly important to capture the true value of organizations, as purely financial
data is no longer sufficient. We are currently in a period of readjustment and
overall revision of international regulations based on the ‘new’ paradigms and the
need for companies to bring out their intangible value, which is increasingly
relevant and considered a critical factor for long-term sustainable growth.
Following the attempts of the Non-Financial Reporting Directive, the Corporate
Sustainability Reporting Directive (CSRD) certainly places greater emphasis on
the goal of introducing greater homogenization of sustainability reporting at the
international level, just as was done over the past decades for financial reporting
through the establishment of international accounting standards. Furthermore,
a secondary yet pivotal role has been played by the extension of mandatory
sustainability disclosure to a wider range of companies, given the European
landscape where SMEs are currently not obliged to disclose any information
pertaining to non-financial issues. However, this is to be considered a necessary
but not sufficient condition for the effective achievement of the sustainable
development goals of the ongoing ESG ‘revolution’.
In fact, at least two main problems emerge. The first relates to the effective
harmonization of standards through the new initiatives; two of the most important
international standard-setting bodies have been moving towards the achievement
of this goal but doing so individually. On the one hand, at the European level,
EFRAG has been entrusted to respond technically to CSRD, and on the other hand,
the IFRS Foundation has established the ISSB for the same purpose. As a result,
since there is still no definitive indication of the scope of the future standards to
be applied, there is the risk of introducing an additional element of complexity for
companies, which would find themselves in an obviously critical situation should
the two bodies of standards in analysis be extremely different or consider strongly
divergent variables. The common goal of the two entities should, therefore, tend
toward the simplification rather than the complexity of disclosure, also with
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a view to improving comparability between corporate realities in every aspect,
the latter being a crucial element for investors’ decision-making and the effective
achievement of the objectives of the above-mentioned revolution.
The second problem could be related – especially with regards to SMEs – to
the spread of greenwashing practices rather than to the disclosure of reporting
since the overwhelming majority of small- and medium-sized companies
traditionally use, as input data for disclosure, not very robust sources, given the
still generally low level of non-financial performance measurement systems
worldwide. Should the sustainability report (or any comparable form of disclosure)
become mandatory for smaller companies, appropriate sustainability performance
measurement tools and systems should also be mandated to produce data that
are correct, auditable and indicative of the company’s actual commitment in
terms of organizational structure, products and processes. From a forward-looking
perspective, in addition to mandatory non-financial disclosure regulations (which,
in fact, would concern only the depiction of something that has already happened),
both national and international bodies must focus on the actual development
of systems to strategically support them. This could be achieved by defining
minimum standards that justify the presence of sustainability performance data
that are effective and representative of the reality under consideration while
maintaining a certain level of standardization that allows for the comparability
of reporting.
Having said that, this analysis is not exempt from limitations. For example,
the main bibliometric analysis is carried out primarily based on Scopus data and,
as a result, may not include all academic works relevant to the study topic in the
analysis. Furthermore, the adopted methodological approach may lead to some
degree of subjectivity, even if it is still lower than other review methodologies
would imply (Comoli et al., 2023). Finally, the overall study is based on a few
papers, which may be insufficient to indicate genuine new research avenues.
However, the relatively embryonal stage of ESG reporting quality, effectiveness
and implementation might confirm the adequacy of this research design and
strategy from a methodological standpoint. To circumvent this limitation, the
SLNA is often combined with additional research approaches such as global
citation score and index analyses, keyword analysis, and burst detection (Comoli
et al., 2023). In this case, we integrated the academic literature with recent
professional guidelines and/or operational documents so as to make it actual and
pertinent to the research objectives.
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DOI: 10.15611/2023.83.1.02
Chapter 2
Sustainable Performance Measurement
under the New European Regulaon
for Corporate Sustainability Reporng:
What Will Be the Impact of the European
Sustainability Reporng Standards
(Beyond New KPIs)?1
Josef Baumüller
Technical University of Vienna
e-mail: josef.baumueller@tuwien.ac.at
ORCID: 0000-0001-8274-9338
Susanne Leitner-Hanetseder
University of Applied Sciences Upper Austria
e-mail: susanne.leitner-hanetseder@fh-steyr.at
ORCID: 0000-0003-1756-3996
Christoph Eisl
University of Applied Sciences Upper Austria
e-mail: christoph.eisl@fh-steyr.at
ORCID: 0000-0002-3668-5481
Quote as: Baumüller, J., Leitner-Hanetseder, S., & Eisl, Ch. (2023). Sustainable Performance Mea-
surement under the New European Regulation for Corporate Sustainability Reporting: What Will
Be the Impact of the European Sustainability Reporting Standards (Beyond New KPIs)? In J. Dycz-
kowska (Ed.), Sustainable Performance in Business Organisations and Institutions: Measurement,
Reporting and Management (pp. 41–55). Wroclaw: Publishing House of Wroclaw University of Eco-
nomics and Business.
1 Funding: This chapter is an outcome of the FINCOM project which is nanced by research
subsidies granted by the government of Upper Austria (www.land-oberoesterreich.gv.at/12854.htm).
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42 Sustainable Performance in Business Organisations and Institutions...
The transition towards a more sustainable economy has become a priority on
a global level. Climate change mitigation and adaptation are in the focus
of political institutions around the world; the Paris Agreement 2015 has become
a central point of reference for these ambitions. In Europe, the European
Commission (EC) followed up on these developments with its Action Plan on
‘Financing Sustainable Growth’ (2018) and two years later with its ‘Green (New)
Deal’ (2019). With these high-aiming initiatives, the EC aimed at taking a lead role
in the global ambitions with regard to sustainability and setting high standards,
which also serve as orientation for other jurisdictions.
One aspect that is central to the EC’s approach is the aim to promote
sustainability via market mechanisms. Capital markets especially shall be
transformed in order to better take account of sustainability issues in investing
and finance decisions. This idea of ‘Sustainable Finance’ implies that companies
which can prove their operations to be in line with defined definitions and
standards for sustainable economic activities can get better access to capital
and thus enjoy competitive advantages; on the other hand, companies that do
not meet these standards might finally lose their access to (European) capital
markets (Migiorelli, 2021). Recent regulations such as the EU Taxonomy Regulation
or the Sustainable Finance Disclosure Regulation (SFDR) established the respective
mechanisms for the financial sector. However, in order to be effective, these
mechanisms have to build upon data from companies in the business sector
which is accessible to the financial sector, in order to identify the extent to which
companies are engaged in sustainable economic activities and to respond
accordingly. This, in turn, shall lead to a change in behaviour, transforming their
activities in line with EU political priorities.
For that reason, the regulation of corporate disclosures on sustainability
matters has become an issue of high political priority over the past few years.
Already with its Non-Financial Reporting Directive (NFRD) from 2014, the EC tried
to establish a baseline for EU-wide harmonised reporting practices. However,
strong political opposition from lobbies as well as a still-lacking momentum
for the topic of sustainability, resulted in considerable compromises that had to
be made, and that marred the effectiveness of the reporting requirements which
had to be applied from the financial year 2017 onwards (Kinderman, 2020).
Consequently, a lack of completeness, comparability and reliability of sustainability
information that is reported by European companies was found to be one main
obstacle for the entire Sustainable Finance agenda in the EU. Thus, the introduction
of a new reporting Directive that addresses the shortcomings of the NFRD soon
became an important project which was started shortly after the publication
of the Green Deal and also a key element of the actions proposed by this legal
initiative. As a result, the Corporate Sustainability Reporting Directive (CSRD)
was finished in Mid-2022 and entered into force in January 2023; it replaces
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the reporting requirements of the NFRD for financial years starting on January 1,
2024 and by far exceeds the level of transparency on sustainability matters that its
predecessor required from European companies. One important feature of the
CSRD is the introduction of new reporting standards, European Sustainability
Reporting Standards (ESRS), that give binding, extensive and concrete guidelines
on how to translate the more abstract requirements of the CSRD into practice.
The main goal of this chapter is to discuss the impact of the CSRD on
management control systems. Changing corporate decision-making processes
has been an important goal of the EC ever since the publication of the NFRD. By
directly referring to policies, actions, metrics and targets that are established in
European companies, the CSRD now aims to introduce sustainability matters to
the core elements of management control systems. However, this also comes at
the cost of specific new questions that do arise with regard to those management
control systems and their effectiveness. One aspect that will be in the focus of this
chapter is the management approach that the ESRS require. Based on a thematic
analysis of literature combined with the analysis of the new reporting framework,
the relevant requirements for European companies are derived and discussed.
Furthermore, the implication for companies with regards to further aspects
of management control systems that are already established and now will have
to develop further are discussed. Finally, the chapter provides recommendations
on how this development can be mastered to turn out beneficial for companies
as well as for the overarching objective – of sustainable development.
2.1. CSRD and ESRS – a New Framework for Reporting
on Sustainable Performance
The most fundamental reporting concept on which the CSRD is based is the
principle of ‘double materiality’: both the impact of a company’s business activities
on nature and society (‘inside-out’) as well as the risks and opportunities
of sustainability factors on the company’s financial performance and position
(‘outside-in’) shall be captured. This concept aims at improving the awareness
of a company’s embeddedness in its environment, affecting both its stakeholders
and the company itself. Compared to the previous reporting requirements set
forth by the NFRD, the focus lies on an improved depiction of the inside-out
perspective on business activities. From a preparer’s perspective, this implies
a considerable increase in the number of disclosures that are required, also
resulting in additional costs, e.g. for data collection and reporting (Baumüller &
Sopp, 2022).
Companies that fall under the scope of the CSRD have to identify sustainability
matters that are material from such a double materiality perspective and report
upon these in a predefined way. Relevant matters must cover environmental,
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44 Sustainable Performance in Business Organisations and Institutions...
social, and governance matters; the CSRD contains a list of topics that have to be
considered in the course of materiality analysis. For material sustainability matters,
related strategies and governance mechanisms must be described, as well
as relevant policies, actions, metrics and pursued targets (Directive 2013/34/EU,
Art. 19a and 29a). Compared to the requirements of the NFRD, the focus on
governance matters and the integration of sustainability matters in the perform-
ance management cycle are new elements that underline the ambition to tackle
the issue of greenwashing and embed sustainability in the heart of corporate
decision-making.
Further guidelines on how to implement these requirements are laid out by
the new ESRS; the EFRAG is mandated by the CSRD to prepare technical advice
in the way of such draft ESRS, which are submitted to the EU Commission and
subsequently adopted (and possibly also modified) via delegated acts (Directive
2013/34/EU, Art. 49). The first set of such ESRS was submitted to the EC in November
2022.2 It consists of 12 standards: (1) two cross-cutting standards on general
requirements and general disclosures, (2) five topical standards on environmental
matters, (3) four topical standards on social matters, and (4) one topical standard on
governance matters. Whereas the cross-cutting standards establish the key
principles and mechanisms for sustainability reporting in the EU, the topical
standards detail concrete disclosures required on matters that are identified as
being material.
In order to draw up their sustainability reports, companies have to perform
the following steps (ESRS 1.29-39 and Appendix F):
1. Conduct a materiality analysis: ESRS 1 contains criteria based on which
a company has to assess its impacts as well as the risks and opportunities it faces
with regard to sustainability matters. In order to make this assessment, the
company has to consider the perspectives of its affected stakeholders (with regard
to impacts) as well as its users of financial information (with regard to risks and
opportunities). The application requirements of ESRS 1 include a list of matters
that must be analysed in any case; however, a company is not allowed to limit its
analyses to these matters.
2. For every material matter: disclose the policies, actions and targets that are
implemented with regard to this matter. ESRS 2 contains detailed requirements
on the contents of these disclosures, which are complemented by further
guidelines in the topical standards. Neither CSRD nor ESRS requires companies to
establish such policies, actions or targets; however, if a company has not
established them, it has to disclose this fact.
2 This chapter is based on the rst set of ESRS as they were submitted to the EC in November
2022 (EFRAG, 2022b). The nal version of these standards (which will incorporate several changes
to the version by EFRAG from November 2022) was not issued by the date the work on this chapter
was nished.
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3. Disclose material metrics: with regards to metrics, a company only has
to disclose them if they are considered to be material information for the users
of its sustainability report. ESRS 1 sets forth criteria for assessing this type of ma-
teriality, referring to the qualitative characteristic of the relevance of the reported
information – and ultimately, the concept of decision usefulness of the information
contained in sustainability reports. In order to maintain a reasonable cost–benefit
relation, it is possible to use estimates when calculating metrics as long as their
informational value is not impaired by this practical expedient.
There is one important exception, however: irrespective of the result of the
materiality analysis, all the disclosure requirements set forth in ESRS E1 on climate
change as well as the first nine disclosure requirements set forth in ESRS S1 on
own workforce (if the company employs at least 250 employees). Also, all the
cross-cutting disclosures on how a company identifies its impacts, risks and
opportunities with regard to sustainability matters and how it implements these
sustainability matters in its governance, strategy and business models set forth by
ESRS 2 are required in any case. Finally, each company that falls under the CSRD
has to disclose specific data points from each ESRS that are required by EU law
(e.g., to meet the information needs of the financial sector as prescribed by the
SFDR).
ESRS 1 discusses two fundamental concepts in the context of this process
for determining the content of sustainability reports: the concept of stakeholders
and the concept of sustainability due diligence. According to ESRS 1.62, [t]he
outcome of the undertaking sustainability due diligence process […] inform [sic!]
the undertaking’s assessment of its material impacts, risks and opportunities. This
process is laid out by instruments such as the UN Guiding Principles on Business
and Human Rights and the OECD Guidelines for Multinational Enterprises. These
instruments foresee the need to engage with a company’s stakeholders and to
identify potential adverse impacts on them; furthermore, appropriate measures
have to be undertaken and communicated in order to prevent, mitigate or re-
mediate such adverse impacts. Although ESRS 1 stresses that ESRS do not impose
any conduct requirements in relation to sustainability due diligence; nor do they
extend or modify the role of governance bodies, the standard also makes clear that
the entire structure of ESRS follows the logic of these instruments stated above
– and that such a sustainability due diligence as described before is a prerequisite
for conducting a sound materiality analysis. As a consequence, companies that
fall under the scope of the CSRD are at least de facto nudged to implement such
instruments for due diligence mechanisms – and at least arguably, in most cases,
to invest considerable efforts in identifying and engaging with their stakeholders
(Lanfermann, 2023).
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46 Sustainable Performance in Business Organisations and Institutions...
2.2. Decision Usefulness of ESG Reporting:
The Case for a New Management Approach?
Addressing the needs of multiple and heterogeneous stakeholders
As demonstrated, EFRAG adopts a comprehensive approach to sustainability-
-related disclosure information, catering to the requirements of stakeholders.
Despite being frequently referenced, the CSRD does not offer a definition
of the term ‘stakeholders’ (Baumüller & Scheid, 2023). However, ESRS 1.26 provides
a definition stating that stakeholders are those who can affect or be affected by the
undertaking. This obviously represents a very broad understanding of the term
‘stakeholders’ (Freeman, 1984), which is in line with established definitions by
reporting frameworks such as the Global Reporting Initiative’s (GRI) standards.
Nevertheless, this interpretation of the term ‘stakeholders’ is expansive in scope
that requires considerable efforts already with regard to the identification
of relevant stakeholder groups (Baumüller & Scheid, 2023).
Therefore, it is inevitable to question whether the undertaking is capable
of meeting the ESG expectations established by its stakeholders and providing
relevant information (ESRS 1 Appendix C, QC 1). According to ESRS 1.36, infor-
mation is relevant because of
(a) the significance of the information in relation to the matter it purports to
depict or explain; (b) the capacity of such information to meet the users’ decision-
-making needs (including the needs of primary users of general-purpose financial
reporting described in paragraph 51); or (c) the need for transparency towards
stakeholders.
ESRS 1.36, as well as ESRS 1.26 (b), implement two distinct groups of users,
namely users of general-purpose financial reporting and other users such as Non-
Governmental Organizations (NGOs). This reveals the potential for divergent
information needs between two distinct groups: users who rely on sustainability
reporting as part of financial reporting for decision-making purposes and
stakeholders who are interested in the company’s sustainability engagement.
Therefore, sustainability reporting must consider not only information that is
useful for the users of the financial statements.
In comparison to financial reporting, this is quite a unique approach. While
financial reporting, as mandated by the Accounting Directive (2013/34/EU) and
the International Accounting Standards (IFRS Conceptual Framework 1.4),
primarily focuses on the needs of investors. In the context of sustainability
reporting, it is essential to consider the interests and views of stakeholders. This
goes even beyond users of sustainability reports, as affected stakeholders, as
defined in ESRS 1.26 (a), have to be considered when conducting a materiality
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analysis – thus predetermining the matters which are reported on. Based on the
concept of double materiality and references for stakeholders, one could conclude
that financial materiality is in line with the decision usefulness of users of general-
purpose financial reporting information and impact materiality is closely related
to the transparency needs for the European public (Baumüller & Scheid, 2023):
which, in turn, just means decision usefulness for users of the sustainability-
related disclosure information.
Taking into account the diverse spectrum of users seeking sustainability-
related disclosure information for decision-making, of course, also the primary
users of general-purpose financial reporting, namely existing and prospective
investors, lenders, and other creditors such as asset managers, credit institutions,
and insurance undertakings, might be amongst this group. But also other key
constituencies, including the undertaking’s business partners, trade unions and
social partners, civil society and non-governmental organisations, governmental
bodies, as well as analysts and scholars (ESRS 1.26), might be relevant. This
underlines again the variety of different standpoints and interests, which might
also be reflected in different information needs by these stakeholders. With
regards to the question of reporting contents that are derived and value
judgements that are based on those reporting contents, sustainability reporting
hardly can be as objective to the extent financial reporting is in consequence.
The idea of one ‘true and fair view on ESGs’ thus seems even more ambitious than
the idea of a ‘true and fair view’ for financial reporting.
The need for stakeholder prioritization
When considering the needs of the users, it is important to acknowledge that as
a result of the differing status of various users, certain groups of users may be
better informed than others (Leitner-Hanetseder, 2011). Building on the works
of Berndt (2005) and Leitner-Hanetseder (2011), it is evident that when multiple
stakeholders are identified, their information interests are not necessarily
homogeneous. Despite this, it can be assumed that a majority of agreements exist
within the groups (Berndt, 2005; Leitner-Hanetseder, 2011). Nevertheless, the
interests of the different addressees may differ from each other and may have
independent information interests to be satisfied by sustainability reporting. This
would result in an enormous amount of information if an attempt were made to
take all information needs into account (Berndt, 2005; Leitner-Hanetseder, 2011).
In addition, an expansion of the scope of information does not necessarily lead to
a better basis for decision-making (Haynes & Kachelmeir, 1998) due to the cognitive
capacity of users, which may lead to an information overload (Epstein, 2007).
Therefore, it would be necessary to consider, on the one hand, information
limits for stakeholders and, on the other hand, to safeguard the providing entities.
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48 Sustainable Performance in Business Organisations and Institutions...
One notable limitation of providing the information is that the collection,
assessment and dissemination of information impose costs (Leitner-Hanetseder,
2011). According to the Conceptual Framework of the IFRS, however, it is not
possible for general purpose financial reports to provide all the information that every
user finds relevant (IFRS Foundation, 2018, par. 2.43). Compulsory, sustainability-
related disclosure standards such as those of the ESRS can serve as a safeguard for
providers and should be subject to cost-benefit considerations (Daske, Hail, Leuz,
& Verdi, 2008; Hummel & Jobst, 2022). In order to ensure that the ESRS align with
the policy objectives of the CSRD, a benefit analysis of the standards was
conducted by EFRAG (2022). The analysis indicates that the expenses associated
with reporting on sustainability aspects do not surpass the benefits (EFRAG,
2022a). Chapter 3 of this book provides an additional in-depth analysis of the
potential costs and benefits of sustainability reporting.
Adopting a strategic approach that emphasises the needs of ‘primary’ users,
akin to financial reporting, may represent a viable solution to curbing the
challenges of information overload and the associated reporting costs (Baumüller
& Leitner-Hanetseder, in print). However, it is important to note that there is
a potential downside to this approach, as it may lead to an artificial convergence
of addressees by establishing minimum requirements that are deemed essential
for all stakeholder groups. This approach would seek to identify overlap in the
information needs of diverse user groups rather than catering to the preferences
of any one particular group. In situations where this overlap is low, only a limited
proportion of the overall information needs would be considered for reporting
purposes. Moreover, any voluntary disclosure of the information would lead to
a reduction in the costs associated by the users to obtain the information, but at
the same time, impose additional costs on the undertakings in terms of data
collection, processing and reporting (Leitner-Hanetseder, 2011; and in more detail
see chapter 1 of this book).
In addition, it can be difficult to identify the needs of stakeholders (Paul &
Largay, 2005; and chapter 4 of this book). The ESRS seem to assign the role
of identifying these needs to the processes of sustainability due diligence,
however, without any further guidance. But looking at the ESRS in more detail,
there are indications that at least some of the relevant information provided by
the undertakings has to be determined individually from a management
perspective. The undertaking shall disclose any metrics that it uses to evaluate
performance and effectiveness, in relation to a material impact, risk or opportunity
(ESRS 2.73). This resembles the management approach under IFRS, which is
established for financial reporting purposes. What is more, also many requirements
with regard to the conduct of materiality analyses show similar traits, e.g., with
regard to the (internal) sustainability due diligence process that forms the basis
for the identification of mandatory contents for (external) sustainability reporting.
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Reducing information overload and costs through
a management approach
The implementation of a management perspective in external accounting is not
a recent development. This shift towards a management approach in external
financial accounting was already made with the adoption of IFRS 8 ‘Operating
Segments’. By turning to this management approach, financial statement users
are provided with the opportunity to assess the financial effects and nature of the
various business activities and economic contexts in which an entity operates
(IFRS 8.1; Franzen & Weißenberger, 2015). In the realm of sustainability disclosure,
the management approach necessitates the utilisation of information obtained
from internal management reporting systems for the purposes of external
reporting.
Notwithstanding, the quantum of novel compulsory reporting stipulations
emanating from the CSRD and the ESRS is disparaged as a bureaucratic nightmare
and regulatory overreach (Sellhorn & Wagner, 2022, p. 31), which could engender
an information overload for stakeholders and exorbitant costs for reporting
entities (Sellhorn & Wagner, 2022). However, the ESG reporting requisites merely
mandate what is already routine practice in most firms, setting targets, monitoring
the primary risks and opportunities arising from foreseeable developments, and
devising metrics to counteract any deviations. As a result of the sustainability
reporting requirements, it is now de facto mandatory to implement processes to
set targets and to identify and manage material risks and opportunities, including
the integration of sustainability issues to facilitate external transparency to the
stakeholders (ESRS 1.85; Sellhorn & Wagner, 2022).
To demonstrate that a company is actively considering sustainability aspects,
incorporating a management approach into external reporting becomes a logical
imperative. The research results concerning the impact of the management
approach on segment reporting show that the level of information disclosure for
reportable segments is somewhat inconclusive. Even if the majority of studies
report a reduction in the amount of information provided (Blase, Müller, & Reinke,
2012; Crawford, Extance, Helliar, & Power, 2012; Franzen & Weißenberger, 2015;
Meyer & Weiss, 2010; Nichols, Street, & Cereola, 2012), others indicate an increase
in the disclosure information (Kang & Gray, 2013; Pisano & Landriani, 2012).
Criticism may arise regarding the preliminary nature of sustainability-related
information that is solely based on management perspective, as such information
tends to be customised to meet the specific requirements of the management
team. In addition, this orientation towards management needs might lead to
limited external comparability of the reported information. However, by its nature,
incorporating sustainability considerations into a company’s overall strategy and
the subsequent development of key performance indicators may be unique to
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50 Sustainable Performance in Business Organisations and Institutions...
each individual company. This lack of comparability is often exacerbated by the
absence of relevant external data in a standardised format, further limiting the
ability to make meaningful comparisons. Furthermore, the constantly evolving
nature of business models adds to the difficulty of comparing sustainability
metrics over time. As such, comparisons over time may prove challenging, and
the decision usefulness of such comparisons may be limited due to inconsistencies
in the metrics used. According to a study by Paul and Largay (2005) that deals with
the question of how the management approach contributes to transparency, the
study indicates that users seeking a clearer understanding of individual companies
are ahead, as long as the reported data reflects management’s actual decision-
-making framework (Paul & Largay, 2005, p. 309).
In cases where users are unable to extract the necessary information from
sustainability reports due to the management approach, this may result in
increased risks and higher capital costs (Paul & Largay, 2005). Therefore, the lack of
relevant information limits the ability of users to make informed decisions
regarding investments or risk assessments, leading to a higher level of uncertainty
and increased capital costs of the undertaking. As a result, providing relevant
sustainability-related disclosure is essential to meet the needs of users. The CSRD
and ESRS respond to that by the current structure of their disclosure requirements
which comprise sector-agnostic disclosures and a set of information that has to
be reported on in any case. Despite creating tension between managers’ interests
and stakeholder needs, however, aligning external reporting with internal
reporting through the management approach remains a way of enhancing
transparency on the sustainability-related aspects of an undertaking without
favouring a particular target group during the standards-setting process.
Ultimately, there is one limit to the extent to which disclosures might be
required from companies: the disclosure of relevant but sensitive or confidential
information can potentially harm the competitiveness of reporting companies,
and therefore, it is imperative to strike a balance between providing sufficient
information and protecting sensitive data. This highlights the importance of
implementing reporting standards that ensure that material information is
disclosed to the users while protecting the undertakings’ competitive advantage
(Leitner-Hanetseder, 2011; Moxter, 2000). According to ESRS 1.108, information
on intellectual property, know-how, or results of innovation needs not to be dis-
closed if the information
(a) is secret in the sense that it is not, as a body or in the precise configuration and
assembly of its components, generally known among or readily accessible to persons
within the circles that normally deal with the kind of information in question; (b) has
commercial value because it is secret; and (c) has been subject to reasonable steps by
the undertaking to keep it secret. (ESRS 1.108)
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2.3. Implications for Management Reporting Systems
European companies and companies with subsidiaries in Europe will sooner
or later have to implement the ESRS, although, at present, only large companies
and listed companies are directly affected. Given the lack of immediate prospects
for global standardisation of ESG disclosure standards, multinational corporations
must anticipate implementing multiple ESG frameworks and standards. The effi-
cacy of this implementation effort, however, hinges on the extent of collaboration
among standard setters and whether their respective frameworks and standards
allow a kind of building block system (Baumüller & Leitner-Hanetseder, in print).
The alignment of information needs of multiple stakeholders within CSRD
and ESRS poses significant challenges in achieving the double materiality
approach of the disclosed information. Even though it is becoming apparent that
information from internal reporting is also to be reported in external reporting in
the sense of a management approach, it is crucial to consider the stakeholder
needs for both sets of reports. Additionally, the delineation of two stakeholder
groups proposed in the CSRD and the ESRS, namely users of sustainability-related
disclosure information and affected stakeholders, presents a practical challenge.
Simply relying on internal assessments of stakeholder needs is insufficient. Active
dialogue through the use of survey instruments such as questionnaires is
necessary, albeit with concrete methods yet to be specified. More advanced forms
of stakeholder involvement, such as the establishment of stakeholder advisory
boards or diversification of management and supervisory boards, enable deeper
integration of stakeholder concerns into management control systems and
ultimately into corporate decision-making (Baumüller & Scheid, 2023). This is
further stressed by the management approach on which the new reporting
requirements are based, which makes this integration transparent to an extent
that is unprecedented.
On a more technical level, as data and information are the basis for a manage-
ment reporting system, the scope of ESG reporting necessitates a significant
expansion of the current data landscape and management reporting processes,
highlighting the need to engage existing expertise, such as IT and management
accounting expertise (Leitner-Hanetseder, Sexl, & Neubauer, 2023). The automated
data collecting (Gu, Jiang, Yu, & Dai, 2022), integrating of data from various
sources as well as calculating and monitoring metrics, preparing internal and
external reports (Leitner-Hanetseder et al., 2023; Saxena et al., 2022) will play
a critical role in minimising the cost of ESG reporting and in providing assurance
(Gu et al., 2022). Companies must, therefore, recognise that integrating ESG
information into reporting represents a substantial undertaking and must not
underestimate the resources required to achieve compliance (Leitner-Hanetseder
et al., 2023).
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52 Sustainable Performance in Business Organisations and Institutions...
Moreover, it should be noted that the external audit process is not only
important for enhancing transparency and completeness of information on
sustainability practices in general, but it also plays a crucial role in identifying
aspects that do not align with the requirements of the CSRD or the ESRS. This
further underscores the importance of external auditing in ensuring that
sustainability information disclosed by organisations and their underlying
processes are reliable and accurate. Once again, external auditors’ independence
can hinder managers’ opportunistic incentives to provide overly positive reports
on sustainability practices. In order to improve the scope and credibility of
sustainability aspects, it is essential to strengthen both internal and external
governance aspects (Al-Shaer, Albitar, & Hussainey, 2022).
Furthermore, undertakings should be prepared to report the ESG data in the
standardised European Single Electronic Format (ESEF) (CSRD par. 55). This
approach would enable all sustainability-related information to be easily managed
and accessed in the long term through a centralised register, such as the European
Single Access Point (Wunder, 2022). By adopting this approach, undertakings can
ensure that their sustainability reports are more transparent, comparable, and
accessible to stakeholders, which can ultimately contribute to better decision-
-making and improved organisational performance. The importance of using
a standardised electronic format and a centralised European Single Point of Access
for sustainability reporting is not only related to the enhanced accessibility and
comparability of information but also to the future potential for data analysis
by algorithms that can identify patterns and signals relevant to value or impact.
This approach will be cost-effective and has the potential to prevent information
overload for stakeholders (Sellhorn & Wagner, 2022) while also guarding against
green- or bluewashing. Moving forward, the assessment of information overload
and relevant information will need to be evaluated in a different way than in the
past, given the potential for more advanced data analysis techniques. Overall,
these developments have significant implications for sustainability reporting and
stakeholder engagement in the future – and for the priorities based on which
European companies are managed.
2.4. Conclusions
In conclusion, the methodology employed in this paper has provided valuable
insights into the impact of the European Sustainability Reporting Standards (ESRS)
under the Corporate Sustainability Reporting Directive (CSRD) on sustainable
performance measurement and management control systems. Stakeholder en-
gagement and a management approach are critical for successful implementation,
ensuring transparency and decision usefulness. The expansion of data collection
and IT infrastructure necessitates resource allocation and expertise. The combi-
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J. Baumüller, S. Leitner-Hanetseder, Ch. Eisl, Sustainable Performance Measurement under the New European Regulation... 53
nation of a thematic analysis of literature combined with the analysis of the new
reporting framework has allowed for a comprehensive understanding of the
requirements and implications of the CSRD and ESRS.
However, it is important to acknowledge the limitations of the methodology
used. The reliance on existing literature may introduce bias or limitations inherent
in the reviewed sources. Additionally, the analysis of the new reporting framework
is based on available information and may not capture the full extent of the
practical challenges and implications that companies may face in implementing
the CSRD and ESRS.
Lastly, this chapter is based on the version of the ESRS that were submitted to
the EC in November 2022. The final version of these standards will differ in several
details; nevertheless, the main findings of this chapter and the conclusions drawn
are expected to remain valid also for this final version.
Despite, these limitations, the methodology employed has provided a strong
foundation for understanding the potential effects of the CSRD and ESRS on
sustainable performance measurement and management control systems. Future
research could expand upon this work by conducting empirical studies (see
for example chapters 9, 11, 12 and 13 of this book) to validate and supplement
the findings, as well as considering the specific challenges and experiences
of companies in implementing the new reporting standards.
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Chapter 3
Cost and Benets of Sustainability Reporng:
Literature Review
Kristina Rudžionienė
Vilnius University
e-mail: kristina.rudzioniene@knf.vu.lt
ORCID: 0000-0001-8111-5675
Šarūnas Brazdžius
Vilnius University
e-mail: sarunas.brazdzius@gmail.com
ORCID: 0009-0009-4678-1555
Quote as: Rudžionienė, K., & Brazdžius, Š. (2023). Cost and Benefits of Sustainability Reporting:
Literature Review. In J. Dyczkowska (Ed.), Sustainable Performance in Business Organisations
and Institutions: Measurement, Reporting and Management (pp. 56-72). Wroclaw: Publishing House
of Wroclaw University of Economics and Business.
In today’s business world, profit-seeking companies face a new reality where they
must comply with international and national regulations requiring them to
prepare non-financial statements and engage in sustainable activities. However,
if these activities and their reporting are voluntary, company managers and
shareholders may require additional arguments to justify their implementation
due to the need for economic benefit. Therefore, the literature suggests that
businesses should use cost-benefit analysis as a tool to assess the impact
of sustainability activities on their current and future performance. A cost-benefit
analysis should include all financial and non-financial impacts of the activity to
provide rational and persuasive arguments for sustainability reporting. Despite
the potential benefits of sustainability reporting, companies should ensure that
the benefits outweigh the costs, particularly during the initial implementation
phase, where sustainability activities and reporting may increase costs and reduce
financial results.
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K. Rudžionienė, Š. Brazdžius, Cost and Benets of Sustainability Reporting: Literature Review 57
The capital-intensive nature of sustainability activities means that they are
generally more relevant to profitable companies with the necessary resources to
pursue additional objectives. For companies primarily concerned with survival,
these ideas may not be as relevant unless the company’s activities align with
sustainability goals.
The main objective of this chapter is to investigate the costs and benefits
of sustainability reporting for companies, both in financial and non-financial
terms, based on empirical studies conducted over the last decade in developed
countries.
It is important to note that this analysis does not evaluate the potential costs
and benefits of sustainability activities. The focus is on the economic effects
of sustainability reporting. Additionally, the impact of individual standards
for specific industries or activities on businesses was not analysed.
Given the various terms used to describe a company’s sustainability activity,
such as ‘sustainability’, ‘Corporate Social Responsibility’ (CSR), ‘ESG’, ‘non-financial’,
‘integrated’, ‘triple bottom line’, ‘reporting’ and ‘disclosure’ we have taken all
of these into consideration in our literature review. To simplify our analysis, we
have combined these activities under the umbrella term ‘sustainability’. Since it is
often challenging to distinguish between CSR activities and reporting (Christen-
sen, Hail, & Leuz, 2021), we assume that a company’s sustainability performance
is accurately reflected in its statements without any greenwashing. Therefore,
the benefits of sustainability reporting can be seen as equivalent to those
of sustainability itself. While the costs of sustainability reporting may sometimes
be difficult to differentiate from the costs of sustainability activities, we will
attempt to identify and address these issues in our research.
This literature review followed a rigorous methodology with the following
stages.
1. The search for relevant studies was conducted using the SCOPUS (Elsevier)
database, which is one of the largest online databases for academic sources.
2. The search terms used in the advanced search included various terms
related to sustainability reporting: ‘sustainability reporting’ OR ‘sustainability
disclosure’ OR ‘social responsibility reporting’ OR ‘social responsibility disclosure’ OR
‘ESG disclosure’ OR ‘ESG reporting’ OR ‘non-financial disclosure’ OR ‘non-financial
reporting’ OR ‘integrated reporting’ OR ‘integrated disclosure’ OR ‘triple bottom line
reporting’ OR ‘triple bottom line disclosure’ AND ‘benefit’ OR ‘cost’ OR ‘impact’ AND
effective*. The search was also limited to sources that used the term ‘effective’.
The following inclusion criteria are as follows. The inclusion criteria for the
study were original and peer-reviewed meta-analyses, literature reviews, research
articles, conference papers, and working papers (and some additional studies
of KPMG) that were fully online accessible and written in English. The publications
had to be from the period of 2010 to March 2023 to ensure up-to-date research.
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58 Sustainable Performance in Business Organisations and Institutions...
3. After the initial research, we narrowed down our selection by reading the
abstracts and conclusions of the articles while adhering to our eligibility criteria.
These criteria included focusing on profit-seeking companies rather than the
macro level, empirical research instead of theoretical, and a financial or commercial
perspective rather than an environmental one, such as biodiversity, climate
change, consumption, emissions, human rights, and so on.
The decision was made to focus on sources that conducted research in
developed economies such as the U.S., Europe, Canada, and Australia, rather than
in developing or emerging economies, based on the analysis of Atz, Van Holt, Liu,
and Bruno (2023) which indicated that up to a third of studies in a global sample
(29%), the U.S. (33%), and Europe (25%) were focused on these regions.
3.1. Costs of Sustainability Reporting
When investigating the costs of sustainability reporting, it is important to
differentiate between direct costs associated with the preparation of sustainability
reports and indirect costs incurred in implementing sustainability activities within
the company.
Direct costs of sustainability reporting
Direct costs include the expenses related to preparing, certifying, and
disseminating sustainability reports (Christensen et al., 2021). Some studies have
found that the costs of sustainability reporting can vary widely depending on
factors such as the size of the company, industry, the scope of the report, the
reporting framework used, and the level of assurance required (e.g., by external
auditors) (Christensen et al., 2021), the level of integration of sustainability into
a company’s overall strategy, the use of digital reporting tools, and the quality of
data collection and analysis. These costs are typically not disclosed in financial
statements and are, therefore, not included in most research studies. However,
some studies provide examples of direct costs with precise figures (Table 3.1).
Table 3.1. Costs of creating and verification of sustainability reports
Size of the company
by number
of employees
Cost of creating the report (€) The cost of getting
the report verified (€)
Reasonable
estimate
High
estimate
Reasonable
estimate
High
estimate
500 to 999 17 000 33 300 7 200 11 000
1000 to 4999 30 300 61 600 11 000 18 000
5000 + 197 000 357 000 30 000 100 000
Evaluation from CAC 40 (top companies in France) 60 000 200 000
Source: (KPMG, 2013).
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K. Rudžionienė, Š. Brazdžius, Cost and Benets of Sustainability Reporting: Literature Review 59
A survey of large global companies conducted by KPMG in 2013 found that
the average cost of creating a sustainability report was €193,000, with an
additional €37,000 in verification costs (KPMG, 2013). A study conducted by
Lozano, Nummert, and Ceulemans (2016) focusing on large corporations primarily
situated in Europe revealed that the projected expenses associated with the
preparation and dissemination of a sustainability report averaged €57,532, with
a standard deviation of €64,458. Notably, the highest cost for a report was
€310,000, while the lowest was €3300. However, the cost varied greatly depending
on the industry, with the highest costs reported in the financial sector ($1.1 million
per year) and the lowest costs reported in the technology and communications
sector ($250,000 per year). A more recent study of Danish companies found
that the average cost of preparing a sustainability report was DKK 316,000
(approximately €42,000), with larger companies spending more than smaller ones
(Christensen et al., 2021).
It can be inferred that companies that undertake various sustainability
initiatives encounter significant challenges in calculating the requisite resources
for the collation of information, computation of pertinent indicators, as well as the
preparation and dissemination of high-quality non-financial statements following
their chosen set of standards. Moreover, there may be discrepancies in costs
between initial and subsequent reports, which may entail modifications in data,
indicators, and strategy. In addition, companies must contemplate the verification
of such reports, as not all jurisdictions require an audit, albeit mandatory social
audits are anticipated shortly by the EU, thus necessitating further financial
resources.
Indirect costs of whole sustainability activities
To obtain relevant information to be included in a sustainability report, companies
must undertake diverse sustainability initiatives aligned with the sustainable
development goals (SDGs). Costs appear at the first moment of implementing
strategy in the company (Bielawska, 2022). The implementation of such strategies
incurs costs from the outset, with the most significant challenges stemming from
the need to conform to Corporate Social Responsibility (CSR) requisites. To fully
understand social responsibility, it is crucial to collaborate with suppliers, ensure
responsible production processes, deliver sustainable services, engage with
stakeholders, and practice good corporate governance (Bielawska, 2022). Costs
can emerge from the regular operations of the company and can be classified into
different categories.
Only some studies were used to research real amounts or ratios of sustain-
ability (environmental and social) expenditures, such as environmental expendi-
tures, environmental R&D expenditures, donations, and training expenditures.
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60 Sustainable Performance in Business Organisations and Institutions...
Environmental expenditures measure all firm expenditures on environmental
protection, that is, those used to prevent, reduce, and control environmental
aspects, impacts, and hazards. In addition, they include disposal, treatment, sani-
tation, and clean-up expenditures. Environmental R&D expenditures focus
instead on firm expenditures that are used for the development of environmen-
tally friendly products and services. Donations capture a firm’s monetary cash and
in-kind donations while training expenditures capture firm expenditures on all
training undergone by employees (Grassmann, 2021). The descriptive statistics
show that, on average, firms spend more on environmental than on social ex-
penditures, i.e., environmental expenditure is 3.1% of net sales, and the maximum
for social expenditures is 0.9% of net sales (Grassmann, 2021). Firms that publish
integrated reports have significantly higher social expenditures (Grassmann,
2021).
Here are some examples of costs associated with sustainability activities that
have been identified in various sources: 1) implementing sustainable practices
often involves the use of renewable energy sources (for example, solar or wind
power), upgrading facilities or equipment to improve energy efficiency or reduce
emission, which can result in higher upfront costs for equipment and installation;
2) adopting sustainable practices may require changes in materials and products
used, which may come at a higher cost than traditional options; 3) obtaining
certifications for sustainable practices, such as LEED certification for buildings
or Fairtrade certification for products, can involve fees and additional costs;
4) companies may need to invest in training and educating employees on
sustainable practices, which can also come at a cost; 5) sustainability reporting
and auditing can involve costs for preparation, certification, and dissemination
of reports; 6) compliance with environmental and social regulations can
so-metimes result in higher costs for companies, particularly in industries such
as energy and manufacturing; 7) implementing sustainable supply chain practices,
such as using recycled materials or reducing waste; 8) conducting life cycle as-
sessments to identify opportunities to reduce environmental impacts throu-
ghout a product’s life cycle; 9) developing and implementing new policies or
programs to promote social responsibility and ethical practices; 10) undertaking
research and development (R&D) to identify new sustainable technologies or
products; 11) engaging with stakeholders, including customers, employees, and
communities, to ensure alignment with sustainable values and goals; 12) creating
and maintaining sustainability reporting systems to track and report on progress
towards sustainability goals; 13) engaging with external sustainability standards
organizations and initiatives, such as the Global Reporting Initiative or the United
Nations Global Compact.
The adoption of sustainability strategies in a corporate setting can prove to
be a financially demanding venture, primarily attributed to the need to adhere
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K. Rudžionienė, Š. Brazdžius, Cost and Benets of Sustainability Reporting: Literature Review 61
to CSR standards, the direct costs incurred during the implementation
of sustainability initiatives, and the necessity to engage with suppliers and
stakeholders. The expenses incurred from sustainability initiatives can be broadly
categorized into three primary classifications: economic costs, environmental
costs, and social costs. Economic costs pertain to the financial aspects of
sustainability activities, whereas environmental costs are related to the impact
of sustainability activities on the natural environment. Lastly, social costs are
attributed to the impact of sustainability activities on society and stakeholders.
Businesses may face costs related to mitigating greenhouse gas emissions,
preserving biodiversity, conserving natural resources, managing waste, controlling
pollution, and rehabilitating the environment.
3.2. Benefits of Sustainability Reporting
Although implementing sustainability activities and reporting incurs significant
costs, it also generates various positive impacts, both financial and non-financial,
in the short and long term.
Financial benefit
A significant number of studies have examined the link between sustainability
reporting and the financial performance of companies (CFP). To ensure objectivity,
we have reviewed meta-analyses and literature reviews conducted on this topic
(Table 3.2).
Herefore, as we see from meta-analyses and literature reviews, the overall trend
of sustainability reporting and corporate financial performance relationship is
positive or U-shaped, but in the specific sector, in the specific country under specific
conditions, it may not necessarily be positive. Corporate financial performance in
research studies is mostly measured by accounting-based indicators such as return
on assets ratio (ROA), return on equity ratio (ROE), and others, but many studies
were performed using market-based indicators, but results on the relationship
between sustainability reporting and financial performance are the same.
Kocmanová, Pavláková Dočekalová, Škapa, and Smolíková (2016) found that
despite the positive economic value, most of the selected Czech companies
exhibited negative value added. Li, Gong, Zhang, and Koh (2018) reported
a positive association between ESG disclosure level and firm value and also
observed a positive relationship between higher CEO power and ESG disclosure
and firm value. Fatemi, Glaum, and Kaiser (2018) discovered a positive association
between ESG strengths and firm value but a negative association between ESG
weaknesses and firm value. The study also found that ESG disclosure could
dampen the negative impact of weaknesses and decrease the positive impact
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62 Sustainable Performance in Business Organisations and Institutions...
of strengths on firm valuation. Petrescu et al. (2020) identified several factors,
such as process efficiency, cost reduction, waste reduction, and efficiency impro-
vement, that lead to an improvement in a company’s financial performance.
Table 3.2. Meta-analyses and literature reviews on the relationship between sustainability
reporting and a company’s financial performance
Authors Sample Main results
Friede, Busch,
and Bassen
(2015)
2200 studies
since the
mid-1990s
Roughly 90% of studies find a nonnegative ESG–CFP relation.
More importantly, the large majority of studies report positive
findings. The positive ESG impact on CFP appears stable over
time.
Busch and Friede
(2018)
25 meta-
-analyses
All CSP–CFP summary effects are highly significant and positive.
It was not detected statistically significant differences between
the effects of environmental and social-related CSP on CFP.
Saha and
Cerchione (2020)
114 papers
(1958–2016)
CSR has a direct positive impact on CFP.
Velte, Stawinoga,
and Lueg (2020)
73 studies
(2008–2019)
Carbon performance increases financial performance and has
a negative impact on the cost of capital.
Veltri and
Silvestri (2020)
27 papers
(2011–2020)
Investors value financial (and non-financial) information
disclosed by corporate IR. IR is associated with greater analyst
forecast accuracy, lower cost of capital, higher stock liquidity,
higher firm market value, and expected cash flows.
Christensen et al.
(2021)
over 380 CSR
studies up to
2020
The results are mixed (positive, U-shaped). CSR increases
financial performance or firm value. Firms that are less
susceptible to CSR or ESG shocks offer lower returns, and vice
versa.
Velte (2022) 85 studies
(2012–2020)
IR adoption and IR quality are linked with positive
consequences on firm valuation, as they lead to higher total
performance measures.
Khan (2022) 672 papers
(2012–2020)
EU and US-based studies reported ESG disclosure has a
positive impact on financial performance that is statistically
insignificant. ESG performance increases firm value.
Bosi, Lajuni,
Wellfren, and Lim
(2022)
358 articles
(1998–2022)
Sustainability reporting is becoming more generating benefits
and environmental impacts. CSR reporting can help companies
be more resilient in difficult times. ESG improves financial
transparency.
Atz et al. (2023) 1,141 papers
and 27
meta-reviews
(2015–2020)
ESG investing provides asymmetric benefits, especially during
a social or economic crisis. There exists a robust and positive
association between sustainability and financial performance
on the firm level.
Source: own presentation.
Lang, Lins, and Maffett (2012) reported that reduced transaction costs and
increased liquidity can lead to benefits. Boţa-Avram, Groşanu, Răchişan, and
Gavriletea (2018) found that increased liquidity is related to the lower implied
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K. Rudžionienė, Š. Brazdžius, Cost and Benets of Sustainability Reporting: Literature Review 63
cost of capital and higher valuation as measured by Tobin’s Q, implying that
liquidity acts as a mechanism linking transparency to firm valuation and equity
cost of capital. Sustainable corporations with high ESG performance and
transparent reporting experience lead to higher market returns, which benefits
both shareholders and sustainable development (Khan, 2022; Kocmanová et al.,
2016; Lozano et al., 2016; Weber, 2014). Serafeim and Yoon (2022) found that
prices respond only to financially material ESG news, with a stronger reaction to
positive news, news with more coverage, and news related to social capital issues.
The market effect size is not consistent across the primary studies, which can be
attributed to the geographical diversification of the sample of primary studies
(Khan, 2022).
Fatemi et al. (2018) found that CSR expenditures could reduce the cost
of capital. Vena, Sciascia, and Cortesi (2020) also confirmed that IR adopters, on
average, benefit from a 1.4% decrease in the cost of capital. Christensen et al.
(2021), after the analysis of existing studies, concluded that better CSR perform-
ance is associated with lower loan spreads and, hence, a lower cost of debt. Transpar-
ency through the communication of sustainable activities categories can attract
a considerable number of investors and lower the costs of capital in competitive
markets (Petrescu et al., 2020). Grassmann (2021) studied a global and listed
sample between 2012 and 2017 and observed that environmental expenditures
follow a U-shaped relationship, while social expenditures follow an inverted
U-shaped relationship with firm value. The study also showed that IR positively
moderates the association between environmental expenditures and firm value
for firms with either a low or high level of environmental expenditures but appears
to have a negative moderating effect for firms that have moderate environmental
expenditures. The study, however, found no indication of a moderating effect of
IR for the inverted U-shaped relationship between social expenditures and firm
value. Therefore, investors should consider social expenditures to be important
for firms, but there is a limit to how much they value such expenses. This limit can
be described as ‘too much of a good thing’, as exceeding it can decrease a firm’s
value. To put it simply, companies need to find the right balance between social
expenditures and firm value, as exceeding the optimal level may have negative
effects on their value.
Short-term and long-term effects
Investing in contemporary, energy-efficient technologies or renewable energy
sources (RES) incurs costs at the time of investment but can result in increased
profitability of production in the future. Similarly, hiring highly skilled employees
may increase wage costs; however, their competence may lead to a reduction in
production costs, ultimately strengthening the company’s competitiveness.
These activities must be carried out systematically, integrated into the long-term
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64 Sustainable Performance in Business Organisations and Institutions...
strategy of the company, and aligned with its values and objectives (Bielawska,
2022). Rassier and Earnhart (2011) found a positive relationship between publicly
owned firms in the 53 chemical manufacturing industries between tighter clean
water regulation and financial performance in both the short run and long run,
with a stronger effect in the long run. Horváthová (2012) identified that increased
Czech firms’ emissions deplete company profitability in the two years lag period
but improve in the one-year lag period. The results suggest that while the effect
of environmental performance on financial performance is negative for environ-
mental performance lagged by one-year lag, it becomes positive for two years lag.
Dobre, Stanila, and Brad (2015) detected a positive correlation between social or
environmental performance and stock market returns one year after the changes
occurred in Romanian-listed companies.
As previously mentioned, sustainable practices have been found to have
a positive influence on a company’s financial performance. This can be attributed
to the enhanced cost management and profitability generated in the future by
investing in modern, energy-efficient technologies or hiring highly qualified
employees. Despite the potential short-term decrease in profitability, the long-
-term benefits of sustainability activities are believed to outweigh these costs and
ensure the company’s continued sustainability.
Non-financial benefits
Sustainability and its reporting also have many non-financial benefits in the short
and long terms. Sustainability reports are a good tool in the hands of companies
to communicate and manage relationships with stakeholders. The disclosure of
sustainability is a differentiating factor in a competitive industry, encouraging
investors’ confidence, confidentiality, and loyalty of employees (Petrescu et al., 2020).
The benefits include increased market recognition, improved company image,
increased trust, an offer of cooperation from companies obliged to sustainability
reporting, etc. (Table 3.3).
We can identify other non-nancial benets investigated in empirical studies:
1. Reputation and differentiation: sustainability communication can signal
the quality of the company and lower the cost of equity in competitive mar-
kets (Fernández-Kranz & Santaló, 2010); sustainability efforts can differentiate
companies in some industrial sectors (Fernández-Kranz & Santaló, 2010); positive
differentiation can be achieved by disclosing sustainability commitments
(Fernández-Kranz & Santaló, 2010); the social, economic, and formal practices
dimensions of sustainability positively affect competitive advantage (Cantele &
Zardini, 2018); CSR reporting can improve organizational commitment in SMEs
(Cantele & Zardini, 2018); sustainability reporting can help improve brand image
and increase consumer confidence in the company’s products/services (Petrescu
et al., 2020).
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K. Rudžionienė, Š. Brazdžius, Cost and Benets of Sustainability Reporting: Literature Review 65
Table 3.3. Non-financial benefits of sustainability reporting
Authors
Improved
reputation,
image
Enhanced
stakeholder
relations
Increased
consumers
loyalty
Increased
access
to capital
Improved
internal
management
Help
manage
risks
Meet the growing
demand
for information from
society
Fernández-Kranz
and Santaló (2010) R R R
Servaes and Tamayo
(2013) R
Henisz, Dorobantu,
and Nartey (2014) R
Lozano et al. (2016) R R R R
Pérez and Lopez-Gutierrez
(2017) R
Cantele and Zardini (2018) R R
Li et al. (2018) R
Petrescu et al. (2020) R R R R R R
Bielawska (2022) R R R R
Source: own presentation.
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66 Sustainable Performance in Business Organisations and Institutions...
2. Stakeholder engagement and communication: sustainability reporting can
maintain contact with external stakeholders and local/global communities
(Fernández-Kranz & Santaló, 2010); firms engaged in sustainability initiatives can
contribute to their success, reduce the negative social influence, and increase the
benefits to society in general (Fernández-Kranz & Santaló, 2010); sustainability
reporting can foster stakeholder dialogue (Lozano et al., 2016).
3. Anticipating and mitigating risks: sustainability reporting can broaden
companies’ horizons and identify new ways to institute environmental practices
(Lang et al., 2012); sustainability reporting can help anticipate problems in
a particular community and prepare appropriate actions, thus avoiding future
material shortages (Morioka & Carvalho, 2016).
4. Innovation and efficiency: sustainability reporting can broaden companies’
horizons and identify new areas of economic and social growth (Lang et al., 2012);
sustainability reporting can improve processes and increase response speed
(Morioka and Carvalho, 2016); CSR expenditures may increase the firm’s probability
of survival (Fatemi et al., 2018); investors’ reactions to CSR performance. Investors
who are not explicitly assessing CSR performance tend to estimate higher
fundamental value in response to positive CSR performance and lower
fundamental value in response to negative CSR performance (Elliott, Jackson,
Peecher, & White 2014); sustainability reporting can promote waste reduction and
efficiency, innovations (Petrescu et al., 2020); objectives of reporting are
transparency of sustainability performance; promoting sustainability efforts; and
fostering change (Lozano et al., 2016).
5. Investor relations: the issuance of stand-alone CSR reports is associated
with lower analyst forecast error (Dhaliwal, Radhakrishnan, Tsang, & Yang, 2012).
This relationship is stronger in more stakeholder-oriented countries, i.e., in
countries where CSR performance is more likely to affect a firm financial perform-
ance; CSR disclosure reduces the information disadvantage of foreign investors
and facilitates cross-border investment (Cai, Lee, Xu, & Zeng, 2019).
6. Other social benefits: CSR expenditures can lead to value creation, such
as a more loyal customer base and dedicated workforce, and avoid the costs
associated with adverse actions by labour unions, consumer-advocacy groups, or
governmental agencies empowered to monitor its activities (Fatemi et al., 2018);
sustainability reporting can improve employee loyalty and recruitment (Petrescu
et al., 2020); sustainability reporting can have positive effects on competitive
advantage and value generated by the organization (Shad, Lai, Fatt, Klemeš, &
Bokhari, 2019); sustainability reporting can bring social benefits such as supporting
environmental programs and increasing consumer confidence, as well as helping
companies identify new consumer segments and improve standard running
(Petrescu et al., 2020); the correlation between CSR and positive media coverage
is more robust in specific situations, including firms operating in ‘sin’ industries,
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K. Rudžionienė, Š. Brazdžius, Cost and Benets of Sustainability Reporting: Literature Review 67
periods of low investor sentiment, and before equity offerings. Firms that
demonstrate exceptional social responsibility and receive favourable media
coverage experience a notable interaction that amplifies their equity valuation
while reducing their cost of capital (Cahan, Chen, C., Chen, L., & Nguyen, 2015).
The different situation with sustainability reporting can be in small and
medium enterprises (SMEs) because they are not obliged to report this activity,
and it is difficult to research the impact of reporting because of the absence of
empirical data.
Aragón-Correa, Hurtado-Torres, Sharma, and García-Morales (2008) found that
SME Southern Spanish automotive repair firms with the most proactive practices
exhibited a significantly positive financial performance. They also showed a positive
and significant relationship between innovative-preventive environmental practi-
ces and eco-efficient practices and firm performance for the sampled SMEs. These
results show similar relationships for large and small firms.
Cantele and Zardini’s (2018) study of small and medium Italian manufacturing
firms indicated that sustainability aspects’ have a positive impact on a competitive
edge; this edge afterwards had a constructive influence on companies’ financial
positions in the market.
The research of Bielawska (2022) has shown that the implementation of CSR
brings many benefits to micro-, small-, and medium-sized enterprises SMEs.
Bielawska (2022) identified 11 benefits possible from CSR activity: 1) improving
organizational governance; 2) the production of (obligatory or voluntary) stan-
dardized CSR/ESG reports can facilitate the transformation towards a socially
responsible enterprise, can contribute to cooperation opportunities with large
enterprises, and can be an incentive for investors to co-finance the enterprise.
These reports can also enable SMEs to cost-effectively communicate information
to contracting parties; 3) the benefits a company obtains from implementing
CSR, to a large extent, are determined by the attitude of its employees. That is
why it is so important to treat employees fairly; 4) improve image and reputation;
5) customer loyalty; 6) consumers who are well-informed about CSR seek
information that is less price-oriented and more about the company’s environ-
mental and social responsibility; 7) product differentiation and competitive
advantage; 8) contact management. If a company takes up the challenge and
initiates interesting, effective CSR projects, it will gain a pioneering position;
9) enhance commitment to sustainable development; 10) overcome public
relations crises; 11) location and regional development; 12) transparency in
charity. The most frequently mentioned benefits are a positive impact on
financial performance, improved image, and reputation, increased market
recognition, strengthened competitive position, increased attractiveness as an
employer, increased employee loyalty, increased acceptance among customers,
and increased prestige of the owner and their family in the community.
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68 Sustainable Performance in Business Organisations and Institutions...
The results of Bielawska’s research indicate that many entrepreneurs act
intuitively; they do not realize the need and benefits of conducting CSR
systemically, that is, in a way that allows them to anticipate all the factors, elements,
situations, and other circumstances that may occur. 62% of respondents stated
that CSR positively influences their company’s financial performance. Studies
conducted in Spanish SMEs also confirmed this favourable correlation.
Benefits sometimes emerge only when the effects of companies’ social and
environmental commitment become visible. The results of the research indicate
that, in many cases, the relationship between CSR and the unmeasurable effects
of this activity, e.g., employee loyalty and customer loyalty, are visible only in
specific situations (Bielawska, 2022).
The quality of reports produced by small companies is comparatively lower
and may not meet the expected standards. As a result, their impact and benefits
may vary from those of larger companies that produce high-quality reports. This
is due to several factors, such as limited resources and expertise in reporting,
which may lead to incomplete or inconsistent disclosure of information.
Consequently, stakeholders may have difficulty assessing the true performance
and sustainability of small companies, which may affect their investment decisions
and perception of the company. Thus, it is important to address the challenges
faced by small companies in producing high-quality reports in order to improve
their transparency and accountability.
3.3. Conclusions
The objective of this chapter was to investigate the costs and benefits
of sustainability reporting for companies, both in financial and non-financial
terms, based on empirical studies conducted over the last decade in developed
countries. The literature review has revealed that the costs associated with
sustainability reporting are substantial, and these costs vary depending on the
size and complexity of the organization, the extent of the sustainability reporting,
and the reporting standards adopted. The costs associated with sustainability
reporting include direct costs such as data collection, analysis, and reporting and
indirect costs such as management time and effort, training, and consultancy
fees. However, despite these costs, the evidence suggests that sustainability
reporting can generate significant benefits for organizations, including improved
financial performance, access to capital, lower cost of capital, and stakeholder
engagement in developed countries. Non-financial benefits of sustainability
reporting include reputational benefits, increased employee motivation, and en-
hanced risk management. While meta-analyses and literature reviews demonstrate
a positive trend between sustainability reporting and corporate financial per-
formance, it is important to note that the relationship may not be uniformly
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K. Rudžionienė, Š. Brazdžius, Cost and Benets of Sustainability Reporting: Literature Review 69
positive across all sectors, countries, and conditions. The managers of firms
should also evaluate that relationship between environmental and social re-
porting and corporate financial performance can be U-shaped form.
The benefits of sustainability reporting have been found to be particularly
pronounced for small and medium-sized enterprises (SMEs), as it can enhance
their competitiveness, improve their access to capital, and provide them with
a means of engaging with stakeholders. However, SMEs face several challenges
in implementing sustainability reporting, including a lack of resources, expertise,
and awareness of reporting standards. To overcome these challenges, SMEs can
adopt a phased approach to sustainability reporting, focusing initially on a few
key sustainability issues and gradually expanding their reporting over time.
Therefore, the implementation of sustainability and its reporting may result in
short-term negative impacts for businesses, but the long-term positive effects are
likely to outweigh any disadvantages. In the long run, the costs would be
‘compensated’ by more efficient and/or more economical production, e.g., by
using less water or electricity, and therefore investments in CRS, although
sometimes costly, contribute to laying the foundations for increased profitability
of the business.
In conclusion, the costs and benefits of sustainability reporting are significant,
and organizations should carefully weigh these factors when deciding whether
to engage in sustainability reporting. Despite the costs, sustainability reporting
can generate significant benefits for organizations, particularly for SMEs, in both
financial and non-financial terms. Therefore, organizations should carefully
evaluate their sustainability reporting practices and adopt a phased approach,
if necessary, to ensure that they can reap the benefits of sustainability reporting
while minimizing the associated costs. Additionally, future research should focus
on developing more accurate methods for measuring the costs and benefits of
sustainability reporting, particularly for SMEs, as well as investigating the impact
of reporting standards and frameworks on the costs and benefits of sustainability
reporting.
As this study was based on articles published in the SCOPUS (Elsevier) database
between 2010 and March 2023, which presented studies in developed countries,
these choices constitute limitations of this study. In the future, it may be possible
to systematise existing research on this topic over a longer period of time around
the world, both for all companies and for specific industries, large and small
companies, private and public sectors including as more as possible performed
research in other scientific journals, conference papers in English and other
languages.
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70 Sustainable Performance in Business Organisations and Institutions...
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DOI: 10.15611/2023.83.1.04
Chapter 4
Valuable Informaon for Stakeholders
or Corporate Spin?
The View of Non-Financial Reports
Potenal Preparers and Users
Marta Nowak
Wroclaw University of Economics and Business
e-mail: marta.nowak@ue.wroc.pl
ORCID: 0000-0002-0625-7988
Quote as: Nowak, M. (2023). Valuable Information for Stakeholders or Corporate Spin? The View
of Non-Financial Reports Potential Preparers and Users. In J. Dyczkowska (Ed.), Sustainable
Performance in Business Organisations and Institutions: Measurement, Reporting and Management
(pp. 73-88). Wroclaw: Publishing House of Wroclaw University of Economics and Business.
For decades, a shareholder approach was perceived as the only acceptable appro-
ach in economics, finance, management, and accounting. Its omnipotence was
evident in reporting which consisted mainly of financial reporting. The stakeholder
theory proposed by Freeman ventured its dominance (Freeman et al., 2010). The
latter gives a voice to different groups and individuals related to the company. For
years, the so-called Friedman-Freeman debate has been conducted. When Fried-
man refers predominantly to legal aspects and the fiduciary obligations of
managers towards stakeholders, Freeman refers to the company’s moral obligations
to society (Nowak, 2015). Freedman, in his works, postulates the accounting for
stakeholders. This concept includes the necessity to inform various stakeholders
about the company’s actions via an accounting system. Accounting scholars
acknowledge the importance of stakeholder theory (Manetti & Belluci, 2018).
The parallel to Freeman’s postulates enclosed in stakeholder theory, corpo-
rate social responsibility and sustainability concepts were introduced. As a conse-
quence, various reports distinguished from financial statements are recom-
mended. However, the question emerges if the companies use these reports for
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74 Sustainable Performance in Business Organisations and Institutions...
the good of their stakeholders or just for impression management purposes.
Owen, Swift, and Hunt (2001) suggest that despite seemingly endorsing active
stakeholder engagement, Social and Ethical Accounting, Auditing and Reporting
is little more than a ‘corporate spin’. This statement is an inspiration for the re-
search presented in this paper.
The chapter aims to explore the primary real purpose that non-financial
reporting (including environmental and social reporting) serves. The inquiry takes
a behavioural approach. It does not analyse the legal aspects of such reporting
but focuses on stakeholders’ (potential users and preparers) perceptions of such
reports. This study’s primary research question is: Is social and environmental
reporting a valuable source of knowledge for stakeholders, or merely a corporate
spin and impression management?
4.1. Stakeholder Theory
The stakeholder concept was introduced in the United States of America by
Stanford Research Institute and in Sweden by Rhenman in the context of infor-
mation organization (Freeman, Phillips, & Sisodia, 2020).
As a theory, stakeholder theory was introduced by Freeman in 1984. The
theory is based on a strong ethics foundation (Kessler, 2018) and has a normative
core (Purnell & Freeman, 2012). It also advances the notion that organizations that
take particularly good care of their stakeholders (i.e., customers, suppliers, em-
ployees, and communities) will function more effectively and create more value
(Kessler, 2018).
Today, there is not one stakeholder theory, but a whole set of different
stakeholder theories exists. Among them, three main groups can be distinguished:
descriptive stakeholder theory, normative stakeholder theory, and managerial
stakeholder theory (Donaldson & Preston, 1995).
Moreover, there are changes in understanding who or what a stakeholder is.
In the literature, there is a long-standing debate about it (Laine, 2010). The scholars
also distinguish many stakeholder attributes and types (Mitchell, Agle, & Wood,
1997; Santana, 2012). The most complex and up-to-date analysis of stakeholder
literature determines 15 types of stakeholder definitions (Miles, 2017).
4.2. Friedman Versus Freeman Debate
The main discussion relating to the stakeholders’ concept was the so-called
Friedman-Freedman debate. They contrast the stockholder approach with the
stakeholder approach (Smith, 2003). They both are based on ethical assumptions.
Friedman’s capitalistic shareholder view put the company’s owner in the centre,
claiming that shareholders possess legitimacy based on ownership rights and
arguing that the managers have fiduciary obligations towards them. This approach
is coherent with the best-known condensation of Friedman’s view on business
ethics, which is the social responsibility of business is to increase its profits. The Freeman
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M. Nowak, Valuable Information for Stakeholders or Corporate Spin... 75
stakeholder approach emphasized the rights of different entities and argued that
ownership rights are not unlimited. The debate is reflected in accounting when
classical, ‘for-shareholders’ accounting contrasts with ‘accounting for stakeholders’.
The differences are reflected primarily in the design of the accounting system and
reporting. While classical accounting aims to report the traditionally desirable
company’s goals, such as profitability, accounting for stakeholders is destined to
disclose how the company’s actions affect and bring value to different stakeholders.
The analysis of the status of this debate after the Enron and other financial
scandals in the U.S. shows that the financial crisis, as the effect of the ethical crisis,
resulted in the prevalence of stakeholder theory (Freeman approach) (Smith, 2003).
Freeman et al. (2010) notice that ‘capitalism’ narration pre-dominates in business
and enumerates different types of this capitalism (labour capitalism, government
capitalism, investor capitalism, managerial capitalism, entrepreneurial capitalism).
Aware of its crucial problems (competition, the existence of dominant groups,
and ethical issues), Freeman et al. (2010) propose an alternative approach called
stakeholder capitalism. Six underlying principles guide stakeholder capitalism:
stakeholder cooperation, the principle of stakeholder engagement, the principle
of stakeholder responsibility, the principle of complexity, the principle of con-
tinuous creation, and the principle of emergent competition.
Freeman et al. (2010) argue that stakeholder theory rejects the hard separation
of financial and social value and that financial performance and social performance
make a category mistake. Nevertheless, most research within finance or accounting
focuses on one of the two categories. Financial value inquiries within stakeholder
theory focus on the impact of stakeholder behaviour on companies’ financial
performance, stakeholders’ influence on accounting, and stakeholders’ reactions
to financial data disclosure. Social value investigations focus on non-financial
reporting, the development of ethical measures, and companies’ spending that
address stakeholders’ needs.
Freeman et al. (2010) observe that a central issue concerning stakeholders
in finance literature is whether managing stakeholders improves profits. The debate
is based on the assumption that satisfying a broad group of stakeholders is incon-
sistent with the ideas of shareholder wealth maximization (Freeman et al., 2010).
According to Jones (1995), finance scholars only acknowledge the moral
foundation of stakeholder theory regarding a firm’s obligation to its shareholders
and other financiers. Nevertheless, they recognize the importance of stakeholders
in providing high financial returns, consistent with an instrumental stakeholder
perspective.
4.3. Accounting for Stakeholders
Accounting for stakeholders can integrate economic and ethical aspects (Nowak,
2020). Freeman enumerates the five most significant challenges and further study
directions, for two of them focus on the sphere of accounting. The first issue
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76 Sustainable Performance in Business Organisations and Institutions...
addresses whether present accounting methods are enough and adequate for
analysing the performance of companies. The second challenge is how to shape
and do accounting. As Freeman observes, current accounting systems are
investor-oriented and focused on how managers shape value for shareholders
and stockholders. They do not take into consideration the value for stakeholders.
However, when the stakeholder approach is at the centre of economic and business
life, the question of accounting for stakeholders emerges (Freeman, 2017).
Van Buren, Mitchell, Greenwood, and Freeman (2012) analysing different
stakeholder theories find one common element. All of them emphasize the ne-
cessity of adequate information. The concept of accounting for stakeholders
emerges. The accounting theory assumes the necessity of appropriate, delivered
on-time, and understandable information. Consequently, accounting for stake-
holders assumes that stakeholders need appropriate, delivered at the time,
and understandable information so they can make information-based decisions.
Freeman et al. (2010) argue that stakeholder theory rejects the hard separation
of financial and social value. They notice that parallel to the extension from finan-
cial to non-financial reporting is the shift from a mono-stakeholder (i.e., share-
holders) to a multistakeholder model (Freeman et al., 2010).
As reporting is an important element of accounting, non-financial reporting,
which focuses mainly on social and environmental issues, can play an important
role in accounting for stakeholders. As various groups of stakeholders exhibit
different competencies in ‘numerical’ accounting which is conducted using
monetary values, non-financial accounting has a more dialogic character and
focuses on narration, which is more acceptable for stakeholders who are not
accounting professionals.
However, it should be observed that accounting for stakeholders, especially
non-financial accounting, can also serve more legitimization than ethical and
stakeholder purposes. Łada (2021) discusses the ‘facade of social responsibility
accounting’, presenting the symbolic aspects of non-financial disclosures and
their legitimizing purposes.
4.4. Research Method
The inquiry presented in this chapter takes the form of qualitative investigation,
with the use of narrative and content analysis.
The respondent group consisted of final-year graduate accounting students.
Several factors dictate the purpose of the selection of this group:
the knowledge of accounting, including reporting, acquired during the studies,
the career choice in accounting makes it probable that the respondents will
be preparers or users of such statements in the future,
students are usually the group that is concerned a lot with ecological and
social possibility issues.
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M. Nowak, Valuable Information for Stakeholders or Corporate Spin... 77
The group characteristic is presented in Tables 4.1–4.3.
Table 4.1. Respondents, according to age
group
Age group No. of respondents
23 14
24 17
25 and more 24
Unassigned 2
Source: own presentation.
Table 4.2. Respondents, according
to gender
Gender No. of respondents
Female 49
Male 7
Unassigned 1
Source: own presentation.
Table 4.3. Respondents, according to their professional experience
in accounting
Experience in accounting No. of respondents
More than 4 years 4
From 2 to less than 4 years 25
From 1 year to less than 2 years 11
Lack of experience 15
Less than 1 year 1
Unassigned 1
Source: own presentation.
The respondents were to answer two questions. One asks them directly if
they think social and environmental reporting is valuable information for
stakeholders or the corporate spin manifestation. The second question asks
whether it should be obligatory or non-obligatory. In each case, the respondents
were also asked to discuss and explain their opinion. Before completing the task,
respondents were given exemplary social and environmental reports. The an-
swers were collected via MS Teams, and the responses were coded and analysed
using NVivo software.
4.5. Study’s Findings
The analysis of narratives results in the exploration of a general approach to non-
-financial (social and environmental) reporting and the identification of other
issues.
Generally, the opinions on the reports were identified as corporate spin,
valuable information, or both, and their justification was explored. Also, the
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arguments and conditions for reports being obligatory or non-obligatory were
given. Also, the inquiry identified more complex issues, such as reasons and
purposes of issuing statements, conditions for their effectiveness, and disadvan-
tages of reports.
Inquiry shows that environmental and social reporting can be seen as:
valuable information for stakeholders (indicated by 19 respondents),
corporate spin (7 respondents),
both aspects (21 respondents).
The examples of narrations that justify the first point of view are the following:
I think that such reports are a piece of valuable information for stakeholders because
they exhibit the strategy realization, information about company management and
results in the scope of corporate social responsibility, which enhances company
responsibility building. (Respondent no. 13, female, aged 24)
In my opinion, such reports [give] valuable information because they present many
data about their activities and the impact on the environment. It is essential for companies
that extract natural resources, such as KGHM or Orlen. They are big companies, and their
activities have great signicance, and they can implement dierent systems or facilities to
avoid air or water pollution. All the assessment of the impact on the environment
encompasses analysis of numerous detailed data, which dene the inuence of the
company on nature. Dierent issues, such as technical, environmental, social, and legal,
are analysed. (Respondent no. 48, female, aged 25)
Among the stakeholder groups that can acquire important information from
environmental and social reports, respondents enumerate:
employees (20),
clients (20),
investors (14),
management (9),
contractors (3),
state (1),
environment protection institutions (1),
industry (1).
The argumentation that the reports can be of great interest to managers are
formulated directly, or they include the purposes for which the information can
be substantial, and these objectives have managerial character. One of the re-
spondents (no. 3, female, aged 25) states:
In big companies […] such reports can become important for management and
other stakeholders, which can inuence a company’s strategic plans.
Another student (no. 30, male, aged 26) observes:
Environmental reports and social responsibility reports can be a valuable source for
the stakeholders […]. Realization of given strategies n facilitate the increase of com-
petitiveness and building of credibility of a company.”
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M. Nowak, Valuable Information for Stakeholders or Corporate Spin... 79
Another respondent (no. 23, female, aged 25) supports that view:
In my opinion, it is valuable information for stakeholders because they can have
a positive impact on the eectiveness of business activities.
Also, the employees are indicated as the target audience, among the stake-
holders, of non-financial reports. One of the respondents (no. 1, female, aged 23)
comments:
If I were a company employee, I would like to be sure that the company that I work for
cares about the environment, relations with clients, and other non-nancial issues.
Another respondent (no. 13, female, aged 24) enumerates that social reporting
can enforce pro-worker actions and behaviour, such as:
payment of salaries on time,
better professional development because of access to training,
better social facilities and additional benefits,
equality in terms of occupational positions.
Another student (no. 36, female, aged 23) presents the profits for the labour
force emerging from issuing non-financial reports:
In such reports, the companies can show their “better side” and compete with other
companies, e.g. […] which company will be rewarded in the ranking “Employer of the
year”. Because of these actions, […] employees can prot. Therefore, I think that nowadays,
presentation of such reports is necessary […] and can lead to conduction of ethical and
responsible business that respects the employee.
Another person (no. 35, female, aged 23) provides a more detailed argumen-
tation:
It is known that the clothes oered in chain stores are produced in Asia at large.
Sometimes, the information reaches us that employees who sew and dye clothes work in
dreadful, life-threatening conditions and are really poorly renumerated. There is a chance
that presenting the information about average salaries of employees in Asia would
discourage consumers from buying the products of a company and force the company to
change for the better, with a more humanitarian approach.
The company’s cooperators are also identified as a group that can profit from
non-financial reports. The justifying narratives focus on information:
For the company that wants to cooperate more tightly or searches for the cooperators,
such a report provides the information. […] the company that plans to start cooperation
would get the information which is needed at the stage of searching for a business partner.
(Respondent no. 28, male, aged 23)
Non-financial reports are also valuable information sources for present and
future clients. One of the respondents (no. 41, female, age not given) emphasizes:
Care about social interest does company a credit and […] clients when possessing
such knowledge about a company, will look with a favour at it.
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Another person (no. 51, female, aged 24) points out that:
CSR actions can inuence the decisions of the customers, for whom the concrete
issues […] such as animal testing, recycling, employee treatment are essential.
Another student (no. 6, female, aged 23) observes that:
A client can turn away from the brand if it is known that a company treats the
environment and exploits its workers.
Another vital stakeholder group identified in the present study are investors.
As one of the respondents (no. 1, female, aged 23) points out:
According to me, investors are interested in cooperation with responsible companies,
and they want to have a wide range of knowledge and information about a particular
company, which builds not only good nancial results but also good relations with its
environment.
Moreover, as the other person (no. 24, female, aged 23) emphasizes:
Thanks to obligatory non-nancial reporting, clients and investors would have a view
on nancial and non-nancial “reality” of a company.
Apart from managers, investors, cooperators, and employees, state and envi-
ronment protection organizations are enumerated as stakeholders that can
take advantage of non-financial reports. One of the respondents (no. 34, female,
aged 26) states:
For state units, it is information about the prevention of environment degradation by
a company.
Another person (no. 28, male, aged 23) adds that:
It is worth looking at this issue also from the perspective of institutions which verify
the environment protection data. Such reports would make it easy for them to draw up
the statements.
Respondents also enumerate conditions that should be fulfilled if the report is
to have real informational value. One of the respondents (no. 49, female, aged 25)
argues:
In my opinion, if the guidelines for report preparation are concrete (what should be
presented in this report), it is valuable information.
Another student (no. 2, female, aged 24) explains:
I think that such reports can be a piece of valuable information for stakeholders if the
company applies the rule included in the report. The investors should allocate their capital
consciously, and they will do it willingly if they are sure that the company’s actions are not
contrary to their own expressed rules.
There are also narratives presenting non-financial reports as a manifestation
of a corporate spin. They consist of the following arguments:
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M. Nowak, Valuable Information for Stakeholders or Corporate Spin... 81
According to me, it is a corporate spin for today. I base this opinion on the fact that the
information in these reports is not controlled properly, which makes manipulation of false
fact giving possible. (Respondent no. 10, female, aged 25)
Generally, it is a corporate spin, and nobody reads it. (Respondent no. 12, male, aged 24)
In my opinion, it is a corporate spin. Such reports aim toward catching clients’
attention […]. (Respondent no. 42, female, aged 24)
Some respondents see two ‘sides of a coin’. One of them (no. 14, female,
aged 24) states:
I guess that nowadays environmental reports and social reports are both: they are
valuable for stakeholders, but they are also a manifestation of a corporate spin.
Another person (no. 15, female, aged 25) comments:
My opinion on this matter is divided. For sure, in some sense, it is a ‘corporate spin’, e.g.
In social media and advertising of big companies […] they exhibit, for example, the whales
sinking in plastic, and they show what actions they want to undertake to decrease the
environment degradation […]. On the other hand, these reports can have great
signicance for the stakeholders who want to cooperate with the company. For sure,
before signing a deal, the potential contractor analyses the company, and the potential
business partner also might want to use a corporate spin because now it is fashionable to
be ecological. So, if we cooperate with ecological companies, our company will also be
perceived as such. Therefore, I think these reports are important equally as a corporate
spin and for stakeholders.
Another respondent (no. 31, female, aged 24) adds:
It is dicult to address such a question. From one point of view, it can be a piece of
valuable information for stakeholders, but there is a question of correctness and
accordance with reality. In today’s world, actions that promote social responsibility have
become fashionable. Companies compete in such a manner that they look as good as
possible in the eyes of their stakeholders and become more competitive (attraction of
specialists and investors). Nevertheless, I think that stating false facts could ‘sink’ the
companies in the case of verication. So, I think that such information can generally be
true and actions real.
It is worth noticing that respondents also indicate the conditions under which
the non-financial reports pose informational value. One of the students (no. 25,
female, aged 24) states:
I think that such reports can have an informational value for stakeholders if the
company indeed applies the rules which are declared in the report. Investors should
allocate their capital consciously, and they will do it willingly if they are sure that the
actions of a company are not contrary to their moral principles.
The question of whether environmental and social reports should be obligatory
brings a variety of answers, which can be summarized into three categories:
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82 Sustainable Performance in Business Organisations and Institutions...
obligatory (30),
non-obligatory (4),
it depends (21).
The narration of one of the respondents, supporting the thesis that non-
-financial reports should be obligatory, is the following:
I think it should be obligatory because it would make it possible to acquire general
information about a company and to assess if it handles its strategy. (Respondent no. 13,
female, aged 24)
Another student (no. 18, female, aged 24) confirms that view:
Reports should be obligatory because nowadays people’s awareness has signicantly
risen and become an essential element in consumer choice-making.
The respondents, who state that reports should not be mandatory, refer to the
freedom of business-doing. One of the students (no. 31, female, aged 24) claims:
In my opinion, social and environmental reports should not be obligatory. In my
opinion, the additional actions which are not the company’s business shouldn’t be
imposed on it.
Another person backs that opinion:
I think that such rereports shouldn’t be obligatory, as it is a company that should
decide if it needs such report. (Respondent no. 4, female, aged 25)
Another person (no. 37, female, aged 23) adds:
It is important [..], but I think its preparation shouldn’t be obligatory.
The narration analysis reveals that respondents identify several conditions for
the mandatory character of non-financial statements. They include:
size (15),
organizational and legal form (1),
environmental impact (15), and
social influence (6) exerted by a company.
Size is apparently one of the essential criteria for obligating a company to
issue non-financial reports. The respondent (no. 10, female, aged 27) states:
I think that such reports shouldn’t be obligatory for small entities (unless the entity
has a signicant impact on the natural environment or social aspects of activity). However,
in the case of big companies with huge impacts, the reports should be obligatory, e.g.,
companies that inuence the environment (mines, like KGHM) or society (e.g., Coca-Cola
inuences sugar consumption). In the case of middle-sized companies reporting should
depend on the eect of the particular entity on the society.
Another respondent (no. 51, female, aged 24) adds:
I think they should be obligatory, but only for chosen companies, like stock exchange
companies or the companies that employ a particular number of people, or companies
that use natural resources, which impacts the environment concretely.
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M. Nowak, Valuable Information for Stakeholders or Corporate Spin... 83
It is apparent that respondents often notice that a company’s big size comes
together with a significant impact on the environment or society.
The organizational and legal form of a company is another criterion used to
define when mandatory non-financial reports should be obligatory. One of the
respondents (no. 33, female, aged 25) argues:
In my opinion, the obligation of preparation of environmental reports and social
responsibility reports should be imposed on capital companies, which do not belong to
small and middle-sized companies sector.
The environmental impact of a company is one of the crucial issues that,
according to respondents, should make the publishing of non-financial statements
obligatory. The respondent (no. 20, male, aged 25) explains:
It depends on the type of operations performed by a company. If the entity uses
a huge quantity of water and produces a lot of pollution (like the mining or oil industry),
it should present environmental reports. If the company does not pollute the environ-
ment signicantly (services, high tech, software), the preparation of such report is not
necessary.
Social impact exerted by a company is another criterion for marking non-
-financial reporting obligatory. Especially the example of production in cheap-
-labour countries is mentioned. A respondent (no. 35, female, aged 23) argues:
It is known that the clothes oered in chain stores are produced in Asia at large. One
time, the information reaches us that employees who sew and dye clothes work in
dreadful, life-threatening conditions and are really poorly renumerated. There is a chance
that presenting the information about average salaries of employees in Asia would
discourage consumers directly from buying the products of a company and force the
company to change for the better, with a more humanitarian approach.
Another student (no. 37, female, aged 23) provides a similar case:
of huge clothes corporations, which decrease their costs with the use of cheap working
power, e.g., in Bangladesh. Here, apart from ethical questions (child labour, human rights)
also, the nancial issue emerges, which impacts the nancial results, like minimum wage
or maximal working time in the countries when production is performed.
There are several reasons and objectives for non-financial reports, according
to the respondents. These goals and motives can be divided into three categories:
general criteria emerging from the global situation,
managerial criteria, focusing on more effective management and more
accurate business decisions,
ethical criteria related to sticking to moral norms.
Among the general criteria, two reasons for issuing non-financial reports can
be distinguished:
environmental degradation (8),
increase of importance of pro-ecological actions (2).
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The managerial motives are the following:
image creation or image enhancement (14),
an additional advantage from any new report/information (12),
more comprehensive view (9),
appreciation of a company (that acts in favour of/for environment and
society) (7),
increase of trust in the company (3),
strengthening of market position (2).
The ethical criteria focus on the following:
enforcing ethics and care about the environment and social issues (8).
The fundamental reason for issuing non-financial reports is environmental
degradation. Respondents are aware of it, and they reckon that such statements
would make companies behave in a more ecological way. A respondent (no. 2,
female, aged 24) argues:
Taking the negative inuence of many companies on the environment into considera-
tion, such reports would make it possible to show the true view of the company and its activ-
ities, and also the company would gladfully undertake the actions which would minimize
the negative impact on the environment and local society. If such reports were obligatory,
the companies would make an eort to inuence the environment and local society posi-
tively, to present the company in a better position because they perform actions which have
a positive impact. Their eects are visible and could be presented visually in the report.
Another student (no. 44, female, aged 23) observes:
In the XXI century, when there are many ecological threats, we should build societal
awareness. It would be eective when pursuing an ecological policy in the organizations.
Consequently, the increase in the importance of pro-ecological actions is also
a motive for publishing non-financial reports. A respondent (no. 1, female, aged 25)
explains that:
It concerns people’s higher awareness and their ght for a better future and a world
with a smaller amount of rubbish and plastic. […] the company should think what is more
protable: being environment-friendly and ‘good look’ in the eyes of people who are more
and more aware of their surroundings, or actional which are illegal and anti-ecological,
and enormous nes.
Many goals of non-financial reporting are of managerial character, especially
concerning marketing issues. Therefore, even if not called a ‘corporate spin’, their
impression management role is implicitly formulated. The respondents notice
the position of non-financial reporting in image creation or image enhancement.
It is evident in the following commentaries:
The corporations should prepare such reports; it inuences the company’s image
positively (respondent no. 12, male, aged 24); such reports exert a signicant inuence
on the positive impression and shape a good opinion about the company (respondent
no. 36, female, aged 23); pro-ecological actions impact the entity’s public perception
positively. (Respondent no. 45, female, aged 23)
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M. Nowak, Valuable Information for Stakeholders or Corporate Spin... 85
Other publicity-related goals of non-financial reports are seen in the increase
of trust in a company. A respondent (no. 21, female, aged 25) explains:
The company shows that it can be trusted, e.g., it oers security and stability
of deliveries, it has a friendly client service, and acts fairly. Such information makes
a company close to its clients, and a company becomes more valuable in their eyes.
Another respondent (no. 46, gender and age not given) supports this opinion:
The social aspect is equally important. The publication of social reports makes the
company to be perceived as transparent.
The increase in market position is perceived as a positive result of the publica-
tion of non-nancial reports. A respondent (no. 50, male, aged 24) explains:
The biggest companies, by preparing reports, strengthen their image and market
position.
Appreciation of a company that acts in an environment-friendly or community-
-friendly manner is another result of non-financial reporting. A respondent
(no. 49, female, aged 25) explains:
I think that it is good when companies engage themselves in society, and it should be
praised. Moreover, if such reports are generally accessible and everybody, including other
companies, can read them. It can make other companies – if they do it, we will also do it.
An additional advantage of any new report and information is one of the
fundamental reasons for issuing non-financial reports. Respondents explain that:
Each report provides much valuable information about the company, and many
conclusions can be drawn from it” (respondent no. 25, female, aged 24); and such reports
create a value-added to statements that are presented by a business entity, and they make
it possible for stakeholders to have a dierent view on a company’s actions. (Respondent
no. 50, male, aged 24)
The non-financial reports give a more comprehensive view. A respondent
(no. 1, female, aged 23) notices:
In social responsibility reports, we have access to non-nancial data, e.g. environ-
mental data, social data, corporate data, customer relations – which are also valuable
elements of a company’s success.
Another student (no. 17, female, aged 24) explains:
Environmental and social reports should be obligatory because non-nancial
reporting promotes transparent reporting, minimizes the information risk during the
valuation of companies and reduces the imperfections of nancial reporting. Access to
reports can be perceived as a risk management element. With the change of the perception
or a role and responsibility of companies in society and economy, the changes in the
assessment of companies’ eectiveness probably will appear.
Last but not least, non-financial reporting can make companies act ethically.
Enforcing ethics and care about the environment and social issues can also be
a result of issuing such reports. Respondents explain:
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86 Sustainable Performance in Business Organisations and Institutions...
I think that each company cares about good publicity. Therefore the companies will
try to look good in such a report. It can enforce the positive activities for the food of an
environment or a local community. (Respondent no. 19, female, aged 25)
Publication of such reports will force the company at least to a minimal engagement
in environment protection. (Respondent no. 29, female, aged 25)
The inquiry also reveals factors conditioning the effectiveness of non-financial
reporting. The conditions that can make the reports a valuable information source
can be surmised into two categories:
standardization (11),
making reports public and easily accessible (1).
As the respondent group consists of accounting graduate students, it is
not surprising that they postulate the standardization of non-financial reports.
A respondent (no. 16, female, aged 25) explains:
According to me, it is also important that some standards of such reports are
established to make the comparison possible and to make the information included in
them reect the actual situation.
Another person (no. 18, female, aged 24) adds:
The standardization of reports has the signicance for the perception of companies
by the clients and investors, which makes it possible to perform a reliable and fast
assessment in a particular segment without unnecessary costs.
Another student (no. 24, female, aged 23) observes that:
The application of appropriate rules and norms of creating such reports would make
it possible to compare the companies not only in terms of their approach to prot but also
to value creation in a company.
Also, according to respondents, making reports public and easily accessible
heightens their effectiveness. The arguments for that are the following:
If the reports are to be valuable information, making them public should be required,
and putting them on the corporate websites on the main page should be compulsory.
(Respondent no. 35, female, aged 23)
The study also reveals potential disadvantages of environmental and social
reporting:
one more report (5),
additional cost (2).
Non-financial reporting is perceived as an additional burden imposed on
a company. As a respondent (no. 45, female, aged 23) states:
It is just one more report to prepare.
Moreover, the preparation of the report results in costs incurrence, which is
mentioned by another student (no. 51, female, aged 24):
Not all entities can aord such actions because of nancial issues.
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M. Nowak, Valuable Information for Stakeholders or Corporate Spin... 87
4.6. Conclusions
The investigation identifies non-financial reporting as an element of accounting
for stakeholders. Notably, it identifies the groups for which information included
in such statements can be valuable. Entities and individuals such as (potential)
employees, (potential) clients, managers, (potential) investors, (potential) contrac-
tors, industry, state, and its environmental protection units are among the
stakeholders who can be interested in the content of the non-financial report.
Therefore, internal and external stakeholders can utilize social and ecological
reporting information.
The study does not reveal only one interpretation of non-financial reporting.
Respondents observe both aspects, including valuable information for stake-
holders and impression management elements. However, although many re-
spondents are reluctant to use the ‘corporate spin’ label, its identification is evident
in their narratives, as they refer to marketing-related issues, such as image
enhancement and market position. The professional scepticism of respondents is
also apparent. They enumerate the conditions under which non-financial reports
can provide valuable information and be effective. Significantly, the need for
standardization of such statements is underlined.
According to the present study, whether non-financial report publishing should
be mandatory is disputable. However, some criteria can be used to determine
if environmental and social reports should be obligatory. The size of a company
is most important, but the social and environmental impact is also significant.
There are global, managerial, and ethical motives among the goals and purposes
of publishing non-financial statements. The increasing degradation of the environ-
ment by human economic activities is the first of them. Managerial issues are related
to increasing the quality of decision-making and enhancing the company’s image
and market position. The ethical goals can also be fulfilled, but non-financial
reporting. If the companies are supposed to present their impact on society, local
communities, and the environment, it will force them to act more morally.
The present study’s findings are consistent with Freeman’s postulate of intro-
ducing accounting for stakeholders. Moreover, they are compatible with recent
postulated changes in accounting and expanding its social and moral function
(Carnegie, Parker, & Tsahuridu, 2021).
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DOI: 10.15611/2023.83.1.05
Chapter 5
Gaining Compeve Advantage through
Social Responsibility Reporng –
a Lesson from the Non-Prot Sector
Tomasz Dyczkowski
Wroclaw University of Economics and Business
e-mail: tomasz.dyczkowski@ue.wroc.pl
ORCID: 0000-0002-4335-7670
Quote as: Dyczkowski, T. (2023). Gaining Competitive Advantage through Social Responsibility
Reporting – a Lesson from the Non-Prot Sector. In J. Dyczkowska (Ed.), Sustainable Performance
in Business Organisations and Institutions: Measurement, Reporting and Management (pp. 89–106).
Wroclaw: Publishing House of Wroclaw University of Economics and Business.
Information technologies, particularly the Internet, redefine how non-profit
organisations (NPOs) operate. Firstly, they enable reaching a broader audience
with information about an organisation’s mission, goals and achievements.
Secondly, they help raise funds and recruit volunteers to attain social goals
(Raman, 2016, p. 418). Thirdly, they enhance the visibility of NPOs’ effects;
also, against organisations with whom they compete for resources. Lastly,
information technologies reduce the cost of operations and soliciting funds
(Díaz, Blázquez, Molina, & Martín-Consuegra, 2013; Hoefer, 2012; Mitchell, 2014;
Raman, 2016).
Despite all opportunities offered by the Internet to enhance interactions
between NPOs and their stakeholders, it is observed that those organisations
capitalise on that potential to an insufficient extent. Many organisations adopt
a passive Internet strategy, where their websites play the central role, acting
as notice boards. Although social networks have their advantage, since they
offer two-way communication and multiply the impact through users’ contact
networks (Saxton, Guo, & Brown, 2007), NPO must commit to an authentic con-
versation to take full advantage of that communication channel. If organizations
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90 Sustainable Performance in Business Organisations and Institutions...
constructively address users’ comments and accept that conversations can lead
to negative feedback, Facebook can be a powerful tool for articulating NPOs’
objectives, projects, and results (Bellucci & Manetti, 2017, p. 898). This is particu-
larly relevant considering the needs of the generation born in the Internet and
social media era, who expect philanthropic organisations to adapt to the fast-
-paced, decentralised and personalised approach in bilateral relations (Craw-
ford & Jackson, 2019, p. 565).
The chapter evaluates the usefulness of NPOs’ Internet reporting (on the
example of Polish public benefit organisations – PBOs), covering the entire
information flow between an organisation and its stakeholders via electronic
channels, including websites and social media. The focus on PBOs results from
two reasons. Firstly, they intend to find supporters among a broad range
of institutions and individuals, including taxpayers entitled to transfer 1% (1.5%
since the fiscal year of 2022) of their tax to an organisation of their choice. With no
or limited payment for services obtained from service beneficiaries, external
supporters take the role of ‘investors/customers’ known from the corporate world.
Thus, it is vital to make supporters understand how an organisation works
and what effects it generates – all in a simple and user-friendly manner. Secondly,
the Internet communication of PBOs is not legally regulated nor structured
by ‘recommended practices’. Consequently, the selection of information (non-
-financial, financial), a form of presentation (reports, statistics, narratives, multi-
media), as well as regularity of reporting (static page, occasional updates, regular
posts, online interaction) may matter in encouraging supporters to make their
donation.
5.1. NGO Disclosures – Areas of Interest
As private providers of common goods, non-profit organisations are financed by
institutional and individual donors and public bodies who expect NPOs’ be-
neficiaries to receive services of desired quality in exchange. To secure stable
financing for pursuing their social goals, non-profits must inform stakeholders
about the cost incurred and, most of all, the effects obtained (Okten & Weisbrod,
2000, p. 257).
Decisions of individual donors to support social initiatives are often
spontaneous or emotional; interestingly, the emotional component is also valid in
the case of e-philanthropy (Park & Rhee, 2019, p. 15). Choosing an organisation,
they want to support, individual donors must rely on information provided in
annual statements (Connolly, Dhanani, & Hyndman, 2013, p. 5) or voluntarily
presented on the websites or in social network profiles of particular organisations.
The reason is twofold. Firstly, individual donors have little influence on the form
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T. Dyczkowski, Gaining Competitive Advantage through Social Responsibility Reporting... 91
and content of NPOs’ reporting, which must primarily comply with requirements
of financial control (Connolly et al., 2013, p. 6; Thomson, 2011, p. 65); and this low
external pressure, in comparison to the corporate world, makes NPO even more
responsible for improving their legitimacy (Hulle van & Dewaelheyns, 2014, p. 83)
(broader discussion on the role of voluntary non-financial reporting in the
corporate world may be found in chapter 1). Secondly, investing scarce resources
in public relations increases fundraising or administrative cost. Stakeholders may
perceive this negatively, who expect NPOs to allocate their resources to social
activities (Boenigk & Scherhag, 2014, p. 325). On the other hand, with no correlation
observed between the popularity and engagement aspects of online commu-
nication and NPO size, establishing a strong interaction with stakeholders on
social media is also possible for organizations with smaller budgets (Bellucci &
Manetti, 2017, p. 898).
Reporting of non-profit organisations has two vital roles to play. One is to
increase legitimacy, and the other attests to effectiveness and efficiency. NPOs
should inform both internal stakeholders, including the board, employees,
volunteers and members, as well as external ones, such as donors, corporate
partners, regulators and the whole society, on the following three issues (Mitchell,
2014, p. 24): (1) outputs generated by an organisation with available resources,
(2) general effectiveness of policies which stimulate social initiatives, such as
subsidies, tax allowances and tax write-offs, and (3) existence of mechanisms
which prevent the unlawful distribution of funds to individuals.
NPOs need to consider internal and external stakeholders as addressees of
their reporting (the issue of stakeholder needs and their impact on reporting
practices is analysed in chapter 2). The first group has a better view of an
organisation and its performance, but its opinion can be biased. In contrast,
a view of the external perspective on an organisation’s performance validates
internal opinions. It helps to determine the effectiveness of future fundraising
efforts and the scope of voluntary involvement (Willems, Boenigk, & Jegers, 2014,
pp. 1660, 1661). That leads to the second role of reporting – to promote
effectiveness and efficiency. In this respect, the reporting should enable to
compare the performance of various organisations and identify best practices or
even develop a model of excellence for the sector (Breen, 2013, p. 854). Although
donors see the effectiveness of NPOs as an essential criterion in selecting
organisations they intend to support, studies show that NPOs do not provide
clear performance measures (ideas to measure performance in NPOs using
Balanced Scorecard are presented in chapter 6). In most cases, stakeholders must
assess effectiveness based on general information on projects undertaken by an
organisation and on the resources used only (Iwaarden van, Wiele van der, Williams,
& Moxham, 2009, p. 19).
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A diversity of beneficiaries’ needs and forms of addressing those needs causes
that applying quantitative measures – particularly financial ones – may not be an
adequate approach to evaluate the performance of NPOs. Qualitative disclosures
and narrative information may serve the purpose much better (Adams & Simnett,
2011, p. 298).
Narrative disclosures offer flexibility and adaptability to address the infor-
mation needs of individual NPOs and their stakeholders. Non-profit organisations
should aim to build multiple stakeholders’ trust in their operations, which requires
demonstrating both organisations’ competencies to perform their tasks effec-
tively, and integrity understood as a match between promises in its mission and
actions taken (Garcia, Gonzalez, & Acebron, 2013, p. 95). The said goals may be
achieved easier by combining quantitative information with narrative disclosures
(Newcomer, El Baradei, & Garcia, 2013, p. 76), perfectly fitting into cross-format
communication via the Internet.
5.2. Research Methodology
The chapter explores Internet disclosures of NPOs, applying a comprehensive
assessment methodology to information provided by Polish public benefit or-
ganisations (PBOs) in the first place on their websites and social media and for
a deepened analysis in their annual reports. The division into two levels of reporting
(voluntary Internet disclosures) and obligatory statements results from the fact
that the first information channel indicates the actual willingness and awareness
of NPOs on how vital their accountability for social effects is. In contrast, the
obligatory statements may be treated as merely satisfying regulators rather than
addressing public demand for social responsibility information.
The study was conducted in late 2019; therefore, the results are not affected
by later pandemic conditions and the social crisis resulting from the war in
Ukraine. It included 80 randomly selected PBOs from roughly 9400 organisations
listed by the National Freedom Institute – Centre for Civil Society Development
(NFI) – the institution that supports and supervises the Polish Third Sector. The
examination was supported by 80 evaluators, participants of a seminar on
management control for the NPO sector conducted by the author. Each evaluator
was allocated to assess and compare two PBOs. Thus, two people independently
assessed each organisation, each time against a different PBO from the sample –
which guaranteed less biased and more comprehensive opinions.
In the first stage, every evaluator assessed and compared PBOs using a form
prepared by the author, including ten information areas: mission and goals,
organisational team, activity scope, beneficiaries, effects obtained, grants and
subsidies, tax write-offs, reporting, information formats and updating. Beside the
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T. Dyczkowski, Gaining Competitive Advantage through Social Responsibility Reporting... 93
Table 5.1. The methodology of assessment of the PBOs’ social responsibility disclosure
Assessment
area
Requirements fulfilment
Not at all
(0)
To a little extent
(1/4)
Partially
(1/2)
To a large extent
(3/4)
Entirely
(1)
1 2 3 4 5 6
Information and promotion
Mission and
goals
Information
unavailable
Pieces of related
information are dispersed
on the website or the
social media profile
It can be retrieved from
the organisation’s statute
uploaded on its website
It is presented in the form
of a list with short descriptions
There is a separate tab which
presents the organisation’s
mission and goals in a detailed
way
Organisational
team
Information
unavailable
Some contact data are
dispersed on the website
or in the social media
profile
A list of board members
is available
A list of people responsible for
various functional areas is
available
There is a separate tab which
presents the organisational
team with their professional
background
Activity scope Information
unavailable
Pieces of related
information are dispersed
on the website or the
social media profile
It can be retrieved from
the organisation’s statute
uploaded on its website
It is presented in the form
of a list of tasks with short
descriptions
There is a separate tab which
presents the organisation’s
activity scope and its offer to
beneficiaries
Accountability and transparency
Beneficiaries Information
unavailable
Pieces of related
information are dispersed
on the website or the
social media profile
It can be retrieved from
the organisation’s statute
uploaded on its website
It is presented in the form
of a list of beneficiary groups
with short descriptions
There is a separate tab which
presents the organisation’s
beneficiaries, including groups
and individuals, and the
services they are offered
Effects obtained Information
unavailable
Pieces of related
information are dispersed
on the website or the
social media profile
The website or the social
media profile includes
short descriptions of
tasks accomplished
Effects of conducted projects
and actions are presented, in
particular in the case of those
financed with external funding
There is a separate tab which
presents effects obtained
recently in quantitative and
qualitative manners
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94 Sustainable Performance in Business Organisations and Institutions...
1 2 3 4 5 6
Subsidies and
Grants Received
Information
unavailable
Pieces of related
information are dispersed
on the website or the
social media profile
A list of contracted
projects is available, or
the organisation informs
that it did not apply for
subsidies or grants
Information on projects
supported with external
financing, together with their
goals and funding obtained, is
available
There is a separate tab which
includes detailed accounts of
tasks accomplished, indicating
their goals, effects,
beneficiaries and funds spent
Tax Write-offs Information
unavailable
Pieces of related
information are dispersed
on the website or the
social media profile
A short note on the
objectives to be funded
with ‘1% tax write-offs’
is available
Information on tasks financed
with ‘1% tax write-offs’ is
available
There is a separate tab which
includes accounts on tax
write-offs obtained and spent,
including descriptions of
actions and their beneficiaries
Financial and
substantive
reports
Information
unavailable
Available reports are
outdated
Obligatory statements
are uploaded, or a link to
those reports published
in the ministerial
database is provided
Obligatory statements are
supplemented with some
additional short pieces of
information
There is a separate tab which
includes voluntarily extended
substantive and financial
statements on all activities of
the organisation
Quality and reliability
Documentation
of activities
Information
provided in
the form of
text posts
Posts and pictures are
dispersed on the website
or on the social media
profile
Posts on activities
accomplished are
supplemented with some
quantitative data and
pictures
Posts on activities
accomplished are
supplemented with photo
galleries, videos
and quantitative data
Particular activities are
described in well-integrated
reports, including quantitative
and qualitative data, as well
as multimedia materials
Updated
information
The website
or social
media profile
appears to be
inactive
The most recent updates
were made several
months back
The most recent news is
not very up-to-date, and
there are few updates
over a year
The content is up-to-date, but
the communication comes in
one direction only
The content is up-to-date, and
the organisation interacts well
with its stakeholders,
in particular in the social media
Source: own presentation.
Table 5.1, cont.
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T. Dyczkowski, Gaining Competitive Advantage through Social Responsibility Reporting... 95
narrative description, the evaluation applied a 5-grade scale, which distinguished
between two opposing situations: when a PBO disclosed no information in a parti-
cular area (0), or when it provided exhaustive information on its performance (1),
with three intermediate levels (1/4, 1/2, 3/4), when little, some or substantial effort
was undertaken to address information needs of a broad audience. The reporting
areas included in the examination form and the precise indication of what score
each organisation should be attributed to, based on their disclosures included on
websites or social media profiles, are presented in Table 5.1.
In the second phase, the evaluators were to analyse publicly available annual
financial and activity statements uploaded by PBOs into NFI’s database, extract
essential financial (revenue and cost structure, key asset items, funds and liabilities)
and non-financial information (number of beneficiaries, members, employees
and volunteers) form the statements and transfer them to the Excel form provided
by the author, which also calculated several metrics. Ultimately each evaluator
was to indicate their preference to provide one of the two organisations with an
individual tax write-off (one organisation had to be selected).
The presented methodology aimed at providing answers to the following
four research questions: (1) were there any general strong and weak areas in
PBO reporting, (2) what differentiated ‘good’ and ‘bad’ NPO social responsibility
reporting, (2) what financial impact ‘good’ and ‘bad’ reporting may have on an
organisation, and (4) whether certain inherent features to a particular orga-
nisation such as their wealth (measured by revenue level), activity domain
(charity versus service-oriented), reach (local vs nationwide) or communication
platform (website vs social media) with stakeholders, beside obligatory
statements could have stimulated stakeholders’ opinions and their potential
financial involvement.
Considering that narrative information may serve social reporting purposes
much better, the author also examined 160 evaluators’ narrative opinions about
the reporting practices to determine their major areas of interest and disqualifying
factors in the evaluation. The text was processed using text mining software.
5.3. Assessment of the Internet Disclosures
in the Research Sample
To tackle the first research question, namely, to identify general strong and weak
areas in PBO reporting, the methodology presented in Table 5.1 was applied to
assess three social responsibility disclosure characteristics.
The first section of Table 5.1, covering disclosures on mission and goals,
organisation team and an activity scope, includes the essential information
distinguishing an organisation from any other. At the same time, it constitutes
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96 Sustainable Performance in Business Organisations and Institutions...
a vision which existing or potential supporters of an organisation may want to
share.
The second section comprises five disclosure areas that help make PBO
operations transparent to the general public and prove its accountability to
stakeholder groups. The lack of defining beneficiaries of a PBO and the effects
that an organisation achieves casts a shadow on a public benefit status of an
NPO. Alike, no accounts on how an organisation spends grants or subsidies or
what it does with the 1% transferred by taxpayers do not build trust in a PBO. No
activity or financial reports available on a website – even if they are uploaded in
the DPB’s database – may indicate that an organisation either has too few
resources to obtain its goals or – interestingly – that due to considerable levels of
revenue and cost, it seems ‘too rich for a charity’. Finally, Internet users,
accustomed to live news and communication relying more on pictures than
words, may see the static website of an NPO as unprofessional, indicating little
potential of an organisation.
Figure 5.1 presents an overall assessment of disclosure levels in 80 PBOs using
the scoring system introduced in Table 5.1. The evaluation indicated the average
score awarded by two independent evaluators.
30,6%
14,4%
32,5%
10,0%
16,9%
5,0%
8,8%
18,8%
16,3%
30,6%
21,3%
28,8%
23,8%
17,5%
18,1%
16,3%
10,6%
10,6%
28,8%
31,9%
25,6%
31,3%
22,5%
17,5%
35,6%
4,4%
23,8%
11,3%
20,0%
19,4%
18,1%
16,9%
20,0%
41,9%
20,6%
30,6%
22,5%
12,5%
27,5%
8,1%
4,4%
8,8%
1,3%
13,1%
8,8%
43,8%
34,4%
46,9%
7,5%
10,0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
mission and goals
organisational team
activity scope
beneciaries
eects obtained
subsidies and grants received
tax write-os
nancial and substantive reports
documentation of activities
updated information
Requirements Fullment
Disclosure Metrics
completely to large extent partially to little extent not at all
Figure 5.1. Comprehensiveness of information in all examined disclosure areas
Source: own presentation.
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T. Dyczkowski, Gaining Competitive Advantage through Social Responsibility Reporting... 97
The disclosure policy overview regarding every ten assessment criteria leads
to the following conclusions.
1. There are three evaluation criteria where more than half of the examined
sample was considered as meeting requirements entirely or to a large extent.
Those include mission and goals (83 of 160 votes), activity scope (90 votes),
and keeping the information up-to-date (100 votes). On the one hand, it is not
a positive signal that only those three areas may be considered strong points. Still,
on the other one, such a combination of disclosures forms a logical sequence of
defining the ultimate goal of an organisation’s existence, ways of achieving it, and
regularly updating stakeholders on what PBOs are doing. The missing chain is,
however, the precise definition of the effects obtained.
2. The negative observation is that PBOs appear not to be financially
accountable to their stakeholders since, in the majority, they fail or provide little
insights into whom they help (little or no information on beneficiaries was
reported in 88 out of 160 reports), tax write-offs (91 negative evaluations), financial
and substantive reports (95 cases), as well as subsidies and grants received
(119 cases). To some extent, it is understandable that many PBOs neither upload
nor link nor even mention their annual reports on their websites since those are
openly accessible in a database run by the NFI. One may doubt, however, whether
stakeholders or the general public are aware of those statements (or even the
existence of the NFI’s database) and whether a lack of financial information on
a website is perceived as an impairment to PBOs’ financial transparency and honesty.
Similarly, little information on how grants and subsidies are spent and what effects
are generated that way may be attributed to the fact that some organisations
do not use that source of funding (though it is a crucial funding source of the sector)
or that the accountability is discharged by submitting reports directly to institutions
or organisations which provided grants or subsidies. It is hardly understandable,
though, why so little is disclosed on what PBOs achieved with taxpayers’ write-offs,
which they solicit so intensively, and who is being helped.
3. In the case of the other three areas: organisational team, effects obtained
and documentation of activities, the evaluators’ opinions were mixed, although
positive or neutral rather than negative. Many PBOs seem to pay more attention
to explaining why they exist and how they want to attain their goals rather than
to the actual effects. One may be concerned that insufficient communication on
effects may imply that those effects are not at par with ambitions, and, therefore,
even the organisation team does not want to ‘take credit for’ it.
4. The overall disclosure score for all 80 PBOs, based on the opinions of 80
evaluators in the 10 assessment criteria discussed above, was exactly 50.0% (0.500
on the scale from 0 to 1), meaning that the sector partially meets the disclosure
requirement. It should be pointed out that there was no statistically valid
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98 Sustainable Performance in Business Organisations and Institutions...
difference between the opinions of two evaluators on individual PBOs, which
means that putting them in pairs with other organisations did not create any bias
and that the evaluators applied the evaluation criteria correctly.
5.4. Influence of Social Responsibility Disclosures
on Stakeholders
As mentioned in the description of the research design, after the first stage
consisting of the evaluation of Internet disclosures, the evaluators were getting
familiar with obligatory financial and activity statements of PBOs to formulate the
final opinion on which of the two organisations to which they were randomly
assigned made a better impression, and which they would decide to support with
their tax write-off. This way, three groups of PBOs were formed. The first consisted
of double ‘winners’ (×2 win) – 23 organisations selected to be supported by two
independent evaluators in each case against a different NPO. The second group
were the double ‘losers’ (×2 loss) – also, 23 organisations not selected as
benefactors of the tax write-off. The last group consisted of 34 organisations
which ‘won’ against one PBO and lost against another (win & loss).
The existence of the three groups mentioned above enabled addressing
research questions 2–4, namely what differentiated ‘good’ and ‘bad’ social
responsibility reporting, what financial impact may it have on an organisation,
and whether – beside or beyond the quality of reporting – organisational profile
may affect stakeholders’ financial involvement.
0
2
4
6
8
10
12
14
16
18
20
[0%-
-10%)
[10%-
-20%)
[20%-
-30%)
[30%-
-40%)
[40%-
-50%)
[50%-
-60%)
[60%-
-70%)
[70%-
-80%)
[80%-
-90%)
[90%-
-100%]
x2 win win & loss x2 loss
Figure 5.2. Overall assessment of disclosure levels in the three groups of PBOs
Source: own presentation.
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T. Dyczkowski, Gaining Competitive Advantage through Social Responsibility Reporting... 99
First of all, Figure 5.2, presenting the overall assessment of disclosure levels
in the three groups of PBOs, clearly shows a difference in reporting quality
of organisations which attracts stakeholders’ support or not. The distributions
of total evaluation scores differ significantly, with an average level of 64.6%
of possible points (0.646 out of 1) for the ×2 win group, 48.3% (0.483 out of 1) for
the ‘win & loss’ group and 37.7% (0.377 out of 1) for the ×2 lose group. The first
result is a positive opinion, the second a neutral one and the third represent
a negative evaluation – which shows that evaluators’ decisions were consistent
with the quality of social responsibility reporting.
Moreover, as indicated in Figure 5.3, the differences were observed in all
evaluation areas. However, what distinguishes ‘good’ reporting standards are
comprehensive financial rather than non-financial disclosures, with complete
and up-to-date documentation. This may suggest that in the case of PBOs –
generally perceived as socially-oriented – the other financial aspect makes
a difference.
0%
25%
50%
75%
100%
mission and goals
organisational team
activity sc
ope
beneciaries
eects obtained
subsidies and grants
received
tax write-os
nancial and substantive
reports
documentation of activities
updated information
x2 loss win & loss x2 win
Figure 5.3. Mean values of disclosure metrics in the three PBO groups
Source: own presentation.
To confirm the validity of observations, the author applied the Mann-Whit-
ney U test to verify whether the observed differences between the groups
were statistically valid. A non-parametric test was selected since the scoring
method was based on an ordinal scale. The results of the analysis are presented
in Table 5.2.
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Based on the results presented in Table 5.2, one can see how disclosure
strategies evolve, from the ineffective to the mixed ones and from that level to the
winning ones. The marked figures indicate statistically significant differences
between any of the group pairs. The following remarks may be formulated.
The evolution from an ‘ineffective’ policy to a mixed group entails improving
the comprehensiveness of disclosures on beneficiaries, grants and subsidies
received and tax-write-offs, three of four areas with the lowest average score
for disclosure quality in the entire sample. This suggests that if stakeholders do
not understand what organisations do with taxpayers’ money and who benefits,
they do not want to engage with such an organisation. Interestingly, the fourth
area of the low disclosure quality, financial and substantive reports, was not a dif-
ferentiating factor since the evaluators were already familiar with those reports.
Table 5.2. The factors differentiating disclosure strategies in PBOs
Assessment area
×x2 loss
vs win & loss
win & loss
vs ×2 win
×2 loss
vs ×2 win
Zadj p Zadj p Zadj p
Mission and goals –1.425 0.154 –1.774 *0.076 –2.849 ***0.004
Organisational team –0.659 0.510 –0.661 0.509 –1.168 0.243
Activity scope –1.744 *0.081 –2.251 **0.024 –3.367 ***0.001
Beneficiaries –2.224 **0.026 –1.338 0.181 –3.009 ***0.003
Effects obtained –1.254 0.210 –1.591 0.112 –2.455 **0.014
Grants and subsidies received –2.840 ***0.005 –2.022 **0.043 –3.485 ***0.000
Tax write-offs –2.917 ***0.004 –3.970 ***0.000 –5.195 ***0.000
Financial and substantive
reporting –1.451 0.147 –2.503 **0.012 –3.196 ***0.001
Documentation of activities –1.716 *0.086 –3.996 ***0.000 –3.881 ***0.000
Updated information –0.542 0.588 –2.679 ***0.007 –2.769 ***0.006
*** 1% significance level; ** 5% significance level; * 10% significance level.
Source: own presentation.
The evolution from a second to a ‘winning’ strategy implies a substantial
improvement in the quality of reporting on activity scope, all three financially-
-related factors (grants and subsidies received, tax write-offs, as well as financial
and substantive reporting) and overall quality and reliability factors such as
documentation of activities and updated information. One may conclude that
social organisations that effectively engage stakeholders inform exhaustively and
timely about what they do and how they spend money. Interestingly, (social)
effects achieved made no valid difference here.
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T. Dyczkowski, Gaining Competitive Advantage through Social Responsibility Reporting... 101
Table 5.3. Control factors
Assessment area
×2 loss
vs win & loss
win & loss
vs ×2 win
×2 loss
vs ×2 win
Zadj p Zadj p Zadj p
Total Revenue (log) –1.927 *0.054 –1.553 0.120 –2.636 ***0.008
Charity (vs Service) –2.472 **0.013 –1.116 0.264 –3.245 ***0.001
Local (vs Nationwide) 0.902 0.367 0.689 0.491 1.451 0.147
Website (vs Website and Facebook) –0.512 0.609 –1.237 0.216 –1.605 0.108
*** 1% significance level; ** 5% significance level; * 10% significance level.
Source: own presentation.
Finally, it should be emphasised that a difference between ineffective PBO
reporting and effective one lies in all aspects of their communication with
stakeholders, except for information on who is involved in activities. All that
evidence shows that social reporting impacts stakeholders and their financial
decisions.
Finally, the author decided to test whether other factors than reporting
quality, such as wealth (measured by a common logarithm of their revenue level),
activity domain (charity vs service-oriented activity domains), reach (local vs
nationwide), or communication platform (website vs social media, namely
Facebook) made a difference. The results of the Mann-Whitney U test, presented
in Table 5.3, show that financial success triggers involvement as more affluent
organisations declared support more often, presumably, because they could
allocate some funds to build effective stakeholder relations. Moreover, charities
tend to be more often selected than service-providing PBOs since the latter offer
their services against a moderate charge, whereas the first fund their activities
with the help of external supporters. Finally, neither geographical reach nor the
communication platform appeared relevant.
5.5. Evaluation of Website Content by External Stakeholders
The final section of the chapter expands on prior findings on social reporting by
PBOs with an examination of opinions – in a narrative format – expressed by 80
evaluators on what positive and negative aspects of PBO reporting they noted.
For that purpose, the author used a content analysis method with an application
of text mining software.
The examined narrative material included 160 opinions – one to every PBO in
each of 80 pairs considered in the previous part of the chapter – totalling nearly
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102 Sustainable Performance in Business Organisations and Institutions...
600,000 characters with spaces. The text was processed using the KH Coder
system. It should be explained that the application of the said system required
machine-aided translation (in DeepL software) of the Polish text to English to
enable its automatic analysis.
The following conclusions can be drawn based on the analysis of centrality –
that is, how central position each word played in the opinions of evaluators on
organisations which were double ‘winners’ or double ‘losers’.
1. For effective reporting, the central issue was that website was well-inte-
grated with Facebook and included separate tabs presenting detailed descriptions
of organisational activities. In contrast, for the ineffective communication, it was
stated that the website or Facebook lacked a description of activities and photos
documenting those.
2. Other vital points (however, less central) in the opinions of evaluators on
organisations which they selected (×2 win) covered the following issues:
current events: social media profile related well to the website, which included
descriptions of activities and organisational news;
reports: annual financial and substantive statements well-integrated with
descriptions of activities;
statute: presenting mission, goals and objectives, typically in associations.
3. In contrast to that for the group of ineciently communicating ones (×2 lose),
the following issues were close to central:
social media profile: with strengths and weaknesses of this form of com-
munication unrelated to the website and description of events;
reports: annual financial statement, with missing substantive reports explain-
ing activities conducted;
statute: presenting mission and goals only.
4. Finally, the peripheral topics brought up by evaluators of the ×2 win group
included:
people: board members and list of contact persons, remaining in link with the
organisational image;
projects: with their implementation and effects as well as funding (including
transfers of tax write-offs) related to descriptions of organisational activities;
beneficiaries: specific groups of people in particular targeted by certain
organisational units.
5. On the other hand, the evaluators, in the case of the ×2 lose group,
mentioned, at the outskirts of their discourse, the following issues:
people: board members and contact persons, as the only mentioned members
of organisations;
current events: informing on activities conducted by uploading photos from
organised actions and events;
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T. Dyczkowski, Gaining Competitive Advantage through Social Responsibility Reporting... 103
funding: contact information and bank account numbers to transfer tax write-
-offs being the sole signs of stakeholders’ engagement.
The observation mentioned above may be indicators of what stakeholders
pay attention to while analysing the social reporting of PBOs. Moreover, even the
frequency list of words used by evaluators in formulating their opinions on
‘winners’ and ‘losers’ differed slightly. In the winner group, the following words
were statistically more frequent: foundation (noun), project (noun), individual
(adj), news (noun), publish (verb), substantive (adj), and link (noun). The detailed
analysis proved that foundations were selected more often, and those orga-
nisations which reported on projects published regular organisational news and
their activity (substantive) reports were easily accessible. On the other hand, in
the ×2 lose group, the more frequent use of words, such as lack (noun), media
(noun), action (noun), scope (noun), and member (noun), indicated that in
particular, the lack of coverage on activity scope and charitable actions were
discrediting the organisations’ reliability.
5.6. Conclusions
The observations obtained in the presented research fit in many respects well
with conclusions made by other authors. Firstly, it should be pointed out that
Polish PBOs prioritise non-financial disclosures on their websites. With the
application of the author’s evaluation methodology of PBOs’ websites, it turned
out that more than every second organisation in the sample provided exhaustive
information on its mission and goals and activity scope, trying to provide regular
updates on what they do. The observation aligns with other studies, which
showed that ‘general information’ and ‘activities’ belonged to the most frequently
covered features included by most NPOs’ websites (Díaz et al., 2013, p. 382). This
may, in part, be explained by the fact that such disclosures are likely to meet the
information expectations of diverse stakeholder groups (Connoly & Dhanani,
2013, p. 121).
On the other hand, financial disclosures were a weak point of the examined
PBOs that underinformed on how they spent public money from subsidies and
grants. Neither did they explain who were the beneficiaries of their activities.
Unfortunately, it is not an isolated observation that NPOs fail to report on projects
they are involved in (Díaz et al., 2013, p. 382). Such behaviour acts to the detriment
of an organisation’s finance since if stakeholders understand what an NPO spends
its funds on and why that is important, the level of support is expected to increase
(Sargeant, West, & Jay, 2007, p. 143).
Moreover, it is hardly explicable why the lowest share of PBOs (only 31 of 80)
exhaustively informed what they achieved with write-offs transferred by indi-
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104 Sustainable Performance in Business Organisations and Institutions...
vidual taxpayers, in particular when a logo related to their eligibility to benefit
from those write-offs is to be found in virtually any materials of PBOs, and most
of the websites included a separate tab where information on how to donate
one’s tax. Even if taxpayers are not seen as primary donors, low financial
transparency on that issue negatively affects the perception of a public benefit
status of an organisation. The less successful organisations rely on a transactional
approach where a donation supports current undertakings but does not find its
continuation in long-term relations between an NPO and the benefactors
(Waters, 2007, p. 72).
The presented research is not free of limitations. The evaluation methodology
relied on the evaluation of disclosure quality based on voluntary communication
via the Internet, supported with obligatory financial and activity statements, by
evaluators well-informed on reporting standards of PBOs, who applied specific
assessment criteria included in the evaluation form developed by the author. The
first limitation of this approach is that individual donors and institutional decision-
makers do not have access to the comprehensive evaluation methodology and
may rely on their methods or even beliefs. Secondly, most stakeholders are not
even aware of the database of PBOs obligatory statements, and few would be
able to read them correctly, as in particular substantive report differs from any
format known for the commercial sectors. Thirdly, the decisions on supporting
organisations with individual tax write-offs were only declaratory and limited to
the choice between the two organisations they compared. Nonetheless, the
limitation could be easily converted into strengths when the methodology
adopted in this research is used more broadly by accounting professionals,
including those who attended the specialised seminar on management control in
NPOs held by the author and participated in the experiment.
Moreover, how NPOs deal with their accountability for social effects may be
an essential lesson to commercial and public institutions in their social re-
sponsibility reporting. Firstly, the reversed priorities, natural to the NPO sector,
namely putting social effects over financial ones, may help other organisations
recognise how to present the effects of their socially-oriented initiatives. Secondly,
the mistakes in social reporting made by NPOs, noted by their stakeholders and
the general public, leading to their lower financial involvement, may be avoided
in CSR reporting of commercial and public organisations. Thirdly, awareness of
what actions the NPO sector considers worth engaging in and promoting may
trigger choices of initiatives commercial and public organisations want to develop
independently or in collaboration with NPOs. All that may increase the quality of
the CSR reporting and, above all, the actual benefits of those activities to their
stakeholders and the general public.
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T. Dyczkowski, Gaining Competitive Advantage through Social Responsibility Reporting... 105
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DOI: 10.15611/2023.83.1.06
Chapter 6
The Balanced Scorecard for a Museum
as a Non-Prot Organisaon
Robert Kowalak
Wroclaw University of Economics and Business
e-mail: robert.kowalak@ue.wroc.pl
ORCID: 0000-0001-5395-9395
Quote as: Kowalak, R. (2023). The Balanced Scorecard for a Museum as a Non-Prot Organisation.
In J. Dyczkowska (Ed.), Sustainable Performance in Business Organisations and Institutions: Measu-
rement, Reporting and Management (pp. 107-121). Wroclaw: Publishing House of Wroclaw University
of Economics and Business.
A Balanced Scorecard (BSC) is becoming an increasingly popular tool in the
Performance Management concept. In addition to profit-oriented enterprises,
it is also increasingly used by local government units and non-profit organisations.
The primary purpose of this chapter is presenting the idea of using a balanced
record of achievements in a museum that carries out a specific mission in strategic
terms and for which it is essential to obtain various sources of financing, including
subsidies, targeted subsidies, funds from sponsors, and own revenues. In con-
nection with the above, the thesis is that the BSC is significant support for
implementing the museum’s mission and financial stability. Kaplan and Norton
prepared the most popular BSC. The other versions of this tool were not used in
Polish museums. The chapter uses research methods such as literature studies,
deduction, case studies, and inference.
6.1. The Concept of the Balanced Scorecard
The concept of the BSC appeared in France in the second decade of the last
century. However, the literature usually indicates the American version in the late
1980s. The pioneers in this regard are Kaplan and Norton, who developed a tool
for measuring the achievements and effectiveness of activities carried out in the
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108 Sustainable Performance in Business Organisations and Institutions...
company. New versions of the BSC were created in the following years, including
the German BSC, the Skandia Navigator, and the Performance Prism.
The BSC, developed by Kaplan and Norton, is based on measures grouped
in four perspectives: financial, customer, internal processes and development
(Kaplan & Norton, 2011). In this approach, the measures present the cause-and-
-effect relationships of individual activities through goals, measures, ways of
achieving them, and target values that show the planned effectiveness, pro-
ductivity or increase in the company’s value. In this form, a company receives
a strategy map supporting the achievement of strategic goals and, thus, the
implementation of the mission. This map is essential to achieve ground-breaking
results in applied solutions. Its main task is to harmonise the activities and
priorities of employees with strategic goals (Kaplan, 2010, p. 18; Kaplan & Norton,
1992, 2004).
The strategy map connects the organisation’s high-level goals, mission, and
vision with meaningful and actionable steps every employee can take. Presented in
a diagram, it describes how an economic unit creates value by combining strategic
goals into transparent cause-and-effect relationships (Kaplan, 2010, p. 21).
From the financial perspective, measures determining the entity’s success are
presented, focusing mainly on creating a sustainable increase in its value. Financial
measures are guidelines for positioning an organisation on the market and its
economic security.
A value proposition for the customer’s target segments appears from the
customer’s perspective. The company’s success depends on them because meet-
ing their needs can increase sales revenue, market share, etc.
The internal processes perspective focuses on strengthening processes that de-
liver customer value. In this perspective, measures related to the assessment of
product improvements will translate into increased sales, product profitability, etc.
The perspective of growth and learning focuses on the innovativeness of the
company’s operations. The individual’s future does not depend on it because only
competitive, modern products give a competitive advantage.
Non-profit organisations and local government units, i.e., those that pursue
shared goals, can use the BSC of Kaplan and Norton. This card allows for modi-
fications according to the needs of the unit.
In addition to the United States, various variations of the BSC have also been
prepared in other countries. These include:
Tableau de Bord – French solution,
Balanced Scorecard of Friedag and Schmidt – German solution,
Navigator Skandia – Scandinavian solution,
Performance Prism,
EFQM Excellence Model (Kotłowska & Kowalak, 2016).
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R. Kowalak, The Balanced Scorecard for a Museum as a Non-Prot Organisation 109
The French Scorecard by Lauzel and Cibert (1962) is considered the prototype
of all scorecards. It contains indicators connect by cause-and-effect relationships.
This charter is linked to the centres of responsibility and focuses on the key
indicators of business unit success. It is created based on two processes that run
in parallel. These are:
the top-down process that starts with the creation of tables for the man-
agement, then based on them, for lower management centres, gradually
moving to lower and lower levels,
the bottom-up process, which starts with creating boards for the lowest level
of responsibility; each makes its card, later in the board of the higher-level
centre.
This system consists of three stages:
1) defining the mission and vision of the organisation (political dimension),
2) determining the critical success factors (strategic dimension),
3) identification and selection of measures (economic dimension).
The French Scorecard allows a company to examine both financial and non-
-financial metrics. It also makes it possible to present the links between them
and determines the data selection method, documentation, and interpretation
of results.
The German Scorecard by Friedag and Schmidt is based mainly on the
structure of the card proposed by Kaplan and Norton. Their solution has additional
perspectives and abandoned balancing measures and goals. Also, they do not use
the strategy map and propose matrixes of the strategic process framework. The
implementation process is also different. It consists of the following six stages:
defining strategic goals, mission, and vision,
developing the strategic framework,
collecting ideas and filling the strategic framework with concrete actions,
grouping activities according to specific strategic projects and budgeting,
determining the scopes of responsibility and linking them to the incentive
system,
organising the learning process (Friedag, Schmidt, Lewandowska, & Likierski,
2004, p. 17).
In addition to the four perspectives from the BSC by Kaplan and Norton, the
authors proposed the implementation of optional views, such as suppliers,
shareholders, public, communication, implementation, and organisation. They also
indicate the implementation of additional perspectives, such as competition,
cooperation, concern, performance, internet, innovation, and offices. They see the
application of their BSC in two areas: reporting and management, presented in
Table 6.1.
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Table 6.1. Reporting and management areas of the BSC
Criterion Reported Scorecard Management scorecard
Purpose of use Needs relating to the proper
allocation of resources and
communication of achievements
Needs related to business
management, strategy
implementation and development
Orientation Goals and measures of achieving
these goals
Activities that are performed by
employees
Areas of application Utilising the organisation’s
reporting potential
Development of the organisation’s
strategic potential
Recipients of information External stakeholders (investors,
lenders, shareholders)
Managers and employees
Source: (Friedag et al., 2004).
The reporting scorecard uses to report performance. The scope of its use is
narrower than that of the management card, as is the range of information it
provides. Not all should communicate to a broad audience. The management
scorecard is strategic and oriented towards activities to serve the strategy’s
development and implementation.
Another performance measurement system, similar to the BSC, was developed
in the mid-1990s by Edvinsson and others at Skandia, a Swedish company. This
concept is called Skandia Navigator and mainly focuses on measuring intangible
assets, especially intellectual capital. This system forms a house in which the
company’s strategy refers to the past, present, and future (Figure 6.1).
Past
Present
IC
Future
External environment
CLIENTS PROCESSES
DEVELOPMENT
FINANCE
PEOPLE
Figure 6.1. Skandia Navigator
Source: (Edvinsson & Malone, 2001, p. 56).
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R. Kowalak, The Balanced Scorecard for a Museum as a Non-Prot Organisation 111
The tool consists of five areas of focus:
financial which reflects the organisation’s past performance,
client, related to current achievements,
processes concerning the future,
renewal and development,
human, related to the present, which is at the centre, is the heart and soul
of the enterprise (Edvinsson & Malone, 2001, p. 21).
Skandia Navigator was created from the need to provide important information
that could not be found in traditional financial statements, which concerned
primarily intangible assets. They make a complete assessment of the company’s
achievements possible. The three main tasks to which this concept are the following:
creating a set of measures that combine into appropriate categories that
make a coherent image of the organisation, which is to enable the indication
of its position, directions, and speed,
enabling the processing of all data to create a set of meta-indicators that serve
to quickly analyse the strength of the organisation’s intellectual capital and
facilitate its comparison with other units,
supplementing the financial statements with necessary information con-
cerning the entity’s functioning and enabling external stakeholders to eva-
luate it more fully.
The last interesting solution is Performance Prism, created in the late 90s.
Neely, Adams, and Kennerley (2002) developed their new model in response to
emerging criticism of the traditional BSC, raising the issue of the rigidity of
perspectives and stakeholders. Performance prism introduces a revolutionary
approach to management. Namely, it first identifies critical stakeholders and then
formulates a strategy to consider their needs and strive to create value for them in
the next step. There are five fundamental perspectives in this performance
measurement method:
Stakeholders satisfaction: Who are the key stakeholders, and what do they
want and need?
Stakeholders contribution: What contributions do we require from our key
stakeholders?
Strategies: What strategies do we have to put in place to satisfy these two sets
of wants and needs?
Processes: What critical processes do we require to execute these strategies?
Capabilities: What capabilities do we need to operate and enhance these
processes?
Users should select appropriate quantitative and qualitative measures for
each perspective. The practical application of the performance prism is a complex
process because each stakeholder group assesses through the prism of all ve
perspectives using many dierent measures (Neely et al., 2002, p. 180).
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The popular EFQM model, developed by the European Federation of Quality
Management, is also used to measure performance. The model uses the
assumptions of Total Quality Management. The company uses it to assess the
company and determine the degree of maturity of the quality management
system and areas for improvement. The EFQM model defines excellent or-
ganisations as striving to satisfy all stakeholders. It is difficult to achieve in the
modern world due to rapid technological development, global competition,
and changes in the social and economic environment (Michalak, 2008, p. 122).
It consists of nine following assessment areas:
1) leadership,
2) strategy,
3) people,
4) partnership and resources,
5) processes, products and services,
6) customers results,
7) people results,
8) society results,
9) business results.
Each of these criteria has many sub-criteria, posing questions that need to be
answered during the analysis (Brajer-Marczak, 2015, p. 61).
6.2. Performance Measurement in Non-Profit Organisation
The non-profit sector has undergone profound changes in recent years. The
number of organisations is growing, and financial support from society and
enterprises is increasing (Sargeant, 2004, pp. 22, 23). Between 1990 and 1995, the
sector grew by an average of 24% in major OECD countries, like the United States,
France, Germany, the Netherlands, Belgium and Japan (Anheier & Kendall, 2005,
p. 1). The scope of activities of this type of unit is also expanding, and they
increasingly affect the lives of people worldwide, including Poland. However,
the experiences in Poland are not very extensive. Changes influence the de-
velopment of non-profit organisations in economic conditions and societal
expectations. The state’s approach is also changing, which in 2023 increased the
possibility of transferring part of our taxes from 1% to 1.5% to public benefit
organisations. The number of taxpayers moving this write-off is growing year
by year.
In Poland, there is no legal definition of non-profit organisations which are
also known as third-sector organisations, non-governmental organisations, non-
-profit organisations, NGOs, civic organisations, and public utility organisations.
Drucker (1997) stated that non-profit organisations are complementary to for-
-profit entities. It means that these organisations are not businesses, but it does
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R. Kowalak, The Balanced Scorecard for a Museum as a Non-Prot Organisation 113
not mean that they are non-governmental organisations (Courtney, 2002, p. 46).
In Poland, non-governmental organisations are governed by the Act on public
benefit activities and volunteer work (Ustawa z dnia 24 kwietnia 2003), the Law on
associations (Ustawa z dnia 7 kwietnia 1989), and the Act on foundations (Ustawa
z dnia 6 kwietnia 1984).
For the study, a definition is the following: a non-profit organisation is an
entity that, thanks to the collection and redistribution of resources, and thus the
provision of goods and services, serves to improve the general standard of living
and not to generate profits or other benefits that it does not share among
shareholders or members. However, these organisations may employ staff and
engage in profit-generating activities that may further their mission. Their funding,
even partly, comes from taxes, donations, and part or all of their services are
distributed based on the needs of society, not on the effective demand for them.
In the literature, there are various classifications of non-profit organisations.
The United States NTEE (National Taxonomy of Exempt Entities) distinguishes
entities exempt from income tax. Another type, ICNPO (International Classification
of Non-Profit Organizations), concerns the international division of non-profit
organisations and includes the following 12 categories:
culture and recreation,
education and research,
health protection,
social services,
environment,
housing construction and housing management,
ombudsmen and politics,
philanthropy and promotion of volunteering,
international activity,
religion,
business, associations, and trade unions,
other not specified elsewhere.
Considering the strategy map and the related BSC, it should be noted that the
value creation model in non-profit organisations is similar to the model for the
private sector. The mission and vision that set strategic goals are different. Some
organisations pursue other purposes, and profit does not measure their success.
Non-profit organisations are assessed in terms of their impact on society, i.e.,
a specific group of clients, such as voters, people using their services, and
stakeholders cooperating with them (Katsioloudes, 2006, pp. 249, 250).
Zimmerman (2009, p. 11) proposes non-profit organisations expand four
measurement perspectives of BSC into six categories:
revenues and funding,
resource allocation (including budgets),
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product and service recipients,
donors and board members,
internal operations,
staff development.
6.3. Balanced Scorecards in Museums
In Poland, the activity of museums regulates by the Act on museums (Ustawa
z dnia 21 listopada 1996). It defines a museum as a non-profit organisation. The
objectives of this unit are:
permanent protection and collection of the cultural and natural heritage
of humanity, both tangible and intangible,
dissemination of information about the values of the collected collections
and their content,
popularising the fundamental values of history, science, and Polish and world
culture,
shaping cognitive and aesthetic sensitivity,
sharing the collected collections.
These goals are achieved through activities such as:
collecting exhibits specified in the statute,
scientific study and cataloguing of the collected collections,
storing the collections in conditions that ensure the safety and proper pre-
servation of monuments, as well as keeping them while maintaining their
availability for scientific purposes,
securing and maintaining monuments, as well as, if possible, securing immo-
vable archaeological monuments and other immovable objects of material
culture and nature,
organising exhibitions,
organising research and scientific expeditions,
acting for scientific purposes,
supporting and conducting artistic and cultural activities,
making collections available for scientific and educational purposes,
ensuring appropriate conditions for visiting and using the collections, as well
as the collected information,
conducting publishing activities.
Each state and local government museum has a museum council of 5–15
people. The term of office of its members is four years. They supervise the fulfilment
of the museum’s obligations towards the collections and the public, evaluate the
institution’s activities based on the annual report and give opinions on its annual
activity plan. State or local government bodies appoint members.
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R. Kowalak, The Balanced Scorecard for a Museum as a Non-Prot Organisation 115
To confirm the high level of substantive activity and the importance of the
collections and to record the institutions that meet these conditions, they register
into the State Register of Museums. Such institutions are called registered museums.
They are under special protection and financial assistance from the state.
The main source of information on the activities of museums is their statutes
issued by order of the Minister of Culture and National Heritage, which include:
the scope of the museum’s activities and the type of collections collected,
supervisory authorities and the management body and the manner of their
appointment,
information related to the organisation of the museum,
advisory bodies,
information on the financial management of the museum.
According to information for 2021 published by the Central Statistical Office,
939 museums and museum branches operate in Poland. About 25.3 million
people visited it. At that time, they presented 2.5 thousand permanent exhibitions
and organised 3.6 thousand temporary exhibitions (Główny Urząd Statystyczny
[GUS], 2022).
Reasons, why museums should use the BSC are:
better identification of performance measures related to the achievement
of the museum’s goals – the chart can help the board select the best ratios and
understand the relationship between them,
demonstrating responsibility and communicating the value of the museum –
the card can help in better communication with funders and other stakeholders,
presenting a balanced view of the organisation and its impact on the local
community,
focus staff on achieving goals – the BSC can be a management tool for
museum staff to measure their performance concerning how effectively the
museum implements its mission and strategic priorities.
A fundamental decision for a museum is to define what results the museum
needs to achieve to be considered successful. Given the number and variety
of goals these institutions pursue, we can conclude that no single Key Success
Factor (KSF) and related key performance measure exists. The activities of mu-
seums are different (archaeology, art, history, photography, etc.), which affects
the forms of the offer prepared each year for visitors. Weil (2005) defined four
key pillars which contribute to the success of the museum: target, resources,
effectiveness, and results.
Weil also identied four dimensions of a successful museum. These are:
ability to formulate a clear goal,
ability to gather the resources necessary to achieve this goal,
having the skills needed to spend resources to create and present public
programs that achieve the goal (effectiveness),
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116 Sustainable Performance in Business Organisations and Institutions...
managerial skills necessary to effectively create and present these public
programs (efficiency).
Effectiveness indicates the degree to which a museum can achieve its
objective. Efficiency measures the level of resources the museum has invested in
the pursuit of effectiveness. According to Weil (2005), a successful museum can
bring positive results to the societies it tries to serve. A positive effect is preserving
the collections for future generations and positively impacting the communities
in the museum’s attempts to operate with its programs (Weil, 2005, p. 33).
Worldwide museums that use the BSC include the Benaki Museum in Athens,
The British Museum in London, and the Tate Gallery chain. At the Benaki Museum
in Athens, it applies the following perspectives: artistic contribution, public
benefit, growth and development, and financial and supervision (Zorloni, 2018).
The British Museum uses the audience’s perspective, development processes,
finance, and investing in the future (British Museum, n.d.). The Tate Gallery (four
art galleries) adopted the following perspectives: public and founders, internal
processes, and growth and development (Villaespesa, 2015).
In Poland, the BSC uses such units as the Karkonosze Museum in Jelenia Góra,
the Historical Museum of the City of Kraków, the Royal Łazienki Museum, and the
Museum of Gdańsk. The Karkonosze Museum in Jelenia Góra has assigned an
individual BSC to strategic goals. These scorecards have four perspectives:
development, customer/market, operations and procedures, infrastructure, com-
petencies, and organisational culture. These perspectives connect to the mission
and vision formulated for the museum. The strategy describes four possible
solutions:
A – infrastructure and marketing, collections and science,
B – qualitative and relational,
C – marketing and relational,
D – internal development.
They are assessed in terms of attractiveness, necessary expenditures, and the
scale of organisational changes and assigned to individual sub-goals. In addition,
following the guidelines of Kaplan and Norton, each goal is set by a person
responsible for its implementation.
The Historical Museum of the City of Kraków has also implemented the BSC.
The museum changed the strategy twice. In the first document, the BSC does not
appear. The museum described only strategic goals, operational goals, and tasks to
perform, and responsible persons were assigned (Muzeum Narodowe w Krakowie
[MNK], n.d.). The museum prepared a SWOT analysis and developed a schedule
for implementing individual changes. In 2012, the museum updated the strategy
with a BSC, which consists of the following perspectives:
owner – Kraków City Council, Mayor of the City, and Kraków City Hall
(Department of Culture and National Heritage),
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R. Kowalak, The Balanced Scorecard for a Museum as a Non-Prot Organisation 117
client – visitors and guests,
internal processes – organisational structure, organisational culture, regu-
lations, processes, procedures, internal regulations of the museum, etc.,
knowledge and development – current, former, and potential employees,
intellectual capital management, knowledge, and other information resources.
Each perspective has strategic objectives, with quantitative goals and persons
responsible for implementation assigned. Users select the measures with planned
values for the purposes. Strategic projects and processes have also been identified
(Muzeum Historyczne Miasta Krakowa [MHK], 2011-2012). The strategy for 2017–
–2021 defines a new vision and mission museum. The strategy for 2017–2021
defines a new vision and mission of the museum, which indicate the values that
the organisation follows to fulfil. The museum has also carried out a SWOT analysis
with elements of the PESTEL analysis, thanks to which the strategy was determined
and expansion plans were outlined. The BSC outlook has not changed. The mu-
seum changed the strategic and sub-goals. It implemented a new approach to all
goals to realise projects assigned to coordinating teams. The museum also
changed the process of implementing the strategy. It set the synthetic measures
to assess the degree of its implementation, which include:
frequency,
income structure,
degree of satisfaction with the offer,
degree of employee satisfaction,
museum brand value.
The strategic objective of ‘acquiring new sources of financing’ was applied in
the ownership perspective. It is important because only about 50% of revenues
came from subsidies. The rest comes from ticket sales. Another goal of the
‘museum with a balanced budget’ is in the perspective of internal processes.
The museum that also uses the BSC is the Royal Łazienki Museum. The de-
velopment of a long-term strategy began in mid-2010. It has been based on the
mission, vision, and action programs. As part of the BSC, goals, measures, and key
programs enabling the achievement of objectives were established. The museum
developed a map of the museum’s strategy which describes the organisation’s
sustainable development strategy (Ciszewska-Mlinariĉ & Obłój, 2017). There are
four perspectives in the BSC:
recipient,
internal processes,
science and development,
financial.
The recipient’s perspective is the most important for the museum due to its
cultural mission. The financial perspective is placed at the bottom because it is
not the most important for the museum. The financial resources are only to secure
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118 Sustainable Performance in Business Organisations and Institutions...
the stable development of the institution. Activities in this perspective include
increasing own funds, obtaining other sources of financing (except subsidies),
and cost optimisation.
The key measures used by the museum in the BSC include (Zielniewicz, 2015):
visits to the gardens (measured by the number of people),
online museum community (measured by the number of users),
museum in the media (measured by the number of publications in the press,
internet, a television),
subsidy (PLN),
special-purpose subsidy from the Ministry of Culture and National Heritage
(PLN),
patrons of the museum (PLN),
own revenues (PLN),
the ratio of own revenues and funds from patrons to the specific subsidy (%).
From 2010 to 2015, sales revenues, the number of internet views, and the
number of visits to the Gardens grew. Another success is the increased funds
obtained from patrons, which, together with internal revenues, amount to 30% of
the subsidy. Total funding more than doubled.
The museum has undergone three stages of change:
matching benchmarks of other museums – streamlining internal organisational
processes and developing the offer,
strengthening the position of a museum in Poland – cooperation with other
museums and building the brand of the Four Museums of Royal Residences,
international development and implementation of cooperation programs
with partners from all around the world.
In 2015, the Museum in Łazienki Królewskie began to implement the strategy
for 2015–2022, which consolidated areas related to strategic development for
2011–2014.
The program activity ‘From a local brand to a European brand’ included the
following strategies so far:
disseminating knowledge and raising service standards,
strengthening identity and prestige,
maintaining and developing resources.
The organisational activity of ‘Modern Museum’ integrates the following
strategies:
people and innovation (efficient organisation).
providing financial resources for stable growth.
Directions of action connect to the new areas, which assume an increase in
own revenues to 30% of the subsidy and energy self-sufficiency of the museum
until 2025.
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R. Kowalak, The Balanced Scorecard for a Museum as a Non-Prot Organisation 119
The Museum of Gdańsk, formerly the Historical Museum of the City of Gdańsk,
has developed its strategy for 2016–2018. The museum examined the surround-
ings using a SWOT analysis, preparing the assumptions. It also chooses the com-
petitive strategy as a strategy. The next step was to create the BSC related to the
museum’s mission. The BSC consisted of four perspectives:
owner,
customer,
operational (internal processes),
knowledge and development.
Financial goals there are in the owner’s perspective. Attributed to her:
increase in revenues, including total revenues, own revenues, funds obtained
from sponsors, funds from non-subsidy sources,
development of educational activity (revenue from museum lessons),
increase in the value of harvested crops,
development of conservation activities (increase in outlays).
All objectives have persons responsible for their implementation. Forecasts
have individual measures for three years, together with a reporting system
(Muzeum Historyczne Miasta Gdańska [MHMG], 2017b).
The BSC helped meet and even exceed the museum’s financial goals. The
Gdańsk Museum successfully implemented its strategy in the given years (MHMG,
2017a, 2018, 2019). In conclusion, other museums can also successfully introduce
the BSC concept to their management model.
BSC is an essential tool to support the mission and strategy of a non-profit
organisation. As in the classic chart of the accomplishments of enterprises, it is
possible to distinguish perspectives related to the assessment of the unit’s
achievements, which can highlight measures supporting the implementation
of the non-profit organisation’s strategy. These measures should focus on this
type of organisation and its activities and functions. A museum is a specific unit
that provides specific services to society, so it requires adjusting the BSC to its
needs. According to Nieplowicz (2017, p. 284), BSC can be successfully used to
agree on a strategy and implement it effectively, as in companies with private
capital.
6.4. Conclusions
According to the Act on museums (Ustawa z dnia 21 listopada 1996), these entities
are non-profit organisations. Such institutions focus on fulfilling the mission of
public utility. By popularising cultural life in a given environment, they act for the
benefit of society. The available financial resources condition the fulfilment of the
mission. Most come from subsidies, while the museum’s management must work
the rest out. Museums occasionally evaluate their achievements, as shown in the
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case studies presented in this chapter, and do not link them to the assessment of
strategy implementation and achieved goals. The BSC is, therefore, an excellent
tool that can translate the strategy into the current goals pursued by the museum.
None of the surveyed museums used a BSC other than that of Kaplan and Norton,
which was adapted to the activities of non-profit organisations.
A severe limitation of using the BSC is the lack of qualified staff who would be
able to implement and use this tool. Hiring such a person would increase the
operating costs of the museum, which by definition, has limited financial
resources. It should therefore assume that it will be implemented only by large,
reputable museums that can count on a large number of visitors and which
finance a significant part of their expenses from ticket sales.
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DOI: 10.15611/2023.83.1.07
Chapter 7
Roadmap to Extension
of the Balanced Scorecard
with an ESG Perspecve:
The Concept for Large Cies
Maria Nieplowicz
Wroclaw University of Economics and Business
e-mail: maria.nieplowicz@ue.wroc.pl
ORCID: 0000-0003-2716-1384
Quote as: Nieplowicz, M. (2023). Roadmap to Extension of the Balanced Scorecard with an ESG
Perspective: The Concept for Large Cities. In J. Dyczkowska (Ed.), Sustainable Performance in Business
Organisations and Institutions: Measurement, Reporting and Management (pp. 122-135). Wroclaw:
Publishing House of Wroclaw University of Economics and Business.
The shortage of funds and the problems of ecological and social inequalities
made economic entities, companies and public institutions aware of the need to
consciously and decisively address the issues of sustainable development.
Sustainable development is a complex issue and a system of expectations
towards institutions whose common goal is to combine economic satisfaction,
environmental awareness and social justice (Szóka, 2022). The opinion that
contemporary organizations are responsible for their stakeholders, community
and society has existed for many decades (Hoang, 2018). In such a situation, there
is a growing demand for non-financial factors (Domanović, 2022; Mio, Costantini,
& Panfilo, 2022). This information about the organization is required both to
disclose relevant and reliable information as well as to monitor the governments
of countries and local communities.
ESG (Environment, Social, Governance) is extremely important, but at the
same time, it is nothing ground-breaking (Edmans, 2023). On the one hand, this
is extremely important as it is fundamental to long-term value. On the other hand,
glorifying ESG is not necessary. Firstly, the proposed European regulations will force
pro-ecological actions. Secondly, attention to social aspects is a form of creating
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capital that gives tangible benefits. Thirdly, good governance often allows for mini-
mizing the costs of the organization’s operation. Therefore, rewar-ding commitment
to ESG can be compared to providing additional compensation for standard work.
The importance of protecting the environment, solving social problems
related to internal and external stakeholders, as well as observing the principles
of good corporate governance is becoming more and more important also in the
life of local authorities. ESG reporting issue has recently come under the spotlight
due to the growing public interest in good governance, accountability and
transparency (Bose, 2020). In response, institutions must strive to disclose more
information covering environmental, social, and governance factors. The inclusive
perspective refers to the balanced, equitable and simultaneous consideration of
every ESG factor to be implemented. Therefore, integrative ESG reporting would
provide a means of engagement and communication between institutions and
many stakeholders with different information needs (Manes-Rossi & Orelli, 2020).
Local communities are primarily interested in environmental factors, although
they often do not explicitly name them (Zioło & Wójtowicz, 2022). Danger to the
health and life of citizens caused by weather and hydrological phenomena and
ways to protect against such problems are key elements of life for more people.
Also, health issues and the treatment of diseases caused by environmental
pollution are important to many. Water deficit that threatens to meet the needs of
the population and the economy, poor water quality, low retention, lack of hydro-
technical structures regulating the flow of water, and low renewable water
resources are other environmental issues. Air pollution with emissions from the
citizens’ housing, the municipal sector, industry and transport, the negative
impact of smog on the health and life of residents, the poor condition of urban
greenery, and the poor quality of water and soil are also becoming the subject of
consideration by local authorities (Government Finance Officers Association
[GFOA], 2020).
Another environmental aspect is the need to secure sewage networks and
sewage treatment plants in the agglomeration and to overcome difficulties in
integrating large areas with dispersed buildings and problems related to sewage
sludge disposal. National and local authorities are trying to reduce the high share
of furnaces and boilers for solid fuels, the low importance of cogeneration in
heating, and the poor energy condition and external appearance of many
residential and public buildings. Appropriate requirements for the thermal
modernization of buildings are also important.
The more developed a society is, the more social issues are perceived. In the
event of depopulation and a negative migration balance, the tax base decreases,
an increase in unit costs of many social services and maintenance of technical
infrastructure, and a decrease in the quality of human capital should be indicated
as the key problem to be solved. It is also important to provide the elderly with
long-term care, rehabilitation, care and assistance services. What also matters is
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the need to help the socially excluded, the policy of social integration, and
increasing support for the weakest. A social problem to be solved in most cities is
the need to organize support for the unemployed, minimizing threats related to
competition in the labour market of citizens, which often results in difficulties in
finding employment or lower wages. The last important social problem is
maintaining schools in a situation of a decreasing number of children or, on the
contrary, difficulties related to ensuring the quality and availability of educational
services in a situation of an increased number of students in schools. These threats
are directly related to another social problem, which is the lack of urbanization
sustainability, especially in a large city.
Good governance is an element of interest in the most developed local
communities (Armstrong & Li, 2022; Kardos, 2012). It is important to ensure
effective management control, appropriate internal audit, and provide residents
with high-quality information and counteract fraudulent settlement of the
budget. Important factors of good governance include the use of a system for
evaluating the quality of work of city officials and the degree of bureaucracy. It is
difficult but necessary to investigate the risk of human rights violations and the
application of ethical standards, as well as to counteract corruption and implement
a whistle-blowing procedure enabling employees or third parties to report cases
of behaviour that is against the law or customs (Zioło & Wójtowicz, 2022).
All the arguments raised require time, human energy and additional funding.
Assumptions constructed this way make it necessary to prepare assumptions for
ESG reporting for local government and government institutions. Beautiful
reporting, however, cannot be an art, an end in itself. Reporting should reflect the
actual state of affairs, i.e., real activities of local community managers. It should
report activities aimed at improving the quality of life. ESG reporting should be
the final element of the city’s ESG strategy. Preparing such a strategy requires
many activities, especially incorporating it into the already existing strategy of the
city. The best tool supporting the preparation and implementation of the strategy
is the Balanced Scorecard (BSC). Therefore, the main objective of this chapter is to
develop the concept of a roadmap for the implementation of ESG perspectives in
the BSC of large Polish cities. The following research methods were used in the
chapter: literature research, reasoning by analogy, and case analysis.
7.1. Traditional Balanced Scorecard for the City
The concept of the BSC was created in the 1990s in the United States. It was devel-
oped as a result of the research project ‘Measuring Efficiency in Organizations of
the Future’ concerning enterprises (Kaplan & Norton, 1992). The main goal
of the BSC is to ensure the implementation of the adopted development strategy.
The BSC allows for formulating measurable and verifiable strategic goals,
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effectively communicates these goals to members of the organization and ena-
bles control and assessment of the degree of achievement of goals.
The concept of the BSC was originally developed for the needs of enterprises.
Simply transferring the concept of a strategic scorecard to public sector entities
may cause disruptions in their functioning. This is due to the fact that these entities
do not operate for profit but for the benefit of their stakeholders. The adaptation of
the concept of the BSC developed for enterprises into a concept that could be used
by public organizations was made thanks to the city of Charlotte (Kaplan & Norton,
2001). The city of Charlotte used a management-by-objectives process that has
served the organization relatively well for many years and has helped staff monitor
performance by comparing it to objectives. Nevertheless, it did not reflect the city’s
emphasis on strategic goals, management in line with the city’s mission, and the
rapid changes taking place in the environment. The old measurement system
focused the city’s attention on the past, not the future. It was an audit tool, not
a planning tool, and had no direct connection with the vision, mission and goals
of the city (Niven, 2008).
With the approval of Kaplan and Norton (2001), Charlotte adapted the BSC to
suit her needs, bringing the customer perspective to the foreground rather than
the financial perspective, as was the traditional concept of the BSC. This modification
of the BSC allowed greater flexibility and facilitated its further use in the public
sector (see more on the BSC for non-profit organizations in chapter 6).
The customer perspective determines who the city’s customer is, how the city
intends to compete for them, and how it plans to retain them. In the case of a city,
the client will be both a resident and an investor. For example, a city can provide its
residents with attractive housing and recreation opportunities, which entails the
need to develop appropriate infrastructure, provide good services to citizens
or provide them with new jobs. For potential investors, the activities of the city may
be useful if they result in offering new places for investments, improving infra-
structure or offering advice on the possibility of doing business in the city.
In order to design the customer’s perspective, it is necessary to identify the
most important urban governance issues that the city needs to solve in order to
provide the citizens (the local community) with the services they require. The
customer perspective of the city is also called the ‘citizen’s perspective’, the ‘citizen’s
service perspective’, or the ‘stakeholder perspective’ (Kaplan & Norton, 2004;
Nieplowicz, 2015; Niven, 2008). The strategic question from the customer’s
perspective is as follows: Does the city focus on the needs of its residents, and
does it provide high-quality services? The answer to such a question determines
the direction of the actions taken. In the city management strategy, the customer’s
perspective is subordinated to the other perspectives of the BSC, which is
expressed by linking their objectives and measures with the implementation
of tasks aimed at the well-being of citizens.
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The internal processes perspective is the identification of the most im-
portant processes and the monitoring of their progress. Effective management
of the process will be reflected in the acquisition and retention of a broadly
understood client of the city. From the perspective of internal processes, it is
therefore important: Can the city change the way the service is delivered and
improve it? The management of internal processes is focused on increasing their
efficiency, e.g., by coordinating (combining and reconciling) activities carried out
by individual departments and departments within the city hall and the instru-
ments they use. This perspective is also called the ‘perspective of the city hall’
or the ‘perspective of resource management’ (Kaplan & Norton, 2004; Nieplowicz,
2015; Niven, 2008).
The financial perspective points to the management of the city’s financial
resources, i.e., on the one hand, budgetary discipline, and on the other hand,
the maximum rationalization of the funds spent. The city’s financial and economic
activities are not focused on profit (as in the case of enterprises) but on taking into
account the principle of thriftiness and saving. For this reason, in the case of cities,
the financial perspective of the BSC is called the ‘perspective of management’, the
‘perspective of the city budget’, or the ‘perspective of running the business’ (Kaplan
& Norton, 2004; Nieplowicz, 2015; Niven, 2008). In the financial perspective, the
strategic question should be answered: Are the funds spent economically? Proper
financial management will allow for securing and developing the com-munal good,
as well as encouraging potential investors and reassuring residents of the correct
spending of their taxes. The objectives and measures of the financial perspective
define the financial effectiveness of the city’s activities, which is necessary to ensure
the continuous implementation of the administrative tasks assigned to it and
resulting from the strategy of actions aimed at the city’s development.
The learning and growth perspective defines the resources necessary to
introduce changes and achieve the goals included in the customer, internal
processes and financial perspectives. The cause-and-effect chain of strategic
objectives, passing through all four perspectives, has its origin in the learning and
growth perspective. Therefore, the goals formulated in this perspective are the
basis for long-term development and improvement of the city. It is, therefore,
necessary to invest in changing the qualifications of employees, improving
technologies and information systems, and adapting organizational procedures.
In the perspective of learning and growth, the strategic question should be
answered: Does the city provide IT and infrastructural support, and does it conduct
training for employees for continuous improvement?
For the needs of the city, the learning and growth perspective is sometimes
referred to as the ‘perspective of the future’ or the ‘perspective of employee
development’ (Kaplan & Norton, 2004; Nieplowicz, 2015; Niven, 2008). The ob-
jectives and measures describing the requirements for the employees of the
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city hall should be formulated in such a way that in the future, the city hall will
become a learning organization, implementing a continuous process of improving
its functioning, identifying strategic problems for the local community and
providing the city with financing for planned tasks. In this perspective, the
contribution of employees and the contribution of the entire city hall, necessary
to achieve long-term social goals, can be defined, and not only the focus on the
satisfaction of the employees themselves. This is related to the process of
organizational and political changes in local government administration.
A properly designed BSC for the city communicates the strategy to the
stakeholders on the basis of the goals, measures and relationships between them
included in the strategy map. A precisely defined set of measures allows for focusing
on the key factors for the implementation of the city’s strategy and ensures that the
mayor and the city council can receive reports enabling them to assess the degree
and effectiveness of the implementation of the strategy. Thanks to this, the president
of the city and the city council can effectively manage the city.
7.2. ESG Implementation in the City’s Strategy
A city that wants to have effective achievements, satisfied residents, tailored and
effective processes and satisfied employees should properly formulate a vision
and mission, and then define a strategy and translate it into operational activities
and implement a performance measurement system. In order to achieve the
expected achievements, it is necessary to create appropriate incentive systems
because only a properly built performance measurement system and the related
remuneration system ensure the achievement of strategic goals set by the needs
of the local community.
The ESG strategy expresses the city’s long-term goals and general lines
of action and shows how to allocate the resources that are necessary to meet the
needs in the field of environmental protection, social welfare and good governance
(Armstrong & Li, 2022). A well-developed strategy makes a city a better place to
live than its neighbours when it develops something that will distinguish it and
when it is able to maintain its uniqueness. Better environmental and social
conditions will make the city more attractive and attract new residents, and thus
new budget revenues will be generated. Synthetically defining in the operational
sphere, changes should be introduced on an ongoing basis, ensuring the flexibility
of operation and implementing model solutions used both by other cities and
individual units of a given city. On the other hand, in the strategic sphere, it is
important to constantly search for opportunities to strengthen the image of
a comfortable place to live. The strategic sphere requires discipline and sticking to
the chosen path. Measuring the results of strategic activities is necessary because
‘you cannot manage what you cannot measure’ (Kaplan & Norton, 2001). It can be
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further specified as ‘if you can’t measure it, you can’t understand it, and if you can’t
understand it, you can’’t control it, and finally, if you can’t control it, you can’t
improve it’ (Nita, 2009).
The next important step is to set strategic ESG goals. Strategic goals are
desirable states of affairs that determine the path of the city’s development in the
coming years. Cities should indicate strategic goals related to securing the health
and life of residents, taking care of the weakest and eliminating waste and wasting
opportunities resulting from poor governance (De Guimarães, Severo, Júnior,
Da Costa, & Salmoria, 2020). In order to measure the degree of achievement
of strategic goals, one or more ESG performance measures are defined. If you
define several performance measures, you can expect better control over whether
the intentions contained in the goal definition will be maintained.
The strategic analysis of the city is carried out using an analytical or synthetic
method. The analytical method is an independent assessment of individual
components of the environment and organizational resources, i.e., an analysis of
the micro- and macroenvironment and then the analysis of the city itself.
Depending on the knowledge and experience of the persons carrying out this
analysis, a synthetic assessment of individual components of the environment
and resources of the unit will be made in terms of developing a future strategy
(Bibri, 2021). The synthetic method most often consists in comparing the
achievements (in terms of ESG) of the city against the background of similar or
neighbouring cities.
It is also useful to develop a strategic balance, i.e., a comprehensive method of
analysis consisting of dividing the city into ESG areas that are subject to detailed
study and assessment. Assessments are made by external experts and employees
of various organizational units and are recorded on specialized cards that are
significantly expanded (Teixeira Dias et al., 2023). The organization assigns a finite
number of points separately for each area. Additionally, the assignment takes
place after the assessment is completed. Thanks to this, a comprehensive
assessment of the city’s strategic ESG potential is obtained, and its strengths and
weaknesses are identified. The use of this method requires the selection of the
best assessment methods and the development of extensive databases on
industries and units, which are the basis for the development of cost benchmarks,
efficiency, etc. Such a method requires cooperation with external consultants
who will support building a solid foundation for future reorganization.
The last element of conceptual work on the implementation of ESG in the
city’s strategy is the use of the experience of other cities. External benchmarking
consists of carrying out comparisons with neighbouring cities or cities of similar
size in other countries. Functional benchmarking is also used, which consists of
comparing processes constituting the same function performed in various areas
of the city’s life (the subject of comparison is not a competitor). These comparisons
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most often concern health protection, social development, forms of combating
corruption and stigmatizing the reprehensible behaviour of local authorities. It is
important that cities use benchmarking as a continuous process and not as a one-
off or single action (Warnecke, Wittstock, & Teuteberg, 2019). The external
environment is constantly changing, and it may turn out that the adopted
solutions will no longer be valid.
Strategic analysis is the beginning of activities related to the development of
the strategy. Thanks to it, the goal, state or model that the city should aim at in
terms of minimizing the ESG risk is set. This state is described by means of
objectives and measures of their performance. A useful solution is to group these
intentions, taking into account the key areas of operation (Teixeira Dias et al.,
2023). The result of the completed strategic analysis is often the assumption for
the Balanced Scorecard model. Setting several or a dozen goals requires
coordination and harmonization of activities in order to organize the intentions
and adjust the available resources to them. A useful solution used by most entities
implementing the BSC model is the strategy map.
The strategy map graphically reflects the hypotheses contained in the
strategy by illustrating cause-and-effect relationships between strategic ESG
goals. Depending on the priorities of the city’s inhabitants, the importance of
individual ESG areas is determined. Usually, the financial area is of key importance.
However, in organizations that are not profit-oriented, the most important thing
is to satisfy the residents who finance their activities (Niven, 2008). It is not enough
just to set goals. It is necessary to confront them with external conditions. The
solution used in this area is the analysis of key success factors. If it is supplemented
with the proper allocation of available resources, it can be expected to develop
the best possible ESG strategy contextually adapted to the expectations of the
local community.
The element integrating the implementation of the ESG strategy is the
development of control mechanisms. Strategic control of assumptions concerns
the systematic adjustment of assumptions (hypotheses) adopted in the strategy.
When formulating a strategy, certain presumptions are made that can be met in
an uncertain future. Some of them are rejected as unrealistic. It is also associated
with risk. Therefore, the adopted hypotheses should be monitored continuously
at the stage of strategy implementation. The unpredictable future materialized
threats and previously unrecognized factors can reveal themselves at any time. In
addition, they can become a barrier that makes it difficult or impossible to achieve
the intended goals. Strategic implementation control should be implemented at
the initial stage of strategy implementation. At a time when an uncertain future
turns into a certain present, also thanks to the availability of more information,
they become the basis for assessing the correctness of the strategy and recognizing
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130 Sustainable Performance in Business Organisations and Institutions...
whether the assumed strategic goals are being implemented. The strategy
implementation schedule should be supplemented with disruptions, which
should also force the application of modified control mechanisms.
7.3. ESG Perspective in the City – Case Study
Measuring the effectiveness of the instruments used to improve the quality of life
of residents is a key element of the uninterrupted operation of local authorities. It
is not possible to unequivocally indicate the form of extending the traditional
concept of the BSC with the assessment of the effectiveness of broadly understood
ESG activities. The existing BSC implementations allow for the use of one of the
two opposite solutions (Butler, Henderson, & Raiborn, 2011). The first is to extract
an additional ESG perspective in the structure of the already existing BSC. The
second involves integrating quality-of-life goals and measures into all four
standard perspectives of the BSC. Both approaches have their strengths and
weaknesses, but implementing a separate ESG perspective will highlight the
importance of local government efforts in this regard. Residents will receive
a strong signal of how managers approach improving the quality of their lives in
its most important non-financial aspects.
City administrators have a legal obligation to increase the quality of life by
increasing the efficiency of managing public property and meeting key social
needs. The financial consequences of the lack of an ESG strategy usually burden
members of the local community as the final beneficiaries of the processes and
decisions made. It is not possible to passively accept the lack of environmental
and social activities; it is necessary to minimize the probability of the occurrence
of such threats. Because local government units operate based on funds provided
by taxpayers, therefore, the proposed solution is to include goals and measures
related to the improvement of the quality of life in the structure of the BSC.
Managers of many cities in the world often use the BSC, which is also implemented
in Poland. Conceptual work is being carried out, which has not yet taken its final
form. However, it is not possible to use a universal method of extending it to
measure the effectiveness of ESG activities. In the case of large, dynamically
developing cities, it seems reasonable to separate an additional ESG perspective,
while in the case of smaller local government units, ESG objectives and measures
should be integrated into the existing BSC perspectives, e.g., into the customer
perspective or the perspective of internal processes.
Large cities have much more opportunities to carry out development projects
(ESG). Most often, the reason for this situation is the amount of income, which
translates into the ability to incur larger liabilities. The use of contracted liabilities
is indispensable in the development process. However, these liabilities generate
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the risk of over-indebtedness. The effects of such threats can affect the standard
of living of residents for a long period of time. Therefore, due to the significant
potential losses resulting from the implementation of large development projects,
an additional perspective can be used in the BSC – which is ESG. In the ESG
perspective, key benefits resulting from expenditure on improving the quality of
life of residents should be indicated.
Bearing in mind the traditional concept of the BSC for a city presented in
chapter 7.1 and the possibility of extending it with an ESG perspective, Table 7.1
presents strategic questions, strategic goals and measures in five BSC perspectives
for an example of a large Polish city.
Based on Table 7.1, it can be concluded that the achievement of the objectives
contained in the ESG perspective should translate into an increase in the quality
of life of residents. On the other hand, it results directly from the financial
perspective, as it involves the need to incur additional expenditures on environ-
mental, social and governance activity. For example, higher spending should be
compensated by increasing development opportunities and, indirectly, by
increasing tax revenues. For this reason, in the ESG perspective, the question
arises of which environmental, social and governance activities should be
controlled in order to achieve a long-term increase in the operational efficiency of
the unit. The ESG perspective on the strategy map is located between the customer
perspective and the financial perspective, on par with the internal process
perspective.
The presented case shows that ESG is a significant challenge for the city
authorities, so it requires special management, especially at the strategic level.
The BSC is a very good tool for evaluating the performance of any type of organi-
zation. Therefore, it is worth taking into account the problems of pro-environ-
mental and pro-social activities as well as those improving governance. In large
cities, in the BSC, an additional ESG perspective is to be separated, while in smaller
units, it is crucial to include additional goals and measures in the existing
perspectives to emphasize how important these activities are.
The main limitation of this research is the small research sample. Few Polish
cities have implemented BSC. In many cases, this is the basic version of the
BSC consisting of four perspectives. This is the reason why it is not possible to
examine the readiness of city managers to develop this method of performance
measurement. The second limitation is the still small participation of the residents
of Polish cities in the work on the preparation of the BSC. Residents have a small
share in the development of detailed measures, but they have no influence on
the development of strategic goals. Thirdly, many residents are not aware of the
possibility of their social participation at all (they do not know that they can have
an impact).
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Table 7.1. Strategic questions, strategic goals and measures in five BSC perspectives for an example of a large Polish city
Goals Measures
Customer perspective: Is the city focused on the needs of its stakeholders, and does it provide high-quality services?
Increasing the level of social and relational capital 1. Place in the ranking of cities
Ensuring a high quality of life for residents 1. Percentage of the population living in close proximity to green areas
2. The level of a subjective sense of security (determined on the basis of a periodically
conducted survey among residents)
3. Number of social actions (communal fridge, sharing clothes, donating a book, etc.)
A friendly city for entrepreneurship 1. Number of enterprises opened in the current period
2. Number of inhabitants starting a sole proprietorship
3. The value of outlays on infrastructural investments
Development of municipal construction 1. Number of new or revitalized facilities
ESG perspective: Which environmental, social and governance activities need to be controlled for long-term growth?
Strict adherence to environmental policy regulations and
instructions
1. Number of violations
Maintaining the risk of depopulation, population ageing
and the percentage of residents at risk of exclusion
1. Increase in spending on social care.
Reducing the risk of mismanagement and errors in city
management
1. Number of faults and errors in audit and control procedures
Increased air quality 1. Number of days in a year for which the dust standard is exceeded
Promoting pro-ecological behaviour 1. Number of social campaigns ‘Plant a tree in your district’
2. Percentage of residents engaging in pro-ecological campaigns organized by the city
3. Percentage of inhabitants using bicycle paths
Providing diversified transport 1. Percentage of residents using public transport
2. Number of drivers using public transport
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Internal processes perspective: Can the city change the way the service is delivered and improve it?
Simplification of procedures and the service process at
the Municipal Office
1. The number of cases that can be dealt with ‘in one go’ in one building
2. The number of city services that can be arranged via the Internet
Cooperation with external specialists 1. Number of projects implemented jointly with external specialists
Providing access to information 1. Number of residents satisfied with the information obtained
2. Number of officials having completed additional courses
Ensuring an efficient system of communication with
residents
1. Percentage of inhabitants using the transport system
2. Number of projects submitted under the participatory budget accepted for
implementation
Financial perspective: Are the funds being used economically?
Ensuring the continuity of financing public services 1. Value of budget deficit/surplus
Maximization of income from assistance funds 1. Number of applications approved/total number of submitted applications
2. Total amount of funds raised
Tax database management 1. Current tax collection rate
2. Number of changes in taxes favourable to entrepreneurs and investors
3. Number of new residents and entrepreneurs
Learning and growth perspective: Does the city provide IT and infrastructural support, and does it conduct training for employees for continuous
improvement?
Development of ICT infrastructure 1. Percentage of employees working from home
2. Number of faculties equipped with mobile applications
Increased involvement of city officials 1. Number of new project activities the official is involved in
2. Number of officials entering project activities for the first time
The real use of information (translation of information
into knowledge)
1. Number of submitted applications in competitions organized and financed by
national and European institutions, initiated by officials
Promoting learning and development 1. Number of employees who volunteered for additional training
Source: own presentation based on (Lew, Nieplowicz, Ossowski, & Zackiewicz-Brunke, 2021; Nieplowicz, 2015; Zioło & Wójtowicz, 2022).
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134 Sustainable Performance in Business Organisations and Institutions...
Summing up: the benefits and costs of implementing the ESG perspective
can be significant, and cities should start implementation activities immediately.
Making a decision to extend the BSC may result in an increase in organization
costs and additional involvement of internal staff, but thanks to this, there will be
additional social and environmental benefits that are difficult to evaluate.
However, in the future, these benefits will result in significant competitive
advantages. If it is not possible to implement the ESG perspective once, it is
necessary to periodically extend the remaining BSC perspectives with these
issues. In this way, the gradual expansion of the BSC over several subsequent
periods will minimize the implementation costs. Finally, previously prepared
goals in individual perspectives will allow for a smooth transition to the ESG
perspective, with minimal expenditure. Future research work should be focused
on improving methods related to determining key success factors, strategic goals
and the most important measures in the ESG area. Cities should focus on listening
to the needs of their residents and smartly integrating these needs with trends in
the global economy.
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Chapter 8
Eco-Eciency Indicators
in District Heang Companies
Marcin Wierzbiński
Wrocław University of Economics and Business
e-mail: marcin.wierzbinski@ue.wroc.pl
ORCID: 0000-0002-3046-4178
Quote as: Wierzbiński, M. (2023). Eco-Eciency Indicators in District Heating Companies. In J. Dycz-
kowska (Ed.), Sustainable Performance in Business Organisations and Institutions: Measurement,
Reporting and Management (pp. 136-148). Wroclaw: Publishing House of Wroclaw University of Eco-
nomics and Business.
District Heating Companies (DHC) in Poland and in Central European and Nordic
countries play an important role in meeting the demand for heat of city dwellers.
The energy crisis that is a consequence of the war in Ukraine caused a sharp
increase in the prices of fossil fuels (coal and natural gas), which in turn translated
into a significant increase in the prices of heat supplied by municipal heating
systems. The increases in heat prices recorded in 2022 in Poland ranged from
several dozen to several hundred percent. The highest increase in prices occurred
in district heating systems supplied with heat from heating plants or combined
heat and power plants (CHPs) fired by natural gas.
However, the observed dynamic increase in heat generation costs caused by
the crisis in the fuel market was not fully compensated by the increase in heat
prices, which led to the deterioration of the financial situation of DHCs. At the
same time, the high increase in heat prices had a negative impact on its
competitiveness in relation to alternative technical solutions using renewable
energy sources (RES). So far, the main renewable energy source in the district
heating sector has been the use of biomass. Nevertheless, a significant increase in
fuel prices and, consequently, heat prices led to the profitability of using alternative
solutions consisting in ‘heat electrification’, which are based on heat pumps
powered by electricity from RES.
The existing market conditions should accelerate decision-making regarding
the energy transformation of district heating systems in a direction consistent
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M. Wierzbiński, Eco-Eciency Indicators in District Heating Companies 137
with the climate policy of the European Union. The energy transformation
of district heating systems should be aimed at a complete departure from fossil
fuels which is possible through:
electrification of heat where electricity for heat pumps should come from RES
(PV, wind, hydro and others),
construction of low-temperature heating microgrids constituting the lower
source of heat for water-to-water heat pumps installed in buildings (4th and 5th
generation systems),
use of waste heat,
use of biomass and municipal waste as a supplementary fuels to heat ge-
neration.
Relatively low heat prices until the end of 2021 did not create sufficient
motivation for this type of transformation. A radical change in the business
environment of DHCs combined with additional funds from the EU can significantly
accelerate decisions on energy transformation. In addition to financial resources,
carrying it out requires appropriate information support for the decision-making
process, which is in line with title and aim of this monograph. The scope and pace
of transformation may also be the elements of a strategy to stand out in the
district heating market. Informational support for the process of decision-making
aimed at energy transformation can be provided by environmental accounting,
which also embraces eco-efficiency indicators. The purpose of this chapter is
to present the possibilities of using environmental accounting in DHCs, including
the development of a methodology for calculating basic eco-efficiency indicators
that can be used in this industry. These indicators should be used in integrated
and ESG reports as an element of building a competitive advantage on the district
heating market. That can be a part of performance measurement and management
system in these companies that supports sustainable development.
8.1. The Essence of Environmental Accounting
The concept of environmental accounting appeared along with the need to pay
more attention to the protection of the natural environment. Motivation to manage
enterprises from the perspective of natural environment protection came primarily
from the outside of companies. Most often, state or supra-regional institutions
worked out legal regulations, standards and rules of conduct in the field of natural
environment protection to which enterprises had to adapt their activities. Failure
to comply with the adopted norms and standards in the field of natural
environment protection is most often subject to the risk of high financial penal-
ties or, in extreme cases, termination of the business. An important external factor
forcing enterprises to comply with the standards in the field of natural envi-
ronment protection was also the growing ecological awareness of societies. For
these reasons maintaining high standards in the field of natural environment
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138 Sustainable Performance in Business Organisations and Institutions...
protection has become, for many companies, an element of the strategy to stand
out on the market. From this point of view, the protection of the natural environment
in the decision-making process has a positive impact on financial results.
Both the economic and the natural environment protection aspects in mana-
gement decisions require adequate informational support. This became the basis
for the concept of environmental accounting and environmental management
accounting (EMA). The first institution that started promoting environmental
management accounting in 1990 was the Environmental Protection Agency in
the USA. Subsequently, the United Nations Division for Sustainable Development
([UN DSD] 2001) created a working group for the development of assumptions for
environmental management accounting. Selected definitions of environmental
accounting are presented in Table 8.1.
Several of the most important features of environmental accounting emerge
from the above definitions. The tasks of the environmental accounting system are:
identification and analysis of environmental costs,
generating financial and non-financial information supporting decision-
-making aimed at the effective allocation of the natural resources that are at
enterprises’ disposal,
support for carrying out analyses related to the flow of materials in the
company and its costs, enabling the identification of their impact on the
natural environment and financial results,
extension of traditional financial accounting, cost accounting and manage-
ment accounting to include aspects related to natural environment pro-
tection and sustainable development.
Environmental accounting is therefore intended to provide information
supporting optimal decisions from the point of view of natural resource allocation
used by the company to produce products and services. The optimal allocation of
these resources is, in turn, to translate into reducing the negative impact of
enterprises on the natural environment. Therefore, environmental accounting is
an accounting subsystem that registers, processes and analyses information on
the company’s impact on the natural environment. Therefore, environmental
accounting is a necessary accounting subsystem in those entities that implement
a sustainable development strategy.
An important part of environmental accounting is the cost account provid-
ing information related to environmental costs. The general definition of cost
accounting indicates that its purpose is to provide various users with multi-
-sectional economic information concerning the company’s activity and its costs.
This information is used by both internal and external users in relation to the
boundaries of the enterprise structure (Nowak, Piechota, & Wierzbiński, 2004,
p. 15). Cost accounting focused on environmental aspects additionally provides
a range of information on costs that are directly or indirectly related to the impact
of the company’s activity on the natural environment.
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M. Wierzbiński, Eco-Eciency Indicators in District Heating Companies 139
Table 8.1. Definitions of (management) environmental accounting
Author Definition
Barrow (1997),
as cited in Beer &
Friend (2006)
Environmental management can be defined as the process of allocating natural
resources so as to make optimum use of the environment in satisfying basic
human needs, if possible, for an indefinite period and with minimal adverse
effects to the environment.
Steele & Powell
(2002), as cited
in Beer & Friend
(2006)
They define environmental accounting as the identification, allocation and
analysis of material streams and their related money flows by using environmental
accounting systems to provide insight into environmental impacts and
associated financial effects.
Graff, Reiskin &
White Bidwell
(1998),
as cited in Burritt
& Saka (2006)
Environmental management accounting is the way that businesses account for
the material use and environmental costs of their business. Materials accounting
is a means of tracking material flows through a facility in order to characterize
inputs and outputs for purposes of evaluating both resource efficiency and
environmental improvement opportunities.
Environmental cost accounting is how environmental costs are identified and
allocated to the material flows or other physical aspects of a firm’s operations.
Bennett & James
(1998), as cited
in Burritt & Saka
(2006)
EMA is the generation, analysis and use of financial and non-financial
information in order to optimise corporate environmental and economic
performance and to achieve sustainable business.
UN DSD (2001) Environmental management accounting […] represents a combined approach
which provides for the transition of data from financial accounting and cost
accounting to increase material efficiency, reduce environmental impact and risk
and reduce costs of environmental protection.
Jasch & Lavicka
(2006)
The concept of sustainable development requires an integrated assessment of
the financial, social and environmental aspects. Sustainability management
accounting is a tool that assists organisations in becoming more sustainable by
highlighting costs, risks and benefits. It extends traditional financial and cost
accounting to take account of sustainability impacts at the organisational level.
As sustainability is based on a broad stakeholder approach, also the external
effects of the organisation and its products must be considered.
Jasch (2003) EMA, in its current approach, has been developed for company internal decision
making and therefore focuses on tracing all real environmental and
material efficiency loss expenditure for a given year. The focus is on improving
a company’s information system and decision basis. The focus is not on
estimating external effects and ‘soft’ factors, such as image, credibility, and
ethics, as from an accountant’s perspective, they will sooner or later
be reflected in the annual accounts but should not distort the cost basis
of a previous year. For the calculation of investment projects and savings,
however, these factors are considered.
Source: own presentation.
An in-depth classification of environmental costs was developed as part
of a project led by a working group established by the United Nations Division for
Sustainable Development. This classification is presented in Figure 8.1.
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140 Sustainable Performance in Business Organisations and Institutions...
Figure 8.1. Classification of environmental costs
Source: (UN DSD, 2001).
The following costs were specified in the environmental cost classification:
1. Waste and emission treatment which concern the construction and
maintenance of flue gas purification installations, sewage treatment, and waste
disposal, as well as incurring fees related to the use of the environmental resources
and relevant insurance.
2. Prevention and environmental management include the costs of pre-
venting the generation of pollution and waste and therefore relate mainly to the
costs of acquisition, maintenance and operation of more environmentally friendly
technologies as well as the costs of research into such technologies or employee
training. The calculation of this cost category does not take into account savings
that may result from the use of more environmentally friendly technologies.
3. The material purchase value of non-product output means the cost
of material waste that has not been used in the production of final products.
4. Processing costs of non-product output relate to the costs of labour,
depreciation and maintenance of the machines which were involved in the
processing of materials that ultimately turned out to be waste and therefore were
not productively utilized as a part of the final products.
The sum of the above cost categories corresponds to all environmental costs
incurred by the company. These costs can be reduced by environmental revenues,
i.e. by all financial benefits associated with proper environmental management,
including, for example, revenues from the sale of by-products or revenues related
to waste management.
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M. Wierzbiński, Eco-Eciency Indicators in District Heating Companies 141
Environmental costs in the above approach are calculated by two groups
of specialists, that is by:
management accounting specialists: they calculate individual categories
of environmental costs, which have been indicated above and allocate them
to individual cost centres within the production process,
technology specialists who focus on physical measures related to the
pollution generated, the water and energy balance of the technological
process, the description of the process itself and its boundaries, as well as the
allocation of environmental costs to individual utilities.
The classification of environmental costs presented above does not include
external costs, i.e., costs incurred by societies in connection with the activities of
enterprises (e.g., costs of treating diseases related to air pollution). External costs
may be internalized, which means they are transferred to enterprises in the form
of various types of taxes or environmental fees (e.g., costs of purchase and
redemption of CO2 emission allowances). If they are internalized, they are included
in the first of the environmental costs listed above.
Calculation and classification of environmental costs allow for the generation
of a range of information used to calculate eco-efficiency indicators. These
indicators, in turn, are the basis for evaluating the effectiveness of enterprises in
the field of natural environment protection as well as the progress in implementing
the sustainable development strategy.
8.2. Eco-Efficiency Indicators in Sustainable Development
The idea of eco-efficiency dates back to the 70s of the last century, but its
popularization took place mainly in the 90s of the last century. At that time, the
World Business Council for Sustainable Development defined this concept and
then launched an information campaign for a wider implementation of the idea
of ecological efficiency management (Figge & Hahn, 2013). Eco-efficiency is
defined as an instrument supporting decision-making aimed at sustainable
development by focusing attention on both economic and environmental
aspects. Therefore, eco-efficiency indicators make it possible to assess the
performance of an enterprise as well as local governments or countries achieved
in the area of sustainable development (Huppes & Ishikawa, 2009). In other words,
eco-efficiency indicators illustrate how effectively scarce natural resources are
used by enterprises (Figge & Hahn, 2013).
In general, efficiency is defined as the ratio of the achieved effects (products) of
a specific process to the inputs incurred, which can be expressed in terms of quantity
or value. The higher the effects achieved within a given process in relation to the
resources used, the higher its effectiveness is. If the effects and resources in the
above relation are expressed in terms of value, then the relation constructed in this
way can be related to economic efficiency. Nevertheless, performance indicators
can also be calculated on the basis of quantities expressed in physical units.
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Ecological efficiency, in turn, is defined as the ratio of the effects obtained
within a given process to its overall impact on the natural environment (Schal-
tegger & Sturm, 1992 as cited in Burrit & Saka, 2006]. Ecological efficiency can
therefore be represented by the formula:
ecological efficiency = output/environmental impact added.
Environmental impact added is defined as the overall impact of a given
process or phenomenon on the natural environment. There are two categories
of ecological efficiency: ecological product efficiency and ecological functional
efficiency. The first of the enumerated types of efficiency is measured on the scale
of the entire product life cycle and concerns the ratio of the volume of production
to the entire impact of the production process on the natural environment.
The second of the mentioned categories of ecological efficiency refers to
determining the impact of the implementation of a specific function (e.g., moving
from point A to point B) on the natural environment. The mobility function can be
implemented in various ways, i.e., by means of various means of transport, which
in a different way affect the use of natural resources, including primary energy
carriers. The most ecologically effective will be, for example, the method of
transport with the lowest energy consumption or the lowest CO2 emission per
kilometre travelled.
In turn, the combination of the concept of economic and ecological efficiency
translates into obtaining the eco-efficiency index, which is measured using the
following formula:
eco-efficiency = monetary value added/environmental impact added.
The numerator of the presented formula includes economic or financial values
expressed in money, characterizing the effects of a specific process or economic
phenomenon. The impact on the natural environment is expressed in physical
units and usually refers to the amount of resources used or pollutants emitted.
With the help of eco-efficiency indicators, it is possible to assess the economy
of individual countries, economic sectors in individual countries, the activities
of individual enterprises or individual processes that are carried out in them from
the perspective of the efficiency of the use of natural resources or the impact on
the natural environment. The conducted comparative analysis makes it possible
to identify companies from a given industry or processes of a given type that are
characterized by the highest level of eco-efficiency. The difference in the level
of this efficiency between different entities or processes determines the gap that
should be closed if the guiding principle of the company’s activity is sustainable
development. For this reason, the publication of eco-efficiency indicators in
integrated or ESG reports may become an important stimulus to reduce the
company’s negative impact on the natural environment.
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M. Wierzbiński, Eco-Eciency Indicators in District Heating Companies 143
8.3. Eco-Efficiency Indicators in District Heating
Meeting the demand on the heat of city dwellers can be conducted in various
ways using a number of technologies and business models. In most cities in
Poland, the demand for heat is met by district heating systems, the typical value
chain of which is shown in Figure 8.2.
Heat Plants or CHPs Heat transmission
and distribution
Hard coal mining and natural gas
mining and transmission
Figure 8.2. Value chain of district heating systems
Source: own presentation.
The value chain of district heating systems consists of the extraction of fossil
fuels and their transport, then heat generation in heating plants or CHPs,
transmission and distribution of heat to end users by means of district heating
networks and heat substations in buildings. Heat plants and CHPs use mainly
fossil fuels to generate heat, that is coal and natural gas. Biomass is used to a much
lesser extent. District heating systems have been operating within the presented
value chain for 60–70 years and have a significant impact on the natural envi-
ronment. This impact is not limited only to the emission of pollutants into the
atmosphere during the combustion of fossil fuels, although this element of
environmental impact is one of the most important. However, in the entire district
heating value chain, there are many more factors that have a negative impact
on the natural environment as well as on the scale of resources used, as shown
in Figure 8.3.
The impact on the natural environment of the activities carried out in the
individual links of the district heating value chain is related to the emission
of pollutants into the atmosphere, the use or contamination of underground
and surface waters as well as the occupation of land for a given activity or the
permanent exclusion of its use for other purposes in connection with con-
tamination or damage. Economic activities in the district heating value chain
based on fossil fuels affect not only the state of the air through the emission of
carbon dioxide and other pollutants but also the state of water resources and,
above all, land use and soil degradation. With regard to the latter, mining damage
caused during the extraction of fossil fuels and sinkholes but also areas excluded
from other activities should be pointed out. Finally, large areas of land are occupied
by heat plants, CHPs and transmission networks, including networks for the
transmission of natural gas and heat. No other activity may be conducted in the
vicinity of these facilities taking into account the protection zones. These areas are
also excluded from natural use.
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144 Sustainable Performance in Business Organisations and Institutions...
Figure 8.3. Direct impact on the natural environment of activities carried out in individual links
of district heating value chain
Source: own presentation.
An important issue is the adoption of one unit of measurement of the impact
of activities in a given link of the value chain on the natural environment which
then enables the calculation of synthetic eco-efficiency indicators. Most often,
the amount of pollutant emissions into the atmosphere is measured in kg, the use
of groundwater or surface water in m3 and the use of land for a given activity or
its exclusion from use for other purposes in m2 or ha. All the above data is most
often collected and processed by departments responsible for environmental
protection in enterprises and, in most cases, is reported to government agencies.
Figure 8.3 shows the direct impact of the activities carried out in individual
links of the sectoral value chain of district heating on the condition of the natural
environment. If the eco-efficiency indicators were calculated separately for
individual links of the value chain on the basis of their direct impact on the natural
environment, a misleading picture could be created as to the real impact of this
method of heating buildings on the use of environmental resources. For example,
direct emissions of pollutants into the atmosphere caused by heat transmission
from heat plants or CHPs to final consumers are small or non-existent. Also, the use
of water in the heat transmission is not significant. Therefore, the eco-effi-
Coal
1. Air (impact measured in kg of substances emitted):
−emission of methane from coal deposits, including
shaft ventilation
2. Water (impact measured in m3 of water used
or contaminated):
−contamination of surface and underground waters
by leaching hazardous substances from coal heaps
−pollution of surface waters by discharge of water
from mines to rivers
−lowering the groundwater level caused by its
pumping out of coal deposits
3. Soil (impact measured in m2 of soil used
or contaminated):
−mining damage (sinks, tremors) preventing the
exploitation of large areas of land
−formation of waste heaps
Heat Plants or CHPs Heat transmission
and distribution
Hard coal mining and natural
gas mining and transmission
Natural gas
1. Air (impact measured in kg of substances emitted):
−emission of pollutants by evaporation of the
substances injected into the gas deposit
−emission of methane and other substances into the
atmosphere during its extraction and transmission
2. Water (impact measured in m3 of water used
or contaminated):
−groundwater and soil contamination with formation
uids, muds, emergency discharges to the
environment
3. Soil (impact measured in m2 of soil used
or contaminated):
−contamination of the soil surface and subsurface
layers with substances used to prepare drilling muds
−area occupied by transmission networks with
a protection zone
1. Air (impact measured in kg of substances
emitted):
---
2. Water (impact measured in m3 of water
used or contaminated):
−replenishment of water in the heating
network
3. Soil (impact measured in m2 of soil used
or contaminated):
−area of land occupied by heating networks
with a protection zone (approx. 2m)
−storage of waste related to asbestos used
to insulate the district heating network
1. Air (impact measured in kg of substances
emitted):
−CO2 emissions
−CO emissions
−NOX emission
−SO2 emission
−Dust emission
−Emission of the pollutants, including mercury
2. Water (impact measured in m3 of water used
or contaminated):
−use of water cooling turbogenerators (in CHP
plants also operating in condensation)
3. Soil (impact measured in m2 of soil used
or contaminated):
−occupation of the land area for a combined
heat and power plant / heating plant with
protection zones
−occupation of land for storage of furnace waste
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M. Wierzbiński, Eco-Eciency Indicators in District Heating Companies 145
ciency indicators calculated for this link of the sectoral value chain on the basis
of factors directly influencing the state of the natural environment could seem
beneficial. Hence, sometimes many representatives of the district heating sector
claim that this type of heating of buildings is one of the most ecological, even if
fossil fuels are used to generate heat, primarily natural gas. Nevertheless, the eco-
-efficiency indicators calculated in this way create only an illusory impression that
this type of heating does not significantly impact the natural environment.
Therefore, the eco-efficiency of district heating systems should be measured
not only within individual links of the value chain but in an incremental way taking
into account the environmental impact of activities carried out in earlier links as
well. The correct way of calculating the eco-efficiency indicators for the district
heating systems is shown in Figure 8.4.
Heat Plants or CHPs Heat transmission and distribution
1. Air:
Direct impact (pollutant emissions in kg)
Emission ratio (chain link 1) = pollutant
emissions (kg) / chemical energy
of extracted fuels (GJ)
2. Water:
Direct impact (water used in m3)
Water consumption ratio (chain link 1) =
water consumption (m3) / chemical energy
of extracted fuels (GJ)
3. Soil:
Direct impact (land used in m2)
Land use ratio (chain link 1) = land used
(m
2
) / chemical energy of extracted fuels (GJ)
Hard coal mining and natural
gas mining
1. A
ir:
Direct Impact (pollutant emissions in kg)
+ Indirect impact (pollutant emissions
in kg)
(emission ratio for link 1 x chemical energy
of used fuels in link 2 in GJ)
= Total impact (pollutant emissions
in kg)
Emission ratio (chain link 2) = total pollutant
emissions (kg) / produced heat (GJ)
2. Water:
Direct impact (water used in m3)
+ indirect impact (water used in m3)
(water consumption ratio for link 1 x chemical
energy of used fuels in link 2 in GJ)
= Total impact (water used in m3)
Water consumption ratio (chain link 2) = total
water consumption (m3) / produced heat (GJ)
3. Soil:
Direct impact (land used in m2)
+ Indirect impact (land used in m2)
(land use ratio for link 1 x chemical energy
of used fuels in link 2 in GJ)
= Total impact (land used in m2)
Land use ratio (chain link 2) = total land used
(m2) / produced heat (GJ)
1. Eco-efficiency (chain link 1) = monetary
value added / total environmental
impact added
1. Eco-efficiency (chain link 2) = monetary
value added / total environmental impact
added
1. Eco-efficiency (chain link 3) = monetary
value added / total environmental impact
added
2. Eco-efficiency calculated separately
for impact on air, water or soil (chain
link 1) = monetary value added / impact
regarding air, water or soil separately
(in kg, m3 or m2)
2. Eco-efficiency calculated separately
for impact on air, water or soil (chain
link 2) = monetary value added / impact
regarding air, water or soil separately
(in kg, m3 or m2)
2. Eco-efficiency calculated separately for impact
on air, water or soil (chain link 3) = monetary
value added / impact regarding air, water
or soil separately (in kg, m3 or m2)
1. Air:
Direct Impact (pollutant emissions in kg)
+ Indirect impact (pollutant emissions in kg)
(emission ratio for link 2 x heat introduced to
heating network in link 3 in GJ)
= Total impact (pollutant emissions in kg)
Emission ratio (chain link 3) = total
pollutant emissions (kg) / heat delivered
to customers (GJ)
2. Water:
Direct impact (water used in m3)
+ indirect impact (water used in m3)
(water consumption ratio for link 2 x heat
introduced to heating network in link 3 in GJ)
= Total impact (water used in m3)
Water consumption ratio (chain link 3) = total
water consumption (m3) / heat delivered
to customers (GJ)
3. Soil:
Direct impact (land used in m2)
+Indirect impact (land used in m2)
(land use ratio for link 2 x heat introduced
to heating network in link 3 in GJ)
= Total impact (land used in m2)
Land use ratio (chain link 3) = total land used
(m2) / heat delivered to customers (GJ)
Figure 8.4. Calculation method of eco-efficiency indicators for district heating systems
Source: own presentation.
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146 Sustainable Performance in Business Organisations and Institutions...
To calculate eco-efficiency indicators for district heating, it is necessary to
obtain the following:
non-financial information about the impact of activities in a given link of the
sectoral value chain on the natural environment where this impact should be
measured in three basic categories, i.e., in relation to air, water and soil
(sometimes this impact is also defined in relation to biodiversity);
financial data enabling the calculation of the added value generated in each
link separately.
The total environmental impact of activities carried out in a given link of the
sectoral value chain is the sum of the following:
direct impact (direct emissions of pollutants into the atmosphere in a given
link, direct use of water or soil);
indirect impact being the product of the indicator showing the impact on the
natural environment of the activity in the earlier link and the use of products
of the activity of the earlier link.
By summing up the direct and indirect impact, the eco-efficiency indicators
calculated for a given link take into account the impact on the natural environ-
ment of the activities carried out in the previous links. In this way, the impact is
calculated incrementally.
Financial data should make it possible to calculate the added value generated
in each link of the sectoral value chain separately. The added value should
be understood as the sales revenue of the enterprise (enterprises) operating
in a given link less the costs of material consumption and external services.
Alternatively, value added can be calculated as the sum of income generated,
interest paid, taxes and wage costs.
Eco-efficiency indicators can be calculated:
separately for each type of pollution, water or soil use,
in a synthetic way covering the total impact of the activity conducted in
a given link on the natural environment.
In the latter case, it is necessary to express the total impact of activity in a
given link of the value chain on the use of natural resources, which may be
monetary units. For this reason, the total environmental impact of an activity can
be calculated according to the following formula:
Total environmental impact added =
3
1i=
∑
impacti × ratei,
where:
impacti – emission of pollutants into the atmosphere (in kg), use of water resources
(in m3) or land use (in m2),
ratei – rate for emission of pollutants into the atmosphere (in PLN/kg), use
of water resources (in PLN/m3) or use of land (in PLN/m2).
The rates used in the above formula should correspond to the external costs
associated with a given type of impact of the activity on the natural environment.
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M. Wierzbiński, Eco-Eciency Indicators in District Heating Companies 147
These rates are related to fees and taxes for pollutant emissions, water or land use
and are most often calculated by government agencies. As stated earlier, external
costs should be understood as costs that are not incurred directly by enterprises
but are related to their activities and are covered by societies in the form of
expenses for health care, liquidation of mining damage, restoration of biodiversity,
etc. These costs can only be internalized by imposing appropriate taxes and
environmental charges on companies.
Finally, the eco-efficiency ratio expressed as a monetary value ratio added to
the total environmental impact added is an unnominated unit. The higher its
value, the higher the level of eco-efficiency of the activity conducted in a given
link of the sectoral value chain. The values of these indicators should be used to
assess the eco-efficiency of district heating systems in relation to alternative
methods of heating buildings, including individual heat sources with heat pumps.
8.4. Conclusions
District heating systems play a significant role in meeting the demand for heat of
the inhabitants of Polish cities. The heat supplied to them is generated in CHPs or
heat plants that are most often fired by hard coal, natural gas or, to a lesser extent,
biomass, and then it is sent to heat substations in buildings via the heating
network. In the minds of city dwellers, district heating systems are considered
ecological, even if the heat is produced from hard coal because its production
does not involve the so-called low emissions and heat sources are most often
equipped with flue gas cleaning installations. This type of image of district heating
systems is also created by entities from the industry.
Unfortunately, the actual impact of district heating systems on the natural
environment is not positive, especially if we take into account the negative
consequences of activities carried out in the earlier links of the sectoral value chain
related to fuel extraction. One of the tools for assessing these negative consequences
for the natural environment in connection with the efficiency of the resources used
is eco-efficiency indicators. These indicators make it possible to relate the overall
impact of activities carried out in the district heating sector on the natural
environment to the scale of natural resources used, including air, water and soil.
These indicators for a given link of the value chain should be calculated, taking into
account the impact of activities carried out in earlier links on the use of natural
resources. Only the incremental method of calculating these indicators guarantees
to obtain a reliable picture of the impact of activities related to the generation and
supply of heat on the natural environment and the scale of the resources used.
District heating systems in Poland face the necessity of transformation towards
renewable energy sources. This transformation can take different directions, but
it should also be assessed from the perspective of eco-efficiency indicators.
In addition, comparative analyses of eco-efficiency indicators for activities related
to heat generation before and after the transformation should be carried out,
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148 Sustainable Performance in Business Organisations and Institutions...
which would enable its deeper economic justification but also from the ecological
perspective. Such analyses would also allow for greater social acceptance of the
transformation of the district heating systems towards renewable energy sources.
Nevertheless, conducting such analyses requires the publication by individual
entities from the sectoral value chain of a number of information on the natural
resources used, the impact of the conducted activity on the natural environment
and the added value generated. At the moment, not all data and information
necessary to calculate eco-efficiency indicators are publicly available, which
should change in the future.
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DOI: 10.15611/2023.83.1.09
Chapter 9
Sustainability and Sustainability Performance:
Empirical Findings from the German Banking
and Insurance Sectors
Petra Kroflin
Baden Württemberg Cooperative State University
e-mail: kroflin@dhbw-ravensburg.de
ORCID: 0000-0003-3714-8220
Claudius Kroflin
PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft
e-mail: claudius.kroflin@pwc.com
ORCID: 0009-0004-1520-7036
Quote as: Kroflin, P., & Kroflin, C. (2023). Sustainability and Sustainability Performance: Empirical
Findings from the German Banking and Insurance Sector. In J. Dyczkowska (Ed.), Sustainable Per-
formance in Business Organisations and Institutions: Measurement, Reporting and Management
(pp. 149-170). Wroclaw: Publishing House of Wroclaw University of Economics and Business.
In order to understand the following chapter about sustainability reporting, some
key constructs need to be defined and explained. These are sustainability, cor-
porate social responsibility (CRS), Environmental, Social, and Governance (ESG),
and sustainability reporting.
The essay of Malthus dating back to 1798 (as cited in Pufé 2014) about the
mismatch between available resources and the constantly growing population
is the first proof of sustainability in the academic context. The term ‘sustainability’,
as used today, is the result of the Conference of the World Commission on
Environment and Development in 1987. After this conference, the so-called
Brundtland-report titled Our common future was issued (The World Commission
on Environment and Development, 1990). This report redefines the relationship
between economic development on the one hand and the natural environment
on the other. The following definition of sustainable development is still one
of the most prominent statements used in this context: ‘Sustainable development
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150 Sustainable Performance in Business Organisations and Institutions...
is the development that meets the needs of the present without compromising the
ability of future generations to meet their own needs.’ The basic idea is conservation.
No generation has the right to damage the life of future generations by its own
consumption of resources.
During the United Nations (UN) Conference in Rio de Janeiro in 1992, the
Member States agreed on Agenda 21 (United Nations, 1993), which splits the
term sustainability into the areas of ecological, social and economic sustainability
(Pufé, 2014). This three-dimensional understanding of sustainability is the foun-
dation of the following constructs of CSR and ESG: Corporate social responsibility,
once a good doing sideshow, is now seen as mainstream (Just good business, 2008).
CSR addresses the role that companies play within society to achieve sustaina-
bility goals (Arnold, 2011). This includes their responsibility towards external
stakeholders, such as their ecological footprint, market and social involvement,
and their internal stakeholders, described by working conditions and compliant
behaviour. The need for transparent behaviour in the CSR framework highlights
the need for sustainability reporting.
Figure 9.1. CSR and ESG
Source: https://news.skhynix.com/understanding-esg-from-investors-perspective/
ESG stands for Environmental, Social, and Governance. Although the terms
ESG and CSR share many similarities, they are used in different contexts. ESG is
primarily utilised in the financial sector to evaluate investments (Oberbauer,
2020). The concept of ESG enables investors to quantify the risks and opportunities
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P. Kroflin, C. Kroflin, Sustainability and Sustainability Performance... 151
associated with their investments based on non-financial information. However,
analysing such data can be highly complex. In order to simplify this process, rating
agencies provide condensed information about a company’s ESG performance
and calculate ESG scores. These scores illustrate a company’s ability to withstand
long-term, industry-specific, and company-specific ecological, social, and gov-
ernance risks. Figure 9.1 demonstrates the difference between CSR and ESG and
their similarity.
Sustainability reporting stands for the process and result of measuring and
reporting sustainability performance data to stakeholders. The data reported
cover all areas of sustainability and are mostly divided into the three categories:
environmental, social and governance.
In this chapter, sustainability is used as a term covering all relevant aspects
of CSR and ESG as both are integral parts of the sustainability reporting.
In our study, the significant role of financial institutions in the sustainability
landscape and the related sustainability reporting requirements inherent in their
logical business model will be discussed.
Thus, the primary objective of this study is to examine whether the financial
institutions under consideration have fulfilled these special requirements so far.
Therefore, the first research question is:
RQ1: Have the German financial institutions under consideration fulfilled the
sector-specific reporting requirements during the observation period?
Moreover, prior research has established a correlation between sustainability
performance and sustainability reporting. It has been found that negative per-
formance leads to increased reported content. Additionally, a preference for
quantitative data in sustainability reports has been observed, and a lack of links
between quantitative and qualitative data has been noted. Furthermore, positive
impacts of sustainability reporting on a company’s perception by its shareholders
have been reported. However, there is a paucity of data regarding the effect
of sustainability reporting on sustainability performance, and more research is
necessary in this regard. Although the research period is limited, and other factors
influencing sustainability performance, apart from the reporting activity, were
not included, this analysis aims to observe sustainability performance over time.
Therefore, the second research question is:
RQ2: Do the published metrics of the analysed financial institutions improve
in the observation period?
To answer the first question, a scoring model was used. The degrees of fulfilment
of economic, ecological and social standards were first weighted in general and
then measured per financial institution, which finally resulted in a score. This score
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152 Sustainable Performance in Business Organisations and Institutions...
subsequently forms the basis for a conclusion whether a financial institution
achieved a high, medium or low fulfilment score.
The second question has been analysed by a broad sample testing and by
a descriptive statistics’ analysis. 157 key performance indicators were identified,
classified into the three sustainability areas and the measured performance
per indicator and financial institution at the end of the observation period
was compared to the performance at the beginning of the observation period.
The data were used to draw conclusions on the level of financial institution but
also on the level of sustainability dimension.
9.1. Sustainability Reporting in Europe – an Overview
The requirement for companies to disclose non-financial information on su-
stainability topics was established in 2014 when the European Union issued
guidelines mandating that large, incorporated companies and organisations
submit sustainability reports (Non-Financial Reporting Directive, NFRD) (Directive
2013/34/EU).
Explanations: RUG: Implementation law; VO: Directive; Veröffentlichung: release; Umsetzung in
nationales Recht: Conversion into National law; verpflichtende Anwendung: mandatory application
Figure 9.2. History of sustainability reporting in Germany
Source: https://kpmg.com/at/de/home/insights/2021/04/ueberarbeitung-der-eu-richtlinie-fuer-nach-
haltigkeitsberichterstattung.html, with own adaptation.
The NFRD did not provide specific guidelines regarding the content of non-
financial (i.e., sustainability) reports but required companies to publish such
reports starting in 2017. In the same year, the EU Directive was transformed into
national law (CSR Richtlinien Umsetzungsgesetz, CSR-RUG). To gradually elevate
sustainability reports to the same level as financial reports, the EU issued the
Corporate Sustainability Reporting Directive (CSRD) in 2021. This Directive
was also enacted into national law in 2022, and consequently, reports for business
periods beginning in 2023 must include sustainability reporting data. Instead
of being published as separate chapters in the annual report, these reports must
now be included in the management report section and are subject to audit
procedures. Initially, audits will be conducted with limited assurance, which will
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eventually be replaced by audits with reasonable assurance. As a result of this law,
the number of German companies reporting sustainability data is projected to
increase from 11 600 in 2017 to 49 600 in 2023 (Wollmert & Hobbs, 2021). Chapter 2
of this monograph offers more detailed insights into the new European regu-
lation.
The integration of sustainability reports into the management report elevates
their importance and increases the level of formality. For instance, the principle of
continuity requires companies to retain chosen performance indicators over
multiple periods, allowing for year-to-year comparisons. This regulation helps
reduce the potential for greenwashing, which involves selectively disclosing
positive data while neglecting negative information. Another significant change
concerns the essentiality of published information. German corporations have
previously focused heavily on ecological information, outlining the risks they face
due to ecological challenges (outside-in perspective). However, they must now
also address the risks society will face due to their business practices, which create
such risks (inside-out perspective). Chapters 6 and 7 of this monograph give
examples of how to integrate ESG criteria into management reporting via bal-
anced scorecards.
9.2. Sustainability Performance
The obligation to publish a sustainability report ensures that sustainability
remains a constant topic in organisations and opens up a discourse with all
stakeholder groups. However, it is important to distinguish between measuring
and publishing data and actually performing and measuring sustainability per-
formance.
Sustainability performance involves a company defining clear sustainability
goals and identifying suitable performance indicators. Sustainability reporting
then reflects that the measured performance is used to control achievements
measured at a clear strategy and, in doing so, improve sustainability outcomes
(Bey, 2008).
The selection of relevant performance indicators is a key to making the report
an instrument of sustainability control and not just a means of acquittal.
Additionally, sustainability performance measurement depends on the continuity
of selected indicators over time.
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9.3. The Two-Way Interaction between Sustainability
Reporting and Sustainability Performance
The relationship between sustainability reporting and sustainability performance
can be analysed in both directions and from different perspectives (Table 9.1).
Table 9.1. Overview of existing research
Correlation Underlying research Results
Sustainability reporting
affects sustainability
performance
Al-Tuwaijiri, Christensen,
& Hughes (2004)
Clarkson, Li, Richardson,
& Vasvari (2008)
Papoutsi & Sodhi (2020)
Ambiguous results
further research necessary
Sustainability performance
affects the scope
of sustainability reporting
Hummel & Schlick (2013)
Nazari, Hrazdil, &
Mahmoudia (2017)
If the performance is poor, the scope
of the report increases
– proven
The measurability
of sustainability aspects
influences the scope
of reporting
Cikanek & Landris (2019) Preference for quantitative reporting
content and insufficient linkage with
non-quantifiable content demonstrated
+ proven
Sustainability reporting
quality influences the
perception of stakeholders
Frese & Colsman (2018)
Wu & Pupovac (2019)
Chauvey, Giordano-Spring,
Cho, & Patten (2015)
Positive perception of detailed reports
on share price and stakeholder
perception demonstrated
+ proven
Explanation: – inverse correlation, + positive correlation.
Source: own presentation.
The overview shows existing studies and categorises them into four relation-
ship structures, including:
• Inuence of sustainability measurement and reporting on sustainability
performance
While Al-Tuwaijri et al. (2004) and Clarkson et al. (2006) were able to demonstrate
a positive relationship between reporting and performance in terms of waste
production and waste gas emission (ecological indicators) of American companies,
Papoutsi and Sodhi (2020) found opposite relationships. They could not prove any
changes in the performance level, or they found some increasing and other
decreasing performance indicators. Accordingly, there is a lack of clear evidence
regarding the positive relationship between sustainability reporting and per-
formance, which question the benefits of reporting for sustainability performance.
However, the aforementioned inconclusive results could also be due to the fact
that prior to 2017, there was no obligation and no framework to report. As a result,
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there was no consistency in reporting, which significantly limited the analysis
of indicators over time. In this respect, it is a concern of the present study to take
up this connection once again and then analyse it in the empirical part for the
target group of banks and insurance companies under investigation.
•Inuence of sustainability performance on the scope of sustainability reporting
Various authors of further studies (Hummel & Schlick, 2008; Nazari et al., 2017)
argue that sustainability reporting is used to positively influence the external
perception of a company’s poor sustainability performance and thus engage in
greenwashing. In their empirical studies, they explain the negative correlation
between sustainability performance and the extent of sustainability reporting by
the fact that sustainability reports were intended to conceal unsatisfactory
performance by deliberately reporting in detail and verbally on the relevant
sustainability aspects. In addition, in the event of poor sustainability performance,
not reporting on the corresponding key figures in such a case or only reporting
verbally would deliberately omit the aspect of consistency. In this respect, the
phenomenon of greenwashing seems to exist in previous reporting practices.
The future location of the sustainability report in the management report and
the accompanying steadiness of reporting will counteract this practice.
In the following empirical study, greenwashing will not be investigated
further, as this would require precise knowledge of good or poor absolute
sustainability performance. In order to speak of greenwashing, the performance
values achieved by the companies would have to be assessed as poor. However,
such benchmarks have not been published to date, so it is impossible to assess
the performance level of the companies studied from the outside.
The other two sets of relationships shown in the figure above are not discussed
in further detail below. The focus of these studies is not on sustainability
performance and its interaction with sustainability reporting but rather on the
form of the reported content and the impact on stakeholders, which are not the
subject of our investigation.
9.4. Financial Institutions
in the Context of Sustainability Reporting
The reporting practices of German financial institutions are regulated by various
laws and guidelines. In particular, the obligation to publish sustainability reports
applies to public interest entities, which includes all financial institutions
regardless of their capital market orientation, as stipulated in § 316a HGB
(Handelsgesetzbuch). As financial intermediators, these institutions fulfil these
roles of size, maturity and risk transformation.
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Given the importance of financial institutions in the economy and society,
it is crucial for them to measure and report on their sustainability performance.
This requires the identification of relevant performance indicators, which
should be consistent over time to enable meaningful comparisons and track
progress.
In Germany, financial institutions are divided into two main groups according
to § 1 Abs. 19 KWG (Kreditwesengesetz, banking law): banks and insurance com-
panies. Banks engage in activities such as lending, borrowing, and providing
services such as investment banking and M&A support. The largest and, therefore,
most important German banks are shown in Figure 9.3.
Figures in millions €.
Figure 9.3. Germany’s largest banks by total assets
Source: https://de.statista.com/statistik/daten/studie/157580/umfrage/bilanzsumme-der-groessten-
banken-in-deutschland/
In the subsequent empirical research, the banks mentioned above were
included, with one exception. Unicredit Bank AG was excluded from the sample
due to its sustainability report being included in the Italian Unicredit corporate
report and not published separately.
The central task and achievement of the insurance sector is the collectivisa-
tion of risk. Insurance businesses involve individuals expecting payment in case
of a described incident, with the payment risk being spread over a large number
of people undergoing the same risk. The German insurance landscape is cate-
gorised into individual and social insurance, both including various contracts.
Individual insurance companies are often private, while social insurances are
typically public corporations and, therefore, not included in our sample.
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The subsequent empirical research considers the first five insurance companies
(Figure 9.4). They all fall into the category of individual insurance companies.
Figures in millions €.
Figure 9.4. Germany’s insurance companies by premium income in 2021
Source: https://de.statista.com/statistik/daten/studie/1901/umfrage/top-20-der-deutschen-versi-
cherungen/
Financial institutions, such as banks and insurance companies, have a unique
role in the sustainability reporting landscape due to their special functions in the
economy. As intermediaries of finance, their responsibility for sustainability
extends beyond their own actions to encompass the activities they facilitate
through lending and borrowing. The impact of financial institutions on the
sustainable and stable development of an economy is significant. Therefore,
German financial institutions have been mandated to publish sustainability
reports since 2017 as public interest entities, irrespective of their legal form,
capitalisation, or capital market orientation. This makes them an important re-
ference group for other companies regarding the quality of sustainability report-
ing in terms of relevance and regarding the effects of sustainability reporting
on sustainability performance.
It is crucial to understand the unique sustainability needs of financial
institutions, which can be viewed from three perspectives: the lender, borrower,
and internal, to understand the outcome of the present analysis (Figure 9.5).
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158 Sustainable Performance in Business Organisations and Institutions...
Figure 9.5. Areas of sustainability from a bank’s perspective
Source: https://assets.openstax.org/oscms-prodcms/media/documents/Macroeconomics2e-OP_
WRQqkIv.pdf, with own additions
Capital providers (lenders)
The sustainability of financial institutions is challenged in the area of capital
provision, particularly with regard to the selection of clients and their sources of
income. Furthermore, financial institutions must address issues related to money
laundering and the potential undermining of legal and tax systems (Frese &
Colsman, 2018). In order to promote sustainable banking practices, transparency
and fairness must be prioritised during contract negotiations, and demand-
oriented customer advisory practices must be implemented.
Experts, therefore, agree that the market for sustainable investment will continue
to grow in volume over the next few years. From the providers’ point of view, a corre-
sponding demand from institutional investors will be quite essential for the develop-
ment of the sustainable investment market. (Kopp, 2012, p. 556 [own translation])
Furthermore, the challenges of the entire banking system must be met
through cooperation in order to support political goals (e.g., blocking boycott
customers, SWIFT exclusion of Russian banks, etc.).
Capital users (borrowers)
On the side of lenders, transparency and customer orientation are crucial for
sustainable banking practices. Bergset, Gebauer, & and Timme (2009) highlight
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the issue of risky investments being recommended to customers who may not be
aware of the risks or are unable to bear them, emphasising the need for demand-
-oriented customer advisory practices. Similarly, banks and insurance companies
should take a clear position on supporting non-sustainable activities such as en-
vironmentally damaging or socially questionable large-scale projects in emer-
ging and developing countries. Exclusion criteria such as lignite mining or child
labour should also be mentioned here. However, until 2010, only 3.4% of all
investments met ESG criteria (Eurosif, 2008).
Own actions (internal processes)
After the financial crisis, banks faced a significant loss of trust and reputation.
Moreover, a 10% reduction in staff has taken place due to cost-cutting reasons
since the financial crisis. Thus, the establishment of transparency and fair treatment
of employees is the main internal topics that financial institutions need to address.
It is noteworthy that, despite the ecological consequences of their actions,
financial institutions’ social behaviour as employers and service providers and
their compliance practices should be the primary consideration in the context of
internal process sustainability (Bergset et al., 2009; Frese & Colsman, 2018).
9.5. Research Sample and Research Method
In order to answer the first research question, whether and to what extent the
analysed financial institutions fulfilled sector specific reporting requirements, an
adequate sample of financial institutions was established. The sample was chosen
based on two criteria relevance of the institution for evidencing tendencies in the
entire sector and data availability.
To better understand the banking market, it was analysed based on the market
share of each institution by business volume.
As shown in Figure 9.6, the German banking market is divided into six
segments: regional/other credit banks/branches of foreign banks, other credit
institutions, saving banks, major banks, cooperative banks, and state-owned
regional banks. The segments represented in the sample and the representing
financial institution are:
regional/ other credit banks/branches of foreign banks: not represented in the
sample,
other credit institutions: KfW,
saving banks: not represented in the sample,
major banks: Deutsche Bank AG, Commerzbank AG,
cooperative banks: DZ Bank AG,
state-owned regional banks: Landesbank BW (LBBW, Institution under public
law).
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Figure 9.6. The German banking market by business volume
Source: https://de.statista.com/statistik/daten/studie/161141/umfrage/marktanteile-von-banken-
gruppen-in-deutschland-nach-geschaeftsvolumen/, with own adaptions.
The choice of the sample was based on the total assets of the institutions, as
shown in Figure 9.6. The saving banks, even though representing an important
market segment, could not be added to the sample, as this segment represents
359 regional saving banks and 140 smaller banks that publish a common report
under the roof organisation Sparkassen Finanzgruppe. This sustainability report
does not use the GRI or comparable frameworks and can, therefore, not
be compared to any other reports. Altogether, the sample represents four of the
six segments mentioned above and accounts for approximately 48% of the total
German banking market (Bundesverband der Deutschen Volksbanken und
Raiffeisenbanken, 2021).
Therefore, the selection of the five cases from the banking sector may serve as
evidence of the trends and patterns observed in the sector, but since not all
segments are included, the sample is not fully representative.
For the insurance market, the choice of examples has been made on the basis
of premium income, as shown in Figure 9.4. The samples taken are1:
Allianz Group SE (19.75%),
ERGO Group AG as part of Münchner Rückversicherung AG (5.6%),
Talanx AG (3.94%),
R&V AG (6.35%),
Debeka VVaG (5.02%).
1
Market share according to premium income in brackets.
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As shown in Figure 9.4, Alliance Group is by far the biggest insurance company
in Germany. Nevertheless, their market share earned in Germany is only 19.75%.
The market is fragmented, and public insurance institutions are not included in
the sample. The combined market share of the sample in the German insurance
market, according to premium income, is approximately 40.66% (AssCompact,
2021). Since social securities as public organisations are not part of the sample,
our study only evidences tendencies in the individual insurance sector.
While answering the first research question, which concerns the relevance
of the published data in the sustainability reports, the following approach de-
scribed in this subchapter was used.
In order to filter the reported sustainability KPIs, the selection considered
the GRI standards referenced. The GRI Framework was developed by the multi-
-stakeholder organisation Global Reporting Initiative (GRI). According to KPMG,
this framework is the global de facto standard for sustainability reporting (KPMG,
2014, p. 8).
In concrete terms, the sustainability reports of the companies examined were
analysed to determine whether and to what extent the GRI standards specific to
banking and insurance were taken into account. Their identification and selection
were part of the analysis but are not further discussed in this chapter.
The aim of the analysis was to determine a score for each financial institution.
First, the GRI standards used by the institutions were compared with the sector-
-specific requirements (Table 9.2). Then, for each company, an assessment was
made of the extent to which it was already applying the required GRI standards
in the reporting period. Each pillar of sustainability, economic, ecological, and
Table 9.2. GRI standards relevant to financial institutions
Economic Environmental Social
GRI 201 Economic Performance
GRI 203 Indirect Economic
Impact
GRI 205 Anti-Competitive
Behaviour
GRI 206 Anti-Corruption
GRI 417 Marketing and
Labelling
GRI 419 Socioeconomic
Compliance
GRI 302 Energy
GRI 303 Water and
Effluents
GRI 305 Emissions
GRI 306 Waste
GRI 307 Environmental
Compliance
GRI 401 Employment
GRI 403 Occupational Health and Safety
GRI 404 Training and Education
GRI 405 Diversity and Equal Opportunity
GRI 406 Non-Discrimination
GRI 410 Security Practices
GRI 413 Local Communities
GRI 414 Supplier Social Assessment
GRI 418 Customer Privacy
GRI 202 Market Presence
GRI 308 Supplier Environmental
Assessment
Source: own presentation.
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162 Sustainable Performance in Business Organisations and Institutions...
social, was first considered separately. In the following, all the associated
GRI standards in one pillar were checked individually for their use in the samples.
The number of standards used in the complete observation period was then
totalled for each of the three pillars and divided by the years of reporting. This
resulted in the average number of GRI standards applied per pillar and company.
The results for each company were then presented in a traffic light model.
Four implementation levels were defined in advance and assigned traffic light
colours. The traffic light model reflects the following implementation levels. Each
level was assigned points so that scores could be calculated later.
High implementation, 4 points (100 – 75% use of required standards).
Medium implementation, 3 points (75 – 50% use of required standards)
Moderate implementation 2 points (50 – 25% use of required standards)
Low implementation, 1 point (25 – 0% use of required standards).
Table 9.3. Implementation levels based on the number of used GRI standards
High compliance
> 75%
= 4 points
Medium
compliance > 50%
= 3 points
Low compliance
> 25%
= 2 points
No compliance
< 25%
= 1 point
Number of standards reported
Economic 6.00 – 4.50 4.50 – 3.00 3.00 – 1.50 1.50 – 0.00
Ecological 5.00 – 3.75 3.75 – 2.50 2.50 – 1.25 1.25 – 0.00
Social 11.00 – 8.25 8.25 – 5.50 5.50 – 2.75 2.75 – 0.00
Source: own presentation.
The next step was weighing the three sustainability dimensions.
Due to the varying importance for the financial sector, it would not
be expedient to give each of the three sustainability pillars the same weight.
In order to assign an implementation score to each company, which is the final
objective of this analysis, the three sustainability dimensions have to be weighted
with their different importance. Therefore, in the next step, each pillar was
assigned a weighting factor, which was developed through a literature review
and then validated by experts. The underlying literature analysis was demonstrated
in each case by representative citations.
Economic (weighting 40/100): Banks bear a particularly strong responsibility
for sustainable development. [...] By integrating sustainability aspects into services
such as lending or asset management, banks [and insurance companies] can thereby
exert a steering effect in favour of socially and ecologically compatible activities
(Bergset et al., 2009, p. 54 [own translation]).
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Ecological (weighting 20/100): The direct environmental impact of banking
operations, while small, is present (Bergset et al., 2009, p. 56 [own translation]). Even
if these are internal optimisations and even if there is not the same potential in this
aspect as, for example, in manufacturing industrial companies, this nevertheless has
a major signal effect (Frese & Colsman, 2018, p. 18 [own translation]).
Social (weighting 40/100): Employees are one of the most important factors for
success. Even if this applies in principle to every company, this point should be em-
phasised. Particularly through customer contact, they are the decisive driving force
for the implementation of sustainability in day-to-day business (Frese & Colsman,
2018, p. 19 [own translation]).
Not least in connection with the currently significant topic of job cuts, banks are
faced with a high level of responsibility for their employees. [...] In this situation,
possibilities for safeguarding employment must be explored in cooperation with
the social partners, and measures must be developed to cushion operational changes
in a socially acceptable manner (Bergset et al., 2009, p. 54 [own translation]).
The final section of the empirical study is devoted to the second research
question. It examines whether an improvement in the sustainability performance
of the institutions was observed during the study period. This section thus follows
from the research of Al-Tuwaijiri et al. (2004), Clarkson et al. (2006), and Papoutsi
and Sodhi (2020) mentioned in Table 9.1.
In order to establish a relationship between performance measurement and
sustainability performance levels, a simplifying assumption had to be made.
Therefore, external reporting was equated with an existing sustainability per-
formance measurement. In other words, it was assumed that the performance
indicators reported externally were also used internally to measure and manage
performance. This is undoubtedly highly simplistic. However, a more in-depth
analysis of internally used indicators was not possible due to the limited scope
of this work and the confidentiality of such information.
Accordingly, to analyse sustainability performance during the period under
review, key performance indicators were first identified that were presented in the
report by each company using the relevant standards during the period under
review. In doing so, only key figures that had not already been included in the
financial report, e.g., turnover or profit, were deliberately analysed. Only in this way
can a potential connection between reporting activity and performance be
investigated and related to the sustainability reporting period. This enabled
the analysis of the development of these key figures over time. In the course of the
study, 157 different indicators were collected (34 economic, 42 ecological and
81 social), of which 50 were examined in more detail because all considered sample
institutions constantly reported these. The LBBW reported on all indicators, Talanx
only on 50. The analysed indicators are included in Table 9.4.
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164 Sustainable Performance in Business Organisations and Institutions...
Table 9.4. Selection of sustainability KPIs
Economic indicators Application
1. Equity ratio Used by single
institutions only
2–6. Project financing of renewable technologies (divided into five KPIs)
7. Monetary value of products and services with ecological and social
benefits
8–10. Sustainable public funds (divided into three KPIs)
11. Total assets managed from a sustainable perspective
12–15. Total investment products with a sustainability focus (divided into four
KPIs)
16. Sustainable structured bonds and certificates
17. New business volume for promotional loans
18–22. Sustainable investments (divided into five KPIs) Used by all
institutions
23-27. Project financing for sustainable technologies (divided into five KPIs)
28. Total volume of green bonds accompanied during issuance Used by single
institutions only
29. Total volume of issued green bonds
30. Monetary value of products and services with ecological and social
benefits
31. Sustainable insurance solutions
32. Promotional credit business
33. Funding volume in euros
34. Phase out of coal-based business models (divestment)
Social indicators Application
1–13. Promotion programs (divided into 13 KPIs) Used by single
institutions only
14. Employee feedback culture Used by all
institutions
15–19. Diversity of the Workforce (divided into five KPIs)
20–25. Corporate Social Responsibility (CSR) projects (divided into six KPIs) Used by single
institutions only
26–33. Employee engagement (divided into eight KPIs)
34. Donations
35–60. Employee overview (divided into 26 KPIs) Used by all
institutions
61–64. Use of working time models (divided into 4 KPIs) Used by single
institutions only
65. Measures for health care
66–74. Employee development (divided into 10 KPIs)
75. Discrimination cases
76. Work and commuting accidents
77. Cases of corruption
78. Fines and sanctions for violations of the law
79. Fines and sanctions for violations of the law
80. Complaints regarding the privacy of customer data
81. Absenteeism – sickness-related and total
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Ecological indicators Application
1–5. Energy and electricity from renewable sources (divided into five KPIs) Used by single
institutions only
6–11. Paper consumption (divided into six KPIs)
12–19. Waste produced (divided into eight KPIS) Used by all
institutions
20–24. Water consumption (divided into five KPIs)
25–34. Emissions (divided into 10 KPIs)
35. Heat consumption Used by single
institutions only
36. Sustainability rating
37–42. Energy sources (divided into six KPIs)
Source: own presentation.
Since the observation period of five years is short, and the question of
improvements is being investigated, the performance levels achieved in the initial
year – 2017 – were compared with the final level in 2021, so the intervening period
was initially disregarded. There was also no evaluation of the absolute performance
levels achieved nor of the scope of improvements. The aim of the study was
merely to identify changes within the period under review, not to evaluate the
performance levels or improvements achieved.
9.6. Research Findings and Discussion
By multiplying the implementation levels (numbers of GRI Standards referenced)
by the weighting factors, it was finally possible to determine an implementation
score per company. This indicates how relevant the current reporting content of
each of the institutions considered is with regard to the required GRI standards.
The overview in Table 9.5 summarises the results that are central to this chapter.
It is evident that R&V AG scores the highest in all areas of sustainability
reporting. Other financial institutions scoring high and achieving the green traffic
light are Talanx AG as well as the two banks LBBW and KfW, both Institutes of
Public Rights. In each economic, ecological and social category, they use the
required GRI standards of 75% or more and thus achieve the highest score per
pillar and overall.
Münchner Rückversicherungs AG and DZ Bank also achieve a high level of
implementation in the economic and ecological categories but can only
demonstrate a medium level of implementation in the social category. They thus
achieve a score of 3.6.
Commerzbank only achieves a medium implementation in each of the three
areas, resulting in a score of 3.0. Deutsche Bank can demonstrate a high im-
plementation for the ecological area but only a medium implementation in the
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166 Sustainable Performance in Business Organisations and Institutions...
Table 9.5. Sustainability reporting scores
Financial
institution Framework Specific standards
reported Points Score
Deutsche Bank Reporting according to the GRI score 12.2 out of 22 on average 2.8
Economic (40%) 3.4 out of 6 3 1.2
Ecological (20%) 4.2 out of 5 4 0.8
Social (40%) 4.6 out of 11 2 0.8
DZ Bank Reporting according to the GRI score 18.8 out of 22 on average 3.6
Economic (40%) 6.0 out of 6 4 1.6
Ecological (20%) 5.0 out of 5 4 0.8
Social (40%) 7.8 out of 11 3 1.2
KfW Reporting according to the GRI score 19.6 out of 22 on average 4.0
Economic (40%) 5.4 out of 6 4 1.6
Ecological (20%) 4.8 out of 5 4 0.8
Social (40%) 9.4 out of 11 4 1.6
Commerzbank Reporting according to the GRI score 15.4 out of 22 on average 3.0
Economic (40%) 3.8 out of 6 3 1.2
Ecological (20%) 3.4 out of 5 3 0.6
Social (40%) 8.2 out of 11 3 1.2
LBBW Reporting according to the GRI score 21.2 out of 22 on average 4.0
Economic (40%) 5.6 out of 6 4 1.6
Ecological (20%) 5.0 out of 5 4 0.8
Social (40%) 10.6 out of 11 4 1.6
Allianz Reporting according to the GRI score 14.4 out of 22 on average 3.2
Economic (40%) 4.4 out of 6 3 1.2
Ecological (20%) 4.0 out of 5 4 0.8
Social (40%) 6.0 out of 11 3 1.2
Münchner
Rück
Reporting according to the GRI score 17.6 out of 22 on average 3.6
Economic (40%) 6.0 out of 6 4 1.6
Ecological (20%) 4.2 out of 5 4 0.8
Social (40%) 7.4 out of 11 3 1.2
Talanx Reporting according to the GRI score 20.0 out of 22 on average 4.0
Economic (40%) 6.0 out of 6 4 1.6
Ecological (20%) 5.0 out of 5 4 0.8
Social (40%) 9.0 out of 11 4 1.6
R&V Reporting according to the GRI score 21.6 out of 22 on average 4.0
Economic (40%) 6.0 out of 6 4 1.6
Ecological (20%) 5.0 out of 5 4 0.8
Social (40%) 10.6 out of 11 4 1.6
Debeka Reporting according to the GRI score 6.8 out of 22 on average 2.0
Economic (40%) 1.8 out of 6 2 0.8
Ecological (20%) 2.0 out of 5 2 0.4
Social (40%) 3.0 out of 11 2 0.8
Source: own presentation.
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P. Kroflin, C. Kroflin, Sustainability and Sustainability Performance... 167
economic area and only a moderate implementation in the social area. Considering
the low weighting of the ecological aspect and the high weighting of the social
aspect, Deutsche Bank only achieves a score of 2.8.
The scores of Debeka VVaG are rather low, which is a methodological con-
sequence of lacking reports in 2017 and 2018.
Overall, this assessment shows that a high level of sector-specific relevance
based on GRI standards exists for most institutions. Nevertheless, it also points
to a need for improvement at some institutions.
It is also noticeable that overall, there is a high level of quality in the area
of ecology, although this area is of secondary importance compared with
the areas of economy and social sustainability. This contrasts with the sometimes-
-low quality of implementation in the area of social sustainability. However,
this area, in particular, is of high importance in view of the still persisting image
loss of the industry.
This suggests that there is currently still a certain preference for popular and
easy-to-survey indicators, while the industry-specific focus is still to improve.
The authors surveyed the performance level of the sample companies at the
end of the observation period and compared it with the baseline level in 2017
using the indicators outlined in Table 9.4. Altogether, 157 indicators were analysed.
Only the LBBW considered all these indicators in their sustainability report. Oher
institutions reported only on certain parts of the metrics, not all.
Table 9.6. Sustainability improvements
Institution
Amount
of KPIs
analysed
Eco-
nomic
There
of im-
proved
Ecolo-
gical
There
of im-
proved
Social
There
of im-
proved
Total amount
of improved
KPIs
No %
Deutsche Bank 90 1 1 36 31 53 24 56 62.2
BZ Bank 83 11 7 28 20 44 18 45 54.2
KfW 72 15 10 25 13 32 10 33 45.8
Commerzbank 96 13 9 19 16 64 15 40 41.7
LBBW 157 34 26 42 30 81 38 94 60.5
Allianz 120 25 20 29 26 66 38 84 70.0
Műnchner Rűck 65 7 6 23 20 35 16 42 64.6
Talanx 50 3 3 13 8 34 21 32 64.0
R&V 69 13 11 28 19 28 15 45 65.2
Debeka 101 21 17 31 22 49 22 61 60.4
Total
(Improvement)
903 143 110
(77%)
274 205
(75%)
486 217
(45%)
532 58.9
Source: own presentation.
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168 Sustainable Performance in Business Organisations and Institutions...
This analysis was initially carried out at the institute level, with a distinction
being made in each case between the three sustainability pillars. This allowed an
assessment of the improvements of each institute, but also a statement on cross-
-institute improvements at the level of the sustainability dimensions.
It is evident that eight out of ten companies improved more than half of the
selected key figures in the period under review. 70% of the key figures of Allianz
AG improved, while the figure for Commerzbank AG was only 41.7%. The im-
provements of all other companies ranged between these two values. On average,
58.9 % of the indicators improved.
Different trends emerged for the three sustainability dimensions. In the area
of economic sustainability, the companies succeeded in showing the most
significant improvement in the indicators. 77% of the indicators examined
here showed an improvement compared with the baseline level of 2017. The
fewest key figures improved in the social area during the observation period.
Here, only 45% of the key indicators showed positive development. The ecological
indicators’ improvement accounted for 75%. Given the high importance of social
sustainability for banks and the rather subordinated importance of ecological
sustainability, the results demonstrate a preference for high-profile metrics
like waste production and carbon emission. The research also shows a need
to catch up in terms of focusing on the bank- and insurance-specific issues and
improvements in these areas.
9.7. Conclusions
Altogether, the results do not indicate that, at this stage, the publication
of sustainability reports gives any indication that a sustainability strategy has
been defined, targets derived and a performance measurement system introdu-
ced in the companies considered, which then underlies the changes in sustainabi-
lity performance.
Nevertheless, the study presented is not without limitations. Of course,
the German banking and insurance sector, even though playing a major role
in the European financial sector, is not representative for the whole market. Other
countries’ financial institutions should be included in the sample or analysed in
more detail. As one example, Chapter 10 reveals insights into the sustainability
reports of large Italian banks. Also, it must be considered that the key performance
indicators chosen have been selected depending on availability. A more relevance-
-based selection could enhance the quality of the results.
The expansion of the reporting obligation as well as the constantly increasing
attention of the public will lead to further investigations in the near future. In this
context, companies will increasingly open up to the topic and include it in their
strategic objectives. In this respect, an improvement in sustainability performance
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P. Kroflin, C. Kroflin, Sustainability and Sustainability Performance... 169
can also be expected in the longer term. Future studies should revisit the impact
of sustainability reporting on sustainability performance because the data
situation improves with each additional year of mandatory reporting.
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DOI: 10.15611/2023.83.1.10
Chapter 10
Sustainable Performance Reporng:
Are Banks Ready? The Case of Italy
Luca Brusati
Udine University
e-mail: luca.brusati@uniud.it
ORCID: 0000-0003-2768-5073
Viviana Capurso
Udine University
e-mail: viviana.capurso@uniud.it
ORCID: 0000-0002-9517-8260
Elena Francescon
Udine University
e-mail: francescon.elena@spes.uniud.it
Quote as: Brusati, L., Capurso, V., & Francescon, E. (2023). Sustainable Performance Reporting: Are
Banks Ready? The Case of Italy. In J. Dyczkowska (Ed.), Sustainable Performance in Business Organi-
sations and Institutions: Measurement, Reporting and Management (pp. 171-186). Wroclaw: Publishing
House of Wroclaw University of Economics and Business.
Banks play a critical role in economic development because they serve as financial
intermediaries by facilitating cash flow between lenders and borrowers (Beck,
Demirgüç-Kunt, & Levine, 2010). By doing so, they promote innovation, helping
entrepreneurs launch new products and introduce new production processes:
a well-functioning banking industry is, therefore, the key to sustained prosperity
(King & Levine, 1993). Furthermore, banks use considerable resources from society,
since their assets come mainly from depositors, not from shareholders. When
banks are in distress, because of their important societal role, governments bail
them out using resources paid for by society. For these reasons, the banking
industry is routinely scrutinised by the media, government, and academia and
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172 Sustainable Performance in Business Organisations and Institutions...
is required to disclose its performance to the community more often than other
industries (Wu & Shen, 2013).
More recently, though, banks are undertaking an additional responsibility:
the transition to a more resilient model of economic development relies to
a significant degree on the possibility of facilitating access to credit for sustainable
investments and firms and limiting funding opportunities for unsustainable ones.
In the European Union, in particular, as part of the broader ‘European Green Deal’,
the European Sustainable Finance Strategy lays the foundation for a complex set
of measures that have been launched in recent years (Brühl, 2021). ‘Sustainable
finance’ refers to the process of taking environmental, social and governance
(ESG) considerations into account when making investment decisions in the
financial sector; these considerations are associated with climate change miti-
gation and adaptation, as well as the preservation of biodiversity, pollution
prevention and the circular economy (Berrou, Dessertine, & Migliorelli, 2019; Carè,
2018; Hong, Karolyi, & Scheinkman, 2020; Weber, 2014).
This additional responsibility entrusted to banks entails even closer scrutiny
of their performance, not only in financial terms but also in their contribution
to sustainability. The EU Non-Financial Reporting Directive (Directive 2014/95/EU)
took the first steps in this direction by making the disclosure of specific dimensions
of sustainability performance compulsory for large ‘public interest entities’,
including banks. The EU Corporate Sustainability Reporting Directive (Directive
2022/2464/EU) extends significantly both the number of banks subject to the
obligation and the range of performance information to be disclosed. These
developments are discussed in detail elsewhere in this monograph: in particular,
chapter 1.3 summarizes the evolution over time of EU initiatives on sustainability
reporting, chapter 2.1 details the new standards envisaged by the EU Corporate
Sustainability Reporting Directive, whereas chapter 9.3 discusses the information
value of sustainability reporting by financial institutions.
Following this remarkably swift regulatory development, the question arises:
are banks ready for this quantum leap? The literature on sustainability reporting
by banks is very rich, but the prevailing focus is on the relationship between financial
and non-financial performance, thus applying to this specific industry the time-
-honoured tradition of research summarised by Friede, Busch, and Bassen (2015).
Some studies on the quality of non-financial disclosure in the banking industry
do exist (e.g., Hubbard, 2009, 2011; Löw, Klein, & Pavicevac, 2020; Zaman Khan,
Bose, Taher Mollik, & Harun, 2021); in many cases, though, the search for quanti-
tative summary measures suitable for statistical analysis is detrimental to a fine-
-grained understanding of how effectively banks communicate their sustainability
performance, leading some authors to question the reliability of non-financial
reporting by banks radically (e.g., Lock & Seele, 2015; Herold, Dietrich, & Breitbarth,
2021).
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L. Brusati, V. Capurso, E. Francescon, Sustainable Performance Reporting: Are Banks Ready? The Case of Italy 173
10.1. Research Objective and Methodology
On the backdrop of the developments outlined above, this chapter assesses the
readiness of the European banking sector to disclose its own sustainability
practices. The underlying research objective is to evaluate whether their non-
-financial reports live up to expectations in terms of completeness and materiality,
which are necessary preconditions in case the readers of these reports want
to get a credible picture of how banks are performing in terms of sustainability.
To address this research objective, we chose to analyse systematically
the non-financial reports of the largest Italian banks. The focus on Italy is justified
by the fact that both academic and professional circles have been discussing
good practices in non-financial reporting for a very long time: seminal scientific
publications on bilancio sociale appeared already in the mid-seventies (e.g.,
Salvemini, 1978; Trabucchi, 1975), and practitioners have long established coveted
awards meant to acknowledge excellence in non-financial disclosure (the
‘Financial Statements Oscar’ was established in 1954, and since 1992 a special
prize has been awarded for environmental reporting). Consequently, Italy is
widely acknowledged to be at the forefront of innovation in sustainability
reporting, at least among European countries (Brusati, Fuso, & Garlatti, 2021).
The empirical analysis by Löw et al. (2020, pp. 52–54) on the disclosure quality
of the sustainability reports issued by European banks gets to the same conclusion:
Italian banks top the charts in terms of disclosure score for both sector-specific
(‘banking index’) and sector-agnostic items (‘general index’).
Two recent empirical articles addressed sustainability reporting in the Italian
banking sector: Murè, Spallone, Mango, Marzioni, and Bittucci (2021) performed
an econometric analysis of the ESG scores of thirteen Italian banks to investigate
whether banks adopt ESG practices to reduce reputational damage due to
financial penalties; Menicucci and Paolucci (2023) analysed the relationships
between ten dimensions of ESG pillars and bank performance indicators from
2016 to 2020 in a sample of 105 Italian banks. To our knowledge, no studies
investigated instead the quality of sustainability disclosure by Italian banks, which
is the focus of this chapter.
Other things being equal, the largest banks can be reasonably expected to
deploy more advanced professional skills, invest more financial resources in
information systems facilitating internal and external reporting (Devalle, Rizzato,
& Busso, 2016) and have stronger incentives for the disclosure of their sustainability,
since they are considerably more exposed to public scrutiny (Bonsón & Bednárová,
2015). Based on these assumptions, and in line with the findings by Löw et al.
(2020), larger banks are expected to be more proficient than smaller banks in the
communication of sustainable performance.
For practical purposes, we identified the ten largest Italian banks using
the 2018 ranking by total assets presented by the leading Italian economic
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174 Sustainable Performance in Business Organisations and Institutions...
newspaper, Il Sole 24 Ore, i.e., UniCredit, Intesa San Paolo, Cassa Depositi e Prestiti,
Banco BPM, Monte dei Paschi di Siena, UBI Banca, Gruppo BNL, Mediobanca,
BPER Banca and Crédit Agricole Italia.
Through their websites, we retrieved the non-financial statements issued in
2020 pursuant to Legislative Decree 254/2016 (Decreto Legislativo 30 Dicembre
2016) which introduced in Italy the provisions of the EU Non-Financial Reporting
Directive (Directive 2014/95/EU). The reason for focusing on 2020 lies in the fact
that in late November of 2019 the European Parliament and the Council of the
European Union issued the EU Sustainable Finance Disclosure Regulation
(Regulation (EU) 2019/2088): this Regulation states that financial market participants
and financial advisers should be required to disclose specific information regarding
their approaches to the integration of sustainability risks and the consideration of
adverse sustainability impacts (Regulation (EU) 2019/2088, recital 8), and as such can
be considered the starting point of the effort by EU institutions to enshrine
sustainability in the management practices of the financial sector. By analysing
2020 data, it is possible to assess the proficiency of Italian banks in sustainability
disclosure at the very beginning of this process.
The non-financial statements we selected were analysed using the framework
developed and tested by a consortium of six European universities as part of the
EU-funded project ‘Integrated Reporting for SMEs Transparency’ (INTEREST). This
framework allows to compare sustainability reporting practices by summarising
in a double-entry table seven process-related items, meant to outline the methods
used to disclose non-financial information, and seventeen content-related items,
meant to highlight whether and how specific dimensions of sustainability have
been reported upon.
The original framework is sector-agnostic, but for the purpose of this study
one more item was used to describe how the banks we selected tackled two
requirements introduced for financial market participants by the EU Sustainable
Finance Disclosure Regulation (Regulation (EU) 2019/2088), i.e., the disclosure
in their institutional websites of their policies on the integration of sustainability risks
in their investment decision‐making process (Art. 3) and the identification and
prioritisation of principal adverse sustainability impacts (Art. 4).
For a cross-cutting assessment of the sustainability reporting practices adopted
by the banks in our sample, chapter 10.2 summarises the results of our analysis
as follows:
approaches used to prepare sustainability reports, define materiality matrixes
and analyse the risks and opportunities triggered by their actions;
general features of sustainability reports and graphical choices adopted for
their layout;
degree of inclusion of different topics in sustainability reports and in their
tables of contents;
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L. Brusati, V. Capurso, E. Francescon, Sustainable Performance Reporting: Are Banks Ready? The Case of Italy 175
issues covered and wording used to disclose performance in the topical areas
mentioned by Legislative Decree 254/2016, i.e., social welfare, human re-
sources management, environment, human rights protection and the fight
against corruption;
policies adopted to integrate sustainability risks in investment decision‐
-making and to identify adverse sustainability impacts pursuant to Art. 3 and 4
of the EU Sustainable Finance Disclosure Regulation.
10.2. Comparison of the Non-Financial Reports
of the Largest Italian Banks
Process of preparing non-financial reports
Eight banks in our sample were required to issue a non-financial report based on
Art. 2 of Legislative Decree 254/2016; BNL Group and Crédit Agricole Italia were
not subject to this requirement since it was fulfilled by their parent companies
elsewhere in the European Union, but they chose nevertheless to issue a non-
-financial report on a voluntary basis. All 10 banks published the statement of
non-financial information separately from the financial statement, relying on the
option envisaged by Art. 5(b) of Legislative Decree 254/2016.
The comparison of the approaches used to prepare sustainability reports, define
materiality matrixes, and analyse the risks and opportunities triggered by their
actions served to understand whether banks did provide information on the
methods they used and whether they dealt directly with these issues or chose
to rely on external expertise. We paid special attention to the decision of whether
to manage directly or outsource the reporting process, the definition of the
materiality matrix and the identification of risks and opportunities generated
by their actions because we believe this information helps understand the attitude
of banks to sustainability reporting. Each organisation has first-hand knowledge
of its own values, dynamics, goals, and mission and is, therefore, better placed than
anybody else to provide timely, accurate and comprehensive information in this
respect; furthermore, the internal management of sustainability reporting can
be considered a symptom of the willingness by the bank to engage actively
in stakeholder dialogue.
All the banks in our sample relied on Global Reporting Initiative (GRI) standards
to disclose their sustainability performance. They all opted for the internal
management of non-financial disclosure except for Monte dei Paschi di Siena,
which did not clarify how the report was prepared. In most banks, this responsibi-
lity was entrusted to the Communications Department, the CSR Department, or
the Sustainability Department. UniCredit and Monte dei Paschi di Siena did
not provide any information regarding the definition of materiality issues. Out
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176 Sustainable Performance in Business Organisations and Institutions...
of the remaining eight banks, seven developed the materiality matrix internally
through interviews with top managers, multi-stakeholder fora, benchmarking
with other banks and the administration of questionnaires to different stakeholders
(shareholders, customers, employees, NGOs, third-party institutions, etc.); UBI
Bank engaged a specialised firm to perform telephone and web-based interviews
with relevant external stakeholders. Risks and opportunities generated by the
bank’s actions were identified either by the board of directors or by the units in
charge of internal control and risk management.
Layout of non-financial reports
Reports differ significantly in terms of layout and length. We clustered them into
two groups: Banco BPM, Cassa Depositi e Prestiti, Gruppo BNL, and UniCredit
chose to focus primarily on visual elements (e.g., infographics, colours, charts,
and drawings), whereas BPER Banca, Crédit Agricole Italia, Intesa Sanpaolo,
Mediobanca, Monte dei Paschi di Siena and UBI Banca adopted instead a narrative
approach, based on monochromatic texts complemented by infographics and
other visual components. These differences in the layout are likely to impact
readability and even perceived transparency: flowcharts and tables highlight
specific pieces of information, thus helping the reader identify key messages,
whereas lengthy, homogeneous text can be perceived as cumbersome and
potentially misleading. On the other hand, it must be acknowledged that banks
that include several pictures and issue colourful, long reports tend to use these reports
as marketing material, disclosing information that one would not consider to be CSR
information (Löw et al., 2020, p. 62). Large differences can also be noticed with
reference to the size of the report, ranging from 68 pages for Cassa Depositi
e Prestiti to 224 pages for Intesa Sanpaolo. This difference may be associated, on
the one hand, with the size, the range of activities and the organisational
complexity of each bank; on the other, it highlights that different banks chose to
describe their sustainability performance with different degrees of depth and
breadth.
Range of topics covered
The main topics included in the sustainability reports we analysed are rather
homogeneous. This is especially true for the sections used to describe the bank
itself, such as internal organisation, external environment, business model, gov-
ernance model, policies about the management of risks and opportunities,
strategy, and use of past earnings.
A fully-fledged materiality matrix is featured in nine reports out of ten,
UniCredit being the only outlier. The adoption of this tool seems to suggest the
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L. Brusati, V. Capurso, E. Francescon, Sustainable Performance Reporting: Are Banks Ready? The Case of Italy 177
importance attributed to the identification of the issues considered material both
by the bank and its key stakeholders.
Only four reports out of ten include a specific reference to the recommenda-
tions by the Task Force on Climate-related Financial Disclosures (TCFD), the stand-
ard established in 2015 in response to the G20’s request to provide better report-
ing on the financial implications of climate change, and only two out of ten mention
the International Integrated Reporting Committee (IIRC) framework. The fact that
less than half of the sample referred to the TCFD signals a lack of consistency
among different reports on a key dimension of non-financial performance, such
as climate change, whereas the disregard for the IIRC framework confirms the
message implicit in the decision to issue financial and non-financial reports
separately, i.e., limited interest for the interplay between financial and non-finan-
cial sustainability, and more broadly among different performance dimensions.
We also investigated how many banks highlighted explicitly in the tables
of contents the topics they addressed in their sustainability reports. The table
of contents is meant to showcase the key contents of a document, helping readers
find the topics they are most interested in, making the report more transparent
and easier to browse, and influencing the overall image the bank conveys to its
stakeholders. Tables of contents can also be used for a preliminary comparison
of contents: if an issue is not associated with a specific paragraph, readers may
conclude it was not covered, and extra effort will be needed to find out where
exactly it was discussed. The impact vis-à-vis Sustainable Development Goals, as
an example, is mentioned in all ten reports but appears in the table of contents
only in three.
Performance
We used a more detailed approach for the dimensions of performance whose
coverage is required by Legislative Decree 254/2016, summarising in a double-
entry table the specific issues addressed by each bank. Banks often worded
differently the same concepts related to a given dimension of performance;
for this reason, we listed the full range of terms they used to illustrate the
heterogeneity of disclosure practices. On the one hand, this approach allowed
to determine the level of consistency among the reports in terms of the issues
covered under each dimension of performance; on the other hand, it allowed
to assess the degree of consistency in terminology, and thus whether it can
be misleading for the readers.
Social performance. Social performance refers to the set of relationships
that a firm establishes with its stakeholders and the community where it operates;
the topics included are the actions that the firm undertook to ensure the
development of the communities where it operates and to improve dialogue with
its stakeholders.
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178 Sustainable Performance in Business Organisations and Institutions...
Banks take different vantage points and use different terms to refer to their
social performance. Some reports focus on the sense of community, others on the
country, society at large, or the general public; in other cases, they emphasise the
individuals and the areas they live; finally, other reports concentrate on the
relationship between individuals and the bank itself, as a partner or as a trusted
service provider.
In the case of social performance, there is a high degree of consistency among
the issues covered by different reports. As a rule, the banks in the sample pay
special attention to financial education and financial inclusion, presented as
essential tools to increase their commitment to the community they are part of,
and to financial support for socially relevant initiatives launched by public
institutions or NGOs. Banks also declare to emphasise listening to stakeholders’
feedback and managing their complaints so as to improve their engagement.
The number of pages devoted to social performance varies significantly, from
six of Cassa Depositi e Prestiti and BNL Group to 46 at Intesa Sanpaolo; this broad
range is partly explained by the fact that some banks disclosed their social
performance in more than one chapter.
Human resources management performance. Human resources mana-
gement refers to the set of practices used to nurture the competencies firms
leverage to create products or services able to meet customer preferences;
as such, it is meant to impact positively the knowledge, skills, level of education
and professionalism, the protection of workers’ health and safety, gender equality,
involvement in corporate decisions, and the establishment of favourable working
conditions.
Also, in the case of human resources management, banks take different
vantage points and use different terms. Some reports highlight the partnership
that can develop between employers and employees to achieve the corporate
mission, whereas others emphasise their responsibility in generating employment
opportunities or the importance of collaborative relationships among motivated
employees. Some banks refer to human beings, whereas others use more neutral
terms, such as employees or staff. These differences in framing are likely to
influence the perception of the reader of how each bank nurtures its human
capital.
Contrary to our remarks about social performance, each bank devotes a single
chapter to human resources management, thus allowing readers to retrieve
immediately relevant information, and the issues covered by different reports are
very homogeneous. As a rule, the banks in the sample have initiatives targeted to
benefit employees outside of working hours, pursue inclusion (especially gender
balance), and invest in training to strengthen both technical and soft skills. Most
reports disclose at least some details of how the performance of employees is
assessed; half of the sample features the outcomes of organisational climate
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L. Brusati, V. Capurso, E. Francescon, Sustainable Performance Reporting: Are Banks Ready? The Case of Italy 179
surveys. Nevertheless, the risks each bank faces and the objectives it plans to
achieve are not included; consequently, readers are unable to understand the
broader context in which banks implement their initiatives to build capacity,
improve retention or strengthen inclusion.
The number of pages devoted to human resources management performance
varies significantly, from four at UniCredit to 26 at Mediobanca and Monte dei
Paschi di Siena.
Environmental performance. Pursuant to Art. 3 of Legislative Decree 254/2016,
banks are required to report their direct environmental impacts by releasing data
on the use of renewable and non-renewable energy resources, the amount
of waste generated according to type, their greenhouse gas emissions, and their
use of water resources. They must also disclose their support for initiatives
meant to protect the seas and oceans and the projects carried out to increase
awareness among their employees about the challenges associated with the
environment.
Whereas the terminology is rather homogeneous, banks take different
vantage points to disclose their environmental performance, thus allowing
readers to understand their approach to the corresponding challenges. Some
reports emphasise the importance of teamwork (‘together for the environment’),
while others see environmental protection as a responsibility or as a challenge
meant to mitigate the effects of climate change (‘low-impact work environment’).
Banks devoted a single chapter to the discussion of their environmental
impacts, and there is a fair level of homogeneity in the issues covered by
sustainability reports. They include energy generation and consumption from
renewable and non-renewable sources, waste management practices, greenhouse
gas emissions and support for environmentally oriented initiatives organised by
public institutions or NGOs. Homogeneity is instead largely lacking in the
description of the initiatives undertaken to fight climate change and protect the
seas and the oceans. Banks clearly focus on their own direct impact on the
environment rather than the indirect impact generated by their stakeholders, and
especially by borrowers; the only exception is provided by the initiatives targeted
to the staff to promote sustainable mobility (e.g., car-sharing, car-pooling, pro-
vision of electric cars).
For most banks, the risks they face and the objectives they pursue in terms of
environmental performance are not included in the relevant chapter of the
sustainability report, but at least in some cases they are described in the sections
devoted to the broader objectives and risks identified by the bank.
In the ten reports we analysed, the number of pages devoted to environmental
impacts was limited and more comparable than for other dimensions of
sustainability, ranging from five at Gruppo BNL to 16 at Intesa San Paolo.
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180 Sustainable Performance in Business Organisations and Institutions...
Other dimensions of performance. Two additional topics whose coverage is
required by Art. 3 of Legislative Decree 254/2016 are the actions and policies
implemented to protect human rights and prevent corruption. All banks refer to
the ‘organisational and management model’ to be disclosed pursuant to Legislative
Decree 231/2001 (Decreto Legislativo 8 giugno 2001, n. 231), as well as the
whistleblowing policy put in place to deal with these topics: the former concerns
corporate liability for administrative offences associated with crimes, whereas the
latter refers to the provisions meant to protect employees willing to report
violations or irregularities committed to the detriment of the firm.
Only Crédit Agricole Italia and Mediobanca devoted specific chapters to
both human rights and the prevention of corruption; Intesa Sanpaolo devoted
a chapter to human rights, and Monte dei Paschi di Siena did the same for anti-
corruption practices. BPER Banca and UBI Banca chose instead to combine human
rights and the prevention of corruption with other issues concerning their social
and human resources management performance. The remaining banks include
these issues in other sections of their sustainability reports without mentioning
them in the table of contents.
In terms of issues, all banks established an ethical code and trained their staff
to develop their sensitivity to possible human rights abuses; they also pursue IT
security and the protection of privacy for both employees and customers, but
these initiatives are usually listed in different sections of the report. Similarly,
procedures are in place and training is offered to prevent corruption in business
decisions involving the bank.
In line with previous findings, six banks out of 10 reported the risks they face
in the prevention of corruption, two list specific objectives to be achieved in this
field, and only one includes this information in the section on combating active
and passive corruption.
Integration of sustainability risks in investment decisions
Pursuant to Art. 3 and 4 of Regulation (EU) 2019/2088, banks were required to
publish on their websites, by March 10, 2021, information regarding their policies
on the integration of sustainability risks and how they assess negative sustainability
impacts in their decision-making or advisory processes. The ‘comply or explain’
principle applies here, i.e., the bank can either comply with these obligations or
explain the reason for non-compliance. The banks we investigated adopted two
different approaches to disclosure in this respect: five justified their compliance or
non-compliance by including a dedicated page on their website, whereas five, on
top of the dedicated page on the website, published a PDF document to address
the issue. The decision to publish a PDF document on top of the web page has
advantages and drawbacks: disclosure on the practices required by Regulation
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L. Brusati, V. Capurso, E. Francescon, Sustainable Performance Reporting: Are Banks Ready? The Case of Italy 181
(EU) 2019/2088 can be more detailed, but on the other hand, a stand-alone
document may be more difficult and time-consuming for the reader, even more
taking into account that some of these documents feature hyperlinks inviting
readers to browse additional documents covering issues such as restrictive
policies adopted by banks in certain sectors. The single web page is likely to offer
less depth, but at the same time it allows the reader to have all the necessary
information in one place and results in a much smoother reading.
Banco BPM, Cassa Depositi e Prestiti and Crédit Agricole Italia chose to explain
why they did not comply with the requirements of Regulation (EU) 2019/2088,
referring primarily to the lack of clear requirements on what to disclose and at
which level of detail. The remaining seven banks chose to comply, and thus
reported on their websites or PDF documents the actions and policies they
implemented or the ones they planned to introduce. Some banks, such as
UniCredit and Intesa Sanpaolo, detailed their policies about restricting lending to
the sectors that are considered to impact negatively on sustainability (e.g., coal,
nuclear weapons, arms, sectors that violate UN Global Compact principles); other
banks, such as BNL Group and BPER Banca, explained the methods they use to
calculate the sustainability rating of their products; finally, other banks, such as
Mediobanca and UBI Banca, reported that they consider sustainability and related
risks and consequences in their investment decisions, but did not provide further
details. All the banks in the sample stated they were starting plans to improve the
integration of sustainability factors into their investment decisions, thus indicating
that integration was at best incomplete.
Interestingly, only three banks out of ten refer explicitly to Regulation (EU)
2019/2088 on their websites or dedicated PDF documents; the remaining banks
simply reported relevant information. This choice is not ideal for the reader, who
is unable to connect the details provided by the bank with the requirements
introduced by the EU Sustainable Finance Disclosure Regulation.
10.3. Discussion of Research Findings
Our analysis aimed to assess the quality of sustainability disclosure in the Italian
banking sector by highlighting the degree of transparency, clarity and consistency
of the practices used by 10 largest banks to report non-financial information.
Some commonalities could be found in the analysis of their sustainability reports:
all banks addressed the issues related to sustainable factors under Art. 3 of
Legislative Decree 254/2016, even though with different levels of depth;
all banks adopted the GRI standards for drafting the reports;
all banks referred to the Sustainable Development Goals, even though in
different forms and with different levels of depth;
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182 Sustainable Performance in Business Organisations and Institutions...
almost all banks presented the results of their materiality analysis as the
cornerstone of their sustainability report.
Nevertheless, the lack of clear guidelines in Legislative Decree 254/2016
and Regulation (EU) 2019/2088 leads to arbitrariness in the disclosure of both
sustainability performance and the risks and consequences for sustainability
associated with investment decisions. More specifically, our analysis highlighted
the following shortcomings:
Arbitrariness in the overall layout of reports. The lack of guidelines supporting
Legislative Decree 254/2016 implies that reporting patterns differ from bank
to bank. This practice impacts negatively the reader, who must look for
information on his or her own, especially when they are not highlighted in the
table of contents, thus facing major obstacles in retrieving, understanding,
and comparing performance data.
Arbitrariness in the choice of topics to be covered. Legislative Decree 254/2016
identifies five dimensions of performance that must be covered by sus-
tainability reports, but it does not provide a detailed list of topics that must
be addressed under each dimension of performance. The arbitrariness in the
choice of topics leads to inconsistencies in the information provided by each
bank in its sustainability report; moreover, failure to cover a topic does not
necessarily imply that the bank disregards that topic. Again, these problems
are likely to distort the reader’s understanding of sustainability performance
and make comparisons impossible.
Subjective coverage of the topics included in sustainability reports. Legislative
Decree 254/2016 does not define what content should be featured under
each topic and how it should be covered. This results in a subjective analysis
of the topic, which also entails a serious risk of bias since banks can choose to
disclose only favourable performance information.
Lack of clear and consistent definitions. Since there are no guidelines on the
terminology to be used in their sustainability reports, banks single-handedly
adopted different definitions for the same items, notwithstanding the fact
that they all declared to comply with the same reporting standards. This lack
of consistency makes it difficult for the reader to compare the sustainability
performance of different banks.
Focus on results. Reports focused on listing the sustainability results that banks
achieved in the previous financial year rather than on whether their original
objectives were actually met or what objectives they planned to achieve in
the future. Based on this information, readers are in a position to know ‘where
the bank is at the moment, but they ignore where it wanted to get to and
where it wants to go in the future. This focus on the immediate past is
inconsistent with the pursuit of long-term goals on the basis of integrated
thinking, which should be the hallmark of sustainability strategies.
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L. Brusati, V. Capurso, E. Francescon, Sustainable Performance Reporting: Are Banks Ready? The Case of Italy 183
Publication of separate financial and non-financial reports. All the banks in the
sample issued their non-financial reports separately from their financial
reports, thus leading both preparers and readers to miss the interdependence
between financial and non-financial sustainability.
These results are even more remarkable considering that in 2018 the Italian
Banking Association published detailed guidelines for non-financial reporting
(Busco & Tanno, 2018). Also, the Bank of Italy acknowledged the need to improve
the proficiency of Italian banks in disclosing their sustainability performance
(Loizzo & Schimperna, 2022) and kickstarted several initiatives aimed at strength-
ening the dialogue with supervised entities and assessing their progress on
a regular basis.
10.4. Conclusions
As discussed in chapter 10.1, there are reasons to believe that sustainability
reporting practices in Italy are more advanced than elsewhere in Europe and that
larger banks are in a better position to report on their sustainability performance
than smaller banks. If these assumptions are correct, then the evidence presented
in this chapter suggests that European banks are far from ready to engage
effectively in sustainable performance reporting.
The shortcomings highlighted in our analysis are aligned with the findings
summarised in the final report of the “Study on the Non-Financial Reporting
Directive” commissioned by the Directorate-General for Financial Stability,
Financial Services and Capital Markets Union of the European Commission
(De Groen et al., 2020), as well as in the quantitative analysis performed by the
European Banking Institute on the disclosure quality of the CSR reports issued by
European banks (Löw et al., 2020). The latter source concludes that CSR reporting
by banks in the EMU is of generally low quality, not at all harmonised, subject to heavy
information overload and greenwashing and does not provide sufficient information
on the banks’ indirect impacts and risks (Löw et al., 2020, p. 62). This conclusion is
remarkably similar to the one reached almost 15 years ago by Hubbard (2009;
2011) based on his analysis of ten global banks, together with ten firms in the oil
and gas industry and ten more in food manufacturing: a great deal of information
in these reports could be classified as ‘greenwash’, due to it being not material, not
assured, not measured, not aggregate information, not comparable with other
organisations and presenting a favourable view rather than a realistic view of the
organisation’s performance (Hubbard, 2009, p. 14).
It goes without saying that more research is needed to understand whether
European banks are ready to disclose effectively their sustainability performance:
the data presented in this chapter focus on a single country and on the
sustainability reports for a single year of a sample of ten large banks. Considering
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184 Sustainable Performance in Business Organisations and Institutions...
the swift growth in disclosure requirements, in Europe as well as elsewhere, it
seems especially important to understand whether banks are picking up the slack
and getting ready for the challenge: a longitudinal analysis comparing, over time
and according to the same protocol, the sustainability reports of the same sample
of banks seems especially appropriate in order to shed light on this point.
Notwithstanding these limitations, the striking similarity between our find-
ings and the conclusion reached by Hubbard suggests that the EU Non-Financial
Reporting Directive failed to meet its objectives and ensure more credible
disclosure of sustainability performance: the quality and reliability of sustainability
reporting remains largely unrewarded. In our opinion, to improve the information
value of sustainability reports, European regulators, duly supported by professional
associations and academia, should:
define a standardised table of contents that banks could use to define the
contents and sequencing of their sustainability reports;
specify the items that must be addressed under each dimension of sustain-
ability;
spell out clear parameters to be used to calculate and then report on each
item;
standardise the terminology used to refer to each dimension of sustainability
and the related items;
mandate the inclusion in sustainability reports of both planned and actual
results, as well as future objectives and strategies envisaged for their
achievement;
promote the development of truly integrated reports so as to provide, in
a single document, an overview of the actions undertaken and the results
achieved by the bank in terms of both financial as well as non-financial
sustainability.
These interventions would help minimise the arbitrariness and subjectivity
that have plagued so far the non-financial reports issued by European banks.
As such, they can lead to more transparent, coherent, and intelligible disclosure
of sustainability performance and thus allow readers to truly appreciate and
reward the breakthroughs of the banking sector on the path to a more sustainable
future.
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Chapter 11
Sustainability Reporng
in the Construcon Industry:
Evidence from Poland
Paweł Szalacha
Certified Auditor
Finance Director of PORR SA
e-mail: pawel.szalacha@wp.pl
ORCID: 0000-0001-8386-6093
Quote as: Szalacha, P. (2023). Sustainability Reporting in the Construction Industry: Evidence from
Poland. In J. Dyczkowska (Ed.), Sustainable Performance in Business Organisations and Institutions:
Measurement, Reporting and Management (pp. 187-203). Wroclaw: Publishing House of Wroclaw
University of Economics and Business.
Sustainability reporting is a journey, not a destination.
John Elkington
The construction industry has unique challenges when it comes to sustainability
performance. Construction activities have several negative impacts on society
and the planet itself. These include carbon emissions, pollution (noise, air, water
quality), and waste generation (Sev, 2009). The construction sector is responsible
for significant environmental impacts, primarily through its wide use of natural
resources (including water, minerals, and timber), energy consumption, greenhouse
gas (GHG) emissions, as well as waste generation (including construction debris,
packaging and demolition waste).
The construction industry also has a significant social impact, primarily
through its employment practices and its impact on local communities. Unlike in
most other economic sectors, the issue of employee health and safety is of vital
importance during construction activity. Over the years, employees, clients,
owners (investors), local communities, regulators, environmental organisations
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188 Sustainable Performance in Business Organisations and Institutions...
and other stakeholders of construction companies have been increasingly
interested in their environmental footprint, social impact and governance
practices. There is observed increased pressure on construction companies to
broaden their accountability beyond economic performance for shareholders to
sustainability performance for all stakeholders (Pagell & Gobeli, 2009).
The notions of ‘sustainable development’ and ‘sustainability’ are often used
interchangeably. The World Commission on Environment and Development
defined sustainable development as meeting the needs of the present without
compromising the ability of future generations to meet their own needs (Jones, Shan,
& Goodrum, 2010, p. 6). Organisational sustainability extends the principles of
sustainable development to the level of organisations. From this perspective, an
organisation is considered sustainable if a certain level of performance is attained
in all three dimensions of sustainability (i.e., social, economic, and environmental).
Thus organisational sustainability is about finding the balance between these
three main aspects of sustainability. Sustainable development at an organisational
level is described using a triple bottom line that divides performance into
economic, environmental and social dimensions (Topfer, 2000). The International
Institute for Sustainable Development interpreted corporate sustainability as
adopting business strategies and activities that meet the needs of the enterprise and
its stakeholders while protecting, sustaining and enhancing the human and natural
resources that will be needed in the future (World Business Council for Sustainable
Development [WCSBD], 2002, p. 14).
Following the famous quote, What gets measured, gets managed, the company
needs first to appropriately measure and report its sustainable performance in
order to be able to manage it. Sustainability reporting can encourage companies
to improve their performance in the economic, ecological and social aspects.
It enables stakeholders better understand companies’ environmental and social
impacts and holds them accountable for their actions.
The mission statement of the Global Reporting Initiative (GRI) (i.e., provider
of the world’s most widely used sustainability disclosure standards) can be
paraphrased in the following way: sustainability reporting creates the global
common language for organisations to report their impacts. Such reporting
enables informed dialogue and decision-making around those impacts (GRI,
2023).
The World Business Council for Sustainable Development (WBCSD) describes
sustainability reporting as public reports by companies to provide internal and
external stakeholders with a picture of corporate position and activities on economic,
environmental and social dimensions (Jones et al., 2010, p. 7). The essence of sus-
tainability reporting is to disclose the company’s commitments and achievements
towards all aspects of sustainability from the perspectives of both internal and
external stakeholders (Zuo, Zillante, Wilson, Davidson, & Pullen, 2012). Vormedal
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P. Szalacha, Sustainability Reporting in the Construction Industry: Evidence from Poland 189
and Ruud (2009) highlighted that the sustainability reporting practice is mainly
driven by perceived benefits, such as the long-term success of the business due to
improved communication between stakeholders. Some benefits of sustainability
reporting summarised by KPMG include (KPMG, 2008):
demonstrating transparency,
enhancing reputation,
improving regulatory compliance,
establishing competitive position and market differentiation,
and attracting long-term capital and favourable financing conditions.
The purpose of this chapter is to present reporting requirements about
construction industry-specific sustainable action fields like environmental impact,
social impact, governance and promotion of sustainable building practices. On this
background, the chapter aims to evaluate the comprehensiveness and transpar-
ency of the sustainability reporting of leading Polish construction companies.
In order to achieve this purpose, there was carried out a systematic review of
the literature and legal regulations relating to construction industry-specific
sustainability reporting. The theoretical part was followed by empirical research,
which was aimed at examining the sustainability reporting of leading Polish
construction companies listed on the Warsaw Stock Exchange (WSE). The object-
ives of the research are:
reviewing Polish construction firms’ annual and sustainability reports,
conducting a content analysis of their sustainability reports and comparing it
against the international benchmark. For the benchmark, there was chosen
Swedish company Skanska which is widely recognised for its achievements in
sustainable performance (lately awarded with the title of ‘Europe Climate
Leader 2022’).
11.1. Sustainable Development Goals
of the Construction Industry
In 2015, the 193 United Nations member states agreed on the 2030 Agenda for
sustainable development, marking a global milestone in the field of sustainability
and sustainable development (United Nations [UN], 2015). The 2030 Agenda
included 17 goals for sustainable development (SDGs), dedicating equal attention
to the environmental, social and economic dimensions of sustainability (Diaz-
-Sarachaga, Jato-Espino, & Castro-Fresno, 2018). The construction industry holds
great potential and responsibility for contributing to the realisation of the 2030
Agenda. About 40% of energy use and one-third of GHG emissions worldwide
is related to the building environment, which entails increasing attention to
sustainable development within the construction industry (Nielsen, Jensen,
Larsen, & Nissen, 2016).
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Construction project delivery and its management could be recognised as
sustainable if social, economic and environmental considerations are integrated
into the project delivery processes, standards and practices (Silvius, 2017). The
construction has enormous social, economic and environmental impacts during
the design and building process. It can play a critical role towards the achievement
of the SDGs as the industry builds tomorrow’s world (Bioregional Development
Group [BDG], 2019).
The critical role of the construction industry in achieving SDGs was confirmed
in many studies (Fei et al., 2021). The construction industry should collaborate
with government agencies, industry peers and policymakers to integrate SDGs
into long-term business strategies and work towards their realisation. The
achievement of SDGs by construction companies and their reporting is gaining
increasing attention from many stakeholder groups related to the construction
sector, such as:
employees and social partners (trade unions),
owners (investors, stock exchange), banks,
clients, business partners, key suppliers, subcontractors, central and local gov-
ernment administration,
society (local communities, technical and professional organisations),
environmental organisations,
public opinion.
Stakeholders are keen on companies’ performance on such construction
sustainable action fields like environmental impact (i.e., use of natural resources,
energy consumption, GHG emissions, waste management), social impact
(i.e., employment practices, occupational health and safety (OHS), impact on local
communities), governance and promotion of sustainable building practices.
Pressure from stakeholders to publish sustainability performance information is
often perceived as a main driving force for sustainability performance evaluation
in industrial enterprises.
11.2. Sustainability Reporting Standards, Frameworks
and Guidelines
Currently, there are available and used worldwide various sustainability reporting
standards. The2022 KPMG Survey of Sustainability Reporting concluded that the
GRI Standards are the world’s most widely used, adopted by 73% of the largest
250 global companies and by 68% of a wider sample of 5800 businesses around
the world. The survey findings indicated five major trends in sustainability
reporting (KPMG, 2022):
1) sustainability reporting grows incrementally with movement towards the
use of standards framed by stakeholder materiality assessments,
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P. Szalacha, Sustainability Reporting in the Construction Industry: Evidence from Poland 191
2) increased reporting on climate-related risks and carbon reduction targets,
in line with TCFD (Task Force on Climate-related Financial Disclosures),
3) growing awareness of biodiversity risks,
4) UN SDG reporting prioritises quantity over quality,
5) climate risk reporting leads, followed by social and governance risks.
GRI Standards are prepared and issued by Global Reporting Initiative. This is
a non-profit organisation which was founded in Boston (USA) in 1997 following
public outcry over the environmental damage of the Exxon Valdez oil spill. The
aim was to create the first accountability mechanism to ensure companies adhere
to responsible environmental conduct principles, which was then broadened to
include social, economic and governance issues.
Currently, GRI provides the world’s most widely used sustainability reporting
standards which cover topics that range from biodiversity to tax, waste to
emissions, diversity and equality to health and safety. As such, GRI reporting is the
enabler for transparency and dialogue between companies and their stakeholders.
As GRI announces on its webpage, for over 25 years, they have developed and
delivered the global practice for how organisations communicate and demonstrate
accountability for their impacts on the environment, economy and people. The
GRI Standards enable any organisation – large or small, private or public – to
understand and report on their impacts on the economy, environment and
people in a comparable and credible way, thereby increasing transparency on
their contribution to sustainable development. In addition to companies, the
Standards are highly relevant to many stakeholders – including investors,
policymakers, capital markets, and civil society (GRI, n.d.).
The GRI Standards are designed as a modular system comprising three series
of standards, i.e.:
three GRI Universal Standards – always relevant,
GRI Sector Standards – relevant only if applicable to the sector in which
reporting company operates,
GRI Topic Standards – to be applied if materiality assessment indicates that
a certain topic is material (relevant) for reporting the company’s activity.
So far, GRI has not issued a separate sector standard for the construction
industry. However, this sector is already on the list of prioritised sectors for which
sector standard is planned to be developed.
Very important for sustainability reporting is the Task Force on Climate-related
Financial Disclosures (TCFD). This is a framework established by the Financial
Stability Board (FSB) to help companies disclose the financial risks and opportu-
nities associated with climate change. The TCFD framework provides companies
with guidelines on how to disclose climate-related information in their financial
reporting, including information on governance, strategy, risk management, and
metrics and targets.
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As already indicated by authors in the chapter 1, European Union has also
implemented several regulations regarding sustainability reporting for companies
operating within its member states. One of the most important regulations is the
EU Non-Financial Reporting Directive (NFRD) (Directive 2014/95/EU). It requires
large companies to disclose information on how – and to what extent – their
operations are associated with environmentally sustainable economic activities.
Disclosure should be done with respect to sustainability areas: environment,
social and employee issues, human rights and bribery and corruption. It should
cover relevant policies, risk management processes and KPIs and the description
of the company business model.
In recent years, the European Commission has adopted new strategies and
regulations to address climate and broader sustainability risks and opportunities.
They include the revision of the NFRD as well as the introduction of the EU
Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR).
The first two have a direct implication for the companies’ sustainability reporting
obligations. The SFDR targets financial market participants.
The NFRD will be replaced by the Corporate Sustainability Reporting Directive
(CSRD). According to the CSRD, affected companies will be legally required to
report according to European Sustainability Reporting Standards (ESRS). CSRD
and ESRS as a new framework for reporting on sustainable performance are
thoroughly presented and discussed by Authors in chapter 2. The CSRD is aimed
at bringing sustainability reporting up to the same standard as financial reporting,
increasing corporate accountability as Europe strives to meet the central objective
of the European Green Deal, becoming the world’s first climate-neutral economy
by 2050.
While the CSRD is a Directive that will require companies to report extensively
on their sustainability, the ESRS are a set of standards that supplement the CSRD
relating to environmental, social and governance matters that lay out in detail
how companies will be required to collect data and issue reports using a double
materiality reporting standard, i.e., reporting simultaneously on matters that
are financially material in influencing business value and environmentally
and socially material; i.e., relating to the environment and people. The CSRD,
ESRS, their introduction process as well as type and number of companies which
will be affected by new regulations are described in more detail by authors
in chapter 1.
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P. Szalacha, Sustainability Reporting in the Construction Industry: Evidence from Poland 193
11.3. Reporting in Skanska Construction Company:
Case Study of European Leader in Sustainability
Performance and Reporting
In order to identify and ensure which key sustainability areas are supposed to be
reported by the construction companies, it is worth benchmarking them against
Europe’s leaders in sustainability performance and reporting. Such a leader is
Skanska construction company.
Skanska’s experience in sustainability reporting spans 25 years. It started in
1997 by disclosing information about its environmental impact in the form of
dedicated ‘environmental reports’ that evolved into ‘sustainability reports’
covering environmental, social and corporate governance aspects, published
between 2002 and 2018. Since 2019 sustainability has been reported jointly with
Skanska’s annual results in the company’s Annual and sustainability report,
reflecting its strategic importance (Skanska, 2022b).
Skanska’s achievements in sustainability are publicly recognised. One of the
latest confirmations is the appearance on the list of Europe Climate Leaders 2022.
The list has been published by the Financial Times newspaper and Statista data
insight firm since 2021. The list for 2022 presents over 400 European companies
that have achieved the greatest reduction in their core GHG emissions intensity
over a five-year period. The listed companies were selected following a rigorous
review of data from 4,000 organisations and actions they are taking to reduce
emissions. In the sector ‘Construction & Building Materials’, there are only a few
construction companies on the list of Europe Climate Leaders 2022. One of them
is Skanska (Financial Times, 2022).
In its Annual and sustainability report 2022, Skanska (2022b) reported several
environmental and social topics which are assessed as material for its sustainability
performance. The company refers both to the GRI standards as well as to SDGs.
When looking from the GRI Topic Standards perspective, Skanska is reporting the
following material topics: GRI 302 – Energy; GRI 305 – Emissions; GRI 205 – Anti-
-Corruption; GRI 206 – Anti-Competitive Behaviour; GRI 306 – Waste; GRI 308 –
Supplier environmental assessment; GRI 403 – Occupational Health and Safety;
GRI 405 – Diversity and Equal Opportunity; GRI 406 – Non-Discrimination; GRI
409 – Forced or Compulsory Labour; GRI 414 – Supplier Social Assessment and
Skanska’s own disclosure – Value of Certified Commercial Buildings.
When looking from the SDGs perspective, Skanska reports the following goals
which are critical for its construction activity: SDG 8 – Decent Work and Economic
Growth; SDG 13 – Climate Action; SDG 5 – Gender Equality; SDG 11 – Sustainable
Cities and Communities; SDG 12 – Responsible Consumption and Production;
SDG 16 – Peace, Justice and Financial Institutions, and SDG 9 – Industry, Innovation
and Infrastructure.
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194 Sustainable Performance in Business Organisations and Institutions...
And last but not least, it is worth underlining that 2022 Skanska AB’s green-
house gas, health and safety, energy and waste reporting (based on GRI Dis-
closures) was subject to voluntarily limited assurance procedures performed
by the authorised public auditor – Ernst & Young (Skanska, 2022b).
11.4. Sustainability Reporting in Poland: Legal Regulations,
Guidelines and Recommendations
from the Perspective of the Construction Sector
Sustainability reporting in Poland is not a novel concept. Many Polish companies
have been publishing sustainability reports for many years. The transposition of
the Non-Financial Reporting Directive (NFRD) into the Polish Accounting Act in
2017 was a tipping point for sustainability reporting in Poland and had a positive
impact on the availability of ESG data published by companies.
According to § 49b of the Accounting Act (Ustawa z dnia 29 września 1994),
large public interest entities (not only those listed on the WSE) that have more
than 500 employees and meet at least one of two specific criteria related to the
total balance sheet and net turnover are required to disclose following material
ESG information as part of their annual reporting:
business model,
key non-financial performance indicators of effectiveness,
policies in non-financial areas and their results,
due diligence procedures,
significant non-financial risks and how they are managed.
Companies have the option to disclose required sustainability information as:
a part of the annual management report about the company’s activity, or
a stand-alone annual non-financial information statement – in this case,
the statement can also be in the form of a sustainability report, or
an integrated report which combines financial and sustainability reporting in
a single document.
As regulated in § 49b point 8 of the Accounting Act, Polish companies can use
any sustainability reporting standards (own developed, Polish, EU, or international).
It has only to inform which standards it applied. The non-financial information is
not subject to either any obligatory audit or any external assurance procedures.
The majority of Polish companies are reporting in line with the GRI standards.
But it is worth highlighting that following the introduction of the NFRD, a local
reporting standard – the Non-financial Information Standard (SIN, 2017) – was
developed to help companies fulfil reporting instituted by the NFRD.
Additionally, the WSE issued its own ESG Reporting Guidelines. The purpose
of these guidelines is to help companies listed on the WSE enhance their ESG
reporting practices. These are not new guidelines, and they do not replace legal
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P. Szalacha, Sustainability Reporting in the Construction Industry: Evidence from Poland 195
obligations, nor do they introduce new indicators. It is a roadmap based on
international references such as the NFRD, the SFDR, and the Taxonomy Regulation
at the EU level, and the TCFD recommendations at the global level (Warsaw Stock
Exchange/European Bank for Reconstruction and Development [WSE/EBRD],
2021, p. 8). The Guidelines propose a two-step approach to the ESG metrics and
indicators selection process consisting of minimum disclosures and additional
sector-specific disclosures. They provide sector-specific disclosures only for a few
sector groups. Construction seems to be allocated to a sector group called
‘Industrials’. For this, there are following indicators prescribed divided into two
groups:
1) Minimum disclosure:
a) environmental: GHG emissions, energy consumption, climate risks and
opportunities,
b) social: board diversity, gender pay gap, employee turnover, freedom of
association and collective bargaining,
c) corporate governance: board composition, business ethics standards,
anti-corruption policy, whistle-blower mechanism.
2) Additional sector-specific disclosures:
a) environmental: emissions intensity, emissions management, water con-
sumption, water management, biodiversity impacts, waste manage-
ment,
b) social: employee health and safety,
c) corporate governance: N/A.
When elaborating on sustainability in the construction business in Poland,
it has to be stressed that the biggest Polish construction industry organisations
and associations are involved in promoting sustainability practices on a con-
stant basis. It is worth mentioning two of them:
The Polish Association of Construction Industry Employees: It represents
companies employing ca 50.000 employees and recommends its members
and other construction companies incorporate sustainable development into
their business activities. The Association also encourages the use of sustainable
construction principles that take into account social, environmental, and
economic issues. (https://pzpb.com.pl)
Agreement for Construction Safety: It brings together the largest general
contractors working in Poland. The members of the said organisations work
together to improve work safety (OHS) on construction sites in Poland and
build a culture of safety among employees, members of the Agreement,
clients as well as government and local government institutions. (https://
www.porozumieniedlabezpieczenstwa.pl)
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196 Sustainable Performance in Business Organisations and Institutions...
11.5. Design of the Empirical Study
The empirical study aimed to examine the content of the sustainability reporting
of the Polish construction companies listed on the WSE. For the content analysis,
there were selected entities which are among the largest 15 construction compa-
nies in terms of their turnover for the year 2021, according to Deloitte’s yearly
publication Polish construction companies in 2022 (Deloitte, 2022). The following
nine companies fulfilled the selection criteria: Budimex, Erbud, Mirbud, Polimex
Mostostal, Unibep, PKB Pekabex, Trakcja, Mostostal Warszawa and Dekpol.
The study was based on their latest available annual sustainability reports.
It consisted of three consecutive steps:
1) general review of companies’ sustainability reporting, i.e.:
reporting format used,
sustainability reporting standards used,
additional sustainability-relevant information provided in their report-
ing, i.e.:
●table of compliance with the TCFD recommendations,
●info about turnover, Capex, Opex eligible for the EU Taxonomy,
●any voluntary audit procedures on sustainability reporting,
2) scope of companies’ GRI disclosures in comparison to Skanska’s sustain-
ability reporting for 2022 taken as a disclosure benchmark for the construction
industry,
3) for two key GRI Topic Standards for the construction industry – i.e., 305
Emissions and 403 Occupational Health and Safety there was additionally analysed
which detailed information was reported (according to GRI indicators of each
of these two GRI standards).
11.6. Discussion of the Research Findings
Polish construction companies are using various sustainability reporting formats.
The majority of them are preparing it as a ‘Statement on non-financial information’
or as an ‘Integrated report’. The vast majority of examined Polish construction
companies (i.e., eight out of nine companies) prepared their sustainability reports
based on the GRI Standards (Table 11.1). This is a similar approach as observed
worldwide in the 2022 KPMG survey.
Providing information about compliance with the TCFD recommendations
was rather rare. Only 2 out of 9 companies presented it. Significantly more entities
(i.e., five out of nine) reported data required for 2022 by the EU Taxonomy (i.e., info
about turnover, Capex, and Opex eligible for the EU Taxonomy).
For the time being, the sustainability reporting of Polish construction compa-
nies is generally not verified externally. Only one company (i.e., Erbud) reported
that part of its reporting was subject to an assurance procedure.
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P. Szalacha, Sustainability Reporting in the Construction Industry: Evidence from Poland 197
Table 11.1. Summary of companies’ sustainability reporting
Company
Format
of sustainability
reporting
Standards
used
TCFD
compliance
EU
Taxonomy
Subject
to voluntary,
external
audit
Budimex Integrated Report 2021 GRI Core YES NO NO
Erbud Integrated Report 2022 GRI Core NO YES Partly,
assurance
procedure on
selected info
Mirbud Statement on Non-
-Financial Information
2021
GRI Core NO NO NO
Polimex
Mostostal
Statement on Non-
-Financial Information
2021
GRI
Comprehensive &
ESG Reporting
Guidelines
of Warsaw Stock
Exchange
NO NO NO
Unibep Sustainability Report
2021
GRI Core YES YES NO
PKB
Pekabex
Integrated Report 2021 GRI Core NO NO NO
Trakcja Non-Financial
information statement
as a part of the Annual
Management Report
for 2021
not explained NO YES NO
Mostostal
Warszawa
Statement on Non-
-Financial Information
2021
GRI Core NO YES NO
Dekpol Statement on Non-
-Financial Information
2022
GRI Core NO YES No
Source: own presentation.
As a second research step, there was examined the disclosure scope of Polish
companies’ sustainability performance according to individual GRI Topic Stan-
dards reported by them. These were classied by them as material. The GRI disclo-
sures were veried against the GRI Index included in each report.
The scope of the GRI Topic Standards was compared to those areas which
were reported by Skanska in its sustainability report for 2022. The aim of the
benchmark was to assure how similar was their scope of sustainability reporting
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198 Sustainable Performance in Business Organisations and Institutions...
as compared to Europe’s leading construction company which is widely recog-
nised for its achievement in sustainability performance.
The analysis of GRI Topic Standards reported by Polish entities shows that they
are generally the same as the 11 sustainability action fields reported by Skanska
(Table 11.2).
Table 11.2. Scope of sustainability reporting evaluated versus GRI Topic Standards
GRI Disclosure
(Topic Standards)
Skanska
Budimex
Erbud
Mirbud
Polimex
Mostostal
Unibep
Pekabex
Mostostal
Dekpol
200 ECONOMIC
205 Anti-Corruption R R –R R R R –R
206 Anti-Competitive Behaviour R R –R R – – – –
201 Economic performance –R R R R –––
202 Market presence –R–R–R–––
203 indirect economic impact – – R R R R R – –
207 Taxes –––– R– – – –
300 ENVIRONMENTAL
302 Energy R R R R R R R R R
305 Emissions R R R R R R R R R
306 Waste R R –R R R R R R
308 Supplier environmental assessment R– – R–R– – R
301 Materials –––R R R R R –
303 Water and sewage –R–R R R R R R
304 Biodiversity –––R–R R –R
307 Environmental compliance R R R – –
Own indicator ‘Unibep’ – prioritisation of projects
in energy efficient & sustainable construction – – – – – R–––
400 SOCIAL
403 Occupational Health and Safety R R R R R R R R R
405 Diversity and Equal Opportunity R R – – R R R R R
406 Non-discrimination R R – – – R R –R
409 Forced or compulsory labour R– – – – – – – –
414 Supplier social assessment R– – R– – R–R
401 Employment –R–R R R R R R
404 Training and education –R– – R R –R R
411 Rights of indigenous people –R– – – – – – –
413 Local communities –R– – – – – R–
Source: own presentation.
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P. Szalacha, Sustainability Reporting in the Construction Industry: Evidence from Poland 199
In detail, it looks as follows:
almost all Polish examined entities reported on 4 GRI Standards: 302 Energy,
305 Emissions, 306 Waste and 403 Occupational Health and Safety,
majority of them (at least 4 out of 9) reported on 2 GRI Standards: 205 Anti-
-Corruption, 405 Diversity and Equal Opportunity,
at least 1 Polish entity reported on 4 GRI Standards: 206 Anti-Competitive
Behaviour, 308 Supplier Environmental Assessment, 406 Non-Discrimination
and 414 Supplier Social Assessment
no Polish entity reported on GRI Standard: 409 Forced or Compulsory Labour
(but in fact, this area seems to be not relevant for the Polish market at all).
It can be concluded that areas for improvement where Polish entities should
focus in future on more comprehensive analysis and reporting are supplier
assessment (both from environmental and social points of view) as well as non-
-discrimination issues.
It is worth noting that the conducted research showed that there were
subjects which were not reported by Skanska but which were treated by the
majority of Polish entities as material topics. To such topics belong 203 – Indirect
Economic Impact, 301 – Materials, 303 – Water and Sewage, 401 – Employment,
and 404 – Training and Education.
As a final step in the analysis, companies’ reporting on two key GRI Topic
Standards for the construction industry (305 – Emissions, and 403 – Occupational
Health and Safety) was reviewed in a more detailed way. There was examined how
many and which GRI indicators (available within both GRI standards) were
reported by Polish entities in comparison to Skanska company.
The results presented in Table 11.3 show that Skanska was ahead in terms of
disclosing details about GHG emissions. The Swedish company reported details
about all 5 key GRI indicators relating to this topic, whereas only 2 Polish entities
(Budimex and Unibep) were close to this comprehensive disclosure providing
information on four key GRI indicators. The rest of the Polish companies usually
reported on two indicators only (i.e., scope 1 and scope 2 of GHG emissions). It is
worth underlining that almost none of the Polish companies (except for Unibep)
was able to report about other than energy indirect GHG emissions (scope 3).
It indicates that Polish construction companies’ sustainability reporting on
emissions is still less comprehensive as compared to the benchmark (especially in
relation to reporting on Scope 3 GHG emissions).
The GRI standard on OHS was quite comprehensively reported by eight
examined Polish entities, i.e., two of them (Budimex and Unibep) reported all
required indicators, four out of them reported the significant majority of indicators
(at least seven), whereas the remaining two entities had less extensive reporting
on OHS issues (Erbud and Mostostal Warszawa), but they declared the importance
of this topic. In the OHS area, there were no significant differences between
Skanska and examined Polish construction companies (Table 11.4).
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200 Sustainable Performance in Business Organisations and Institutions...
Table 11.3. Detailed disclosure for GRI 305 Emissions (on GRI indicator level)
GRI Disclosure
(Topic Standards)
Emissions
Skanska
Budimex
Erbud
Mirbud
Polimex
Mostostal
Unibep
PKB Pekabex
Mostostal
Dekpol
305-1 Direct (Scope 1) GHG emissions R R R R R R R R R
305-2 Energy indirect (Scope 2) GHG emissions R R R R R R –R–
305-3 Other indirect (Scope 3) GHG emissions R– – – – R–––
305-4 GHG emissions intensity R R – – – R–––
305-5 Reduction of GHG emissions RRR – – – – – –
Source: own presentation.
Table 11.4. Detailed disclosure for GRI 403 Occupational Health and Safety (on GRI indicator level)
GRI Disclosure
(Topic Standards)
Occupational Health and Safety
Skanska
Budimex
Erbud
Mirbud
Polimex
Mostostal
Unibep
PKB Pekabex
Mostostal
Dekpol
403-1 Occupational health and safety management system R R –R R R R R R
403-2 Hazard identification, risk assessment and incident
investigation R R –R R R R –R
403-3 Occupational health services R R –R R R – – R
403-4 Worker participation, consultation and communication
on occupational health and safety R R – – R R – – R
403-5 Worker training on occupational health and safety R R –R R R R R R
403-6 Promotion of worker health R R –R R R –R R
403-7 Prevention and mitigation of occupational health and
safety impacts directly related to business relationships R R –R–R R –R
403-8 Workers covered by an occupational health and safety
management system R R – – R R R – –
403-9 Work-related injuries RRRRR RRRR
Source: own presentation.
Such good results in reporting OHS issues are the result of intensive campaigns
and activities carried out in recent years by Polish construction industry orga-
nisations and associations, which were focused on improving workplace safety on
construction sites in Poland. As an example, it can be mentioned the so-called
Safety Week, which is organised every year by the Agreement for Construction
Safety and features OHS training and a special promotional campaign. Each year
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P. Szalacha, Sustainability Reporting in the Construction Industry: Evidence from Poland 201
tens of thousands of employees in construction companies and subcontractors
take part in it. Safety Week, in a practical way, builds a culture of safety among
employees, companies’ management, clients, etc.
11.7. Conclusions
The research found that leading Polish-listed construction companies are already
quite well-advanced with sustainability reporting. The comprehensiveness and
transparency of their sustainability reporting are already on quite a satisfactory
level, despite the fact that there are still some areas for improvement.
Disclosure of Polish construction entities is generally based on the GRI
sustainability reporting standards, which reflect the trends observed worldwide.
Quite a number of examined entities are already reporting data required by the
EU Taxonomy. Disclosure about compliance with the TCFD recommendations is
rarely done. A voluntary audit of sustainable reporting is – as a rule – not per-
formed.
Polish construction companies have been assessing material for their activity
generally the same issues as in Skanska in its sustainability reports (chosen in the
study as a benchmark for the Polish construction industry). Still, not all sustainability
aspects are reported in Poland with the same level of detail. There were identified
some areas for improvement, which relate mainly to supplier assessment (both
from the environmental and social point of view) reporting on non-discrimination
issues as well as more detailed reporting on GHG emissions (especially scope 3
GHG emissions). However, there are also observed areas where in the past, there
was much pressure put for improvement (e.g., OHG) and where it is reported now
on a quite detailed level (similar to benchmark). This confirms the initial chapter
statement that sustainability reporting should be treated rather as the constant
process of improvements (‘journey’) and not as the once-finished activity
(‘destination’).
This study has some limitations. The conducted empirical research was based
on the selective choice of test sample, limited analysed period and discretionary
selection of Skanska as the benchmark company in sustainability performance
and reporting in the construction industry. The first limitation of the research is
that for the content analysis of sustainability reporting there were selected only
biggest entities and these which are listed on the WSE. The analysis is not covering
remaining Polish biggest, but non-public companies as well as smaller construction
companies which were outside 15 largest entities in 2021. As financial and non-
-financial reporting of such entities is subject – as a rule – to less rigorous legal
requirements, their sustainability reporting might be less detailed than these
taken to the research sample which may have an impact on some conclusions
of the study. Secondly, the analysis of the sustainability reporting was limited only
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202 Sustainable Performance in Business Organisations and Institutions...
to latest available documents – and mainly to those prepared for the year 2022.
Thirdly, there are also some other European construction companies which have
noticeable sustainability achievements. Consequently, the selection of Skanska as
the benchmark for this study must be of discretionary nature to some extent.
Nonetheless, these limitations can be converted into strengths when the test
sample would be extended and include also non-public as well as smaller
construction companies as well as the research period would cover sustainability
reporting for more than one year.
At the end it is worth to mention that further progress in the sustainability
reporting of Polish companies is expected in the near future. The significant
triggers for positive changes are increasing awareness of the importance of this
topic as well as legal changes, especially transposition into Polish legislation
of the CSRD and the ESRS.
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Websites
https://pzpb.com.pl
https://www.porozumieniedlabezpieczenstwa.pl
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DOI: 10.15611/2023.83.1.12
Chapter 12
Is ESG Strategy in ESG-Risk-Sensive Companies
a Myth or a Reality? Evidence from Poland
Joanna Dyczkowska
Wroclaw University of Economics and Business
e-mail: joanna.dyczkowska@ue.wroc.pl
ORCID: 0000-0001-9070-5116
Quote as: Dyczkowska, J. (2023). Is ESG Strategy in ESG-Risk-Sensitive Companies a Myth or a Reality?
Evidence from Poland. In J. Dyczkowska (Ed.), Sustainable Performance in Business Organisations
and Institutions: Measurement, Reporting and Management (pp. 204-228). Wroclaw: Publishing
House of Wroclaw University of Economics and Business.
Many companies in Poland have embarked on the path of incremental or
transformational adaptation due to the need to include ESG issues in their
strategies and business models. Incremental adaptation refers to undertaking
actions and behaviours that already exist to avoid system disruption (Berrang-
-Ford, Ford, & Paterson, 2011; Kates & Travis, 2012), which suggests the mainte-
nance of the system relevance and integrity at a given scale comes to the fore
here (Dinshaw, 2014). In turn, transformational adaptation consists in adapting at
a greater scale or magnitude reflected in the implementation of new technologies
or practices, the formation of new governance structures or systems, or shifts in
the location of activities in response to climate change and its impacts
(Intergovernmental Panel on Climate Change [IPCC], 2014, p. 80). The progress
of this process is not the same in various industries. ESG strategy is a starting point
for all ESG initiatives and actions.
There appear questions on how to build a sound ESG strategy and the major
connections of that strategy with various concepts and layers of business activity.
So far, some organisations in Poland have instead treated ESG activities as a ‘bolt-
on’ set of initiatives, detached from the overall corporate strategy. This approach
is changing in response to global risks and stakeholder pressures shaping the
current ESG landscape. However, each organisation represents a different level
of corporate ESG maturity. Some are at the beginning of their ESG journey. Some
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J. Dyczkowska, Is ESG Strategy in ESG-Risk-Sensitive Companies a Myth or a Reality... 205
are in the transition process of changing their business mindset. Others are pretty
progressed in this regard.
This chapter aims to emphasise the importance of building an ESG strategy
and its antecedents and aftermaths. It applies case studies’ analysis as a research
method to examine the existence and components of ESG strategy in Polish ESG-
-risk-sensitive companies selected based on Sustainalytics rating and compare
their progress in this regard. The chapter also provides an overview of global risks
and European initiatives and regulations affecting the ESG landscape.
12.1. From Global Risks and Stakeholder Pressures
to the ESG Transformation
Global risks that the world is facing and pressures coming from various stakeholder
groups shape the ESG landscape (See Figure 12.1 and Tables 12.1 and 12.2).
STAKEHOLDER PRESSURES from:
regulators, governments, society,
investors, consumers,
employees, and business partners
GLOBAL RISKS
(extreme weather, climate action failure, natural
disasters, biodiversity loss and ecosystem collapse, human
environmental damage, involuntary migration,
water crises, infectious diseases, cyberattacks, etc.)
CORPORATE ESG MATURITY
ESG TRANSFORMATIONAL ADAPTATION
cause
and shape
ESG LANDSCAPE
dictated by new concepts, frameworks and regulations, which assumes:
decarbonisation, circular economy, energy transition, sustainable sourcing
and land-use, waste management, e-mobility, sharing economy, diversity and
inclusion, respect for human rights, consumer protection, sustainable
investments, corporate governance, business ethics, etc.
indicating whether
there is a need for
which determines
enforces
CORPORATE ESG
COMMITMENT
ESG PERFORMANCE
MEASUREMENT
Figure 12.1. The journey towards ESG transformational adaptation
Source: own presentation.
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206 Sustainable Performance in Business Organisations and Institutions...
Table 12.1. Top five global risks by likelihood
Year 1st 2nd 3rd 4th 5th
2021 Extreme weather Climate action failure Human environmental
damage
Infectious diseases Biodiversity loss
2020 Extreme weather Climate action failure Natural disasters Biodiversity loss Human-made environmental
disasters
2019 Extreme weather Climate action failure Natural disasters Data fraud or theft Cyberattacks
2018 Extreme weather Natural disasters Cyberattacks Data fraud or theft Climate action failure
2017 Extreme weather Involuntary migration Natural disasters Terrorist attacks Data fraud or theft
2016 Involuntary migration Extreme weather Climate action failure Interstate conflict Natural catastrophes
2015 Interstate conflict Extreme weather Failure of national
governance
State of collapse or crisis Unemployment
2014 Income disparity Extreme weather Unemployment Climate action failure Cyberattacks
2013 Income disparity Fiscal imbalances Greenhouse gas emissions Water crises Population ageing
2012 Income disparity Fiscal imbalances Greenhouse gas emissions Cyberattacks Water crises
2011 Storm and cyclones Flooding Corruption Biodiversity loss Climate change
2010 Asset price collapse Slowing Chinese
economy (< 6%)
Chronic disease Fiscal crises Global governance gap
2009 Asset price collapse Slowing Chinese
economy (< 6%)
Chronic disease Global governance gap Retrenchment from
globalisation
2008 Asset price collapse Middle East instability Failed and failing states Oil and gas price spike Chronic disease in developed
countries
2007 Breakdown of critical
information infrastructure
Chronic disease in
developed countries
Oil price shock China’s economic hard
landing
Assets price collapse
Environmental risk, societal risk, economic risk, geopolitical risk, technological risk.
Source: (World Economic Forum [WEF], 2008–2021).
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Table 12.2. Top five global risks by impact
Year 1st 2nd 3rd 4th 5th
2021 Infectious diseases Climate action failure Weapons of mass destruction Biodiversity loss Natural resource crises
2020 Climate action failure Weapons of mass
destruction
Biodiversity loss Extreme weather Water crises
2019 Weapons of mass destruction Climate action failure Extreme weather Water crises Natural disasters
2018 Weapons of mass destruction Extreme weather Natural disasters Climate action failure Water crises
2017 Weapons of mass destruction Extreme weather Water crises Natural disasters Climate action failure
2016 Climate action failure Weapons of mass
destruction
Water crises Involuntary migration Energy price shock
2015 Water crises Infectious diseases Weapons of mass destruction Interstate conflict Climate action failure
2014 Fiscal crises Climate action failure Water crises Unemployment Infrastructure
breakdown
2013 Financial failure Water crises Fiscal imbalances Weapons of mass
destruction
Climate action failure
2012 Financial failure Water crises Food crises Fiscal imbalances Energy price volatility
2011 Fiscal crises Climate change Geopolitical conflict Asset price collapse Energy price volatility
2010 Asset price collapse Retrenchment from
globalisation
Oil price spike Chronic disease Fiscal crises
2009 Asset price collapse Retrenchment from
globalisation
Oil and gas price spike Chronic disease Fiscal crises
2008 Asset price collapse Retrenchment from
globalisation
Slowing Chinese economy
(<6%)
Oil and gas price
spike
Pandemics
2007 Asset price collapse Retrenchment from
globalisation
Interstate and civil wars Pandemics Oil price shock
Environmental risk, societal risk, economic risk, geopolitical risk, technological risk.
Source: (WEF, 2008–2021).
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208 Sustainable Performance in Business Organisations and Institutions...
It is worth mentioning that the World Economic Forum (WEF) publishes the
Global Risk Report each year. The first one was issued in 2006 when the world was
approaching a financial crisis. The report’s purpose was to give policy-makers
insights and enable them to cope with uncertainty over a decade. In the
subsequent 17 reports, survey respondents were requested to evaluate the
likelihood and the impact of each global risk on a scale from 1 to 5.1 Table 12.1
presents the top five global risks in terms of likelihood, whereas Table 12.2 shows
the top five risks regarding the potential impact. Data reflect global risks from
2007 to 2021 in a long-term perspective of 10 years. The reports for 2022 and 2023
do not present a distinction between global risk likelihood and impact. They show
risk severity in the meaning of likely impact. The risks are categorised into five
clusters: environmental, societal, economic, geopolitical, and technological.
The first three clusters largely reflect ESG issues. Interestingly, environmental
risks prevail in the breakdown of the top five global risks by likelihood and are
indicated in the first three places for some years. Extreme weather, climate failure
actions or natural disasters have appeared to be significant global environmental
risks. Among impactful societal risks of the last years are water crises, infectious
diseases, and involuntary migration. The survey also indicated the high likelihood
of technological risks such as cyberattacks and data fraud or theft. In terms of
high impact, using weapons of mass destruction seems to be a significant
geopolitical threat.
The last surveys show that environmental and societal risks come to the fore
in this ranking regarding their severity for the planet and humanity (WEF, 2022;
WEF, 2023). In 2022, the survey determined climate action failure, extreme
weather, and biodiversity loss as the major environmental risks. Then, social
cohesion erosion and livelihood crises were addressed as the most important
societal risks. In 2023, the survey indicated within the top risks four environmental
ones, including (1) failure to mitigate climate change, (2) failure of climate change
adaption, (3) natural disasters and extreme weather events, and (4) biodiversity
loss and ecosystem collapse, and societal risk related to large-scale involuntary
migration.
The gravity of global risks and growing awareness of society have pushed
regulators and governments to take significant measures to counteract these
challenges. Climate change and related implications need both mitigation and
adaptation. Mitigation is about making the climate change impact less severe by
shrinking greenhouse gas (GHG) emissions into the atmosphere, possibly either
by diminishing their sources or enhancing the ‘sinks’ that accumulate and store
these gases. Adaptation involves adjusting to climate change’s current and future
1 Considering likelihood, 1 represents a very unlikely risk, and 5 a risk that is very likely to occur
over the next decade, while as for the impact, 1 represents a minimal impact and 5 a catastrophic
impact.
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effects by minimising human risks related to harmful effects and taking various
opportunities associated with climate change, if any (NASA, 2023). Both mitigation
and adaptation can positively or negatively impact the achievement of societal
goals, including human health, food security, biodiversity, local environmental
quality, energy access, livelihoods, and equitable, sustainable development (IPCC,
2014, p. 102).
The EU took many initiatives designed to compel business organisations and
individuals to reduce their GHG emissions.
The first is the European Green Deal, launched by the European Commission
(EC) in December 2019. It is a package of policy initiatives to direct the EU towards
a green transition. The objective set by EU leaders assumes reaching climate
neutrality in the EU by 2050, which is in line with the Paris Agreement. Obviously,
such a green transition should be cost-effective, socially balanced and fair,
considering different national circumstances. That is why a special Just Transition
Fund was established to underpin regions and sectors most affected by the
transition (European Commission [EC], 2021). The programme is one of the pillars
of the broader Just Transition Mechanism, which mobilises around €55 billion in
2021–2027 to support the regions, sectors and workers (EC, n.d. e).
In March 2020, the EC adopted a proposal for European Climate Law (a vital
part of the European Green Deal), whereas the provisional political agreement on
the proposal was reached in April 2021. The Law was enacted in July 2021 and
established a legally binding target for the EU of reducing GHG emissions by at
least 55% by 2030 and to a net zero level by 2050, indicating the necessary steps
to reach it. The Law also referred to measures for keeping track of climate-
-neutrality progress and adjusting actions accordingly (EC, n.d. d).
The next action was aimed at creating a coherent and balanced framework for
reaching the EU’s climate objectives. The ‘Fit for 55’ package presented by the EC
in July 2021 included policy proposals and amendments to the existing legislation
to enable the European Green Deal. The package referred to the following areas:
1. EU emissions trading system (EU ETS). This trading system is one of the
largest carbon markets in the world and a vital tool for reducing GHG emissions in
the EU. The reform of the EU ETS is to bring more ambitious emissions reduction
goals with a faster cap decline and a reduction of 117 million allowances over two
years. The EU ETS will include new sectors: maritime transport and buildings, road
transport and fuels for additional sectors. Moreover, there will be a gradual
withdrawal of 3 allowances for specific sectors and an increase in funding for
decarbonising ETS sectors. Some part of the revenues from allowances for
buildings, road transport and fuels for additional sectors will contribute to the
social climate fund (European Council, Council of the EU, 2023a).
2. Efforts sharing regulation (ESR). The regulation establishes a new target to
reduce GHG emissions by 40% by 2030 in road transport, agriculture, buildings,
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210 Sustainable Performance in Business Organisations and Institutions...
small industries and waste. EU ETS does not cover these sectors, while they are
responsible for about 60% of total EU emissions. Each Member State is assigned
an individual binding target. The regulation also defines annual national emission
limits (European Council, Council of the EU, 2023b).
3. Land use, land use change and forestry (LULUCF) regulation. The regu-
lation assumes that emissions within LULUCF will be compensated by at least an
equivalent amount of carbon removals within the sector for 2021–2030. The
Council and the European Parliament achieved a provisional deal on revising the
regulation in November 2022. The new rules will set a more challenging EU-level
target for the total net removals of 310 Mt2 (European Council, Council of the EU,
2023c).
4. Alternative fuels infrastructure regulation. The regulation aims to ensure
a sufficient infrastructure to (re)charge or (re)fuel vehicles with alternative fuels.
Specific solutions and conditions will be established for road transport, ports and
airports (European Council, Council of the EU, 2023d).
5. The carbon border adjustment mechanism (CBAM). This new regulation
governs incentives for non-EU producers to reduce emissions. CBAM aims at pre-
venting carbon leakage, which appears when production generating high GHG
emissions (i.e., production of iron and steel, cement, fertilisers, etc.) is shifted
outside the EU to countries with lower climate policy standards, where ETS
allowances do not apply. The regulation will require EU importers to purchase
a CBAM certificate to cover price differences resulting from applying for EU ETS
allowances in the case of EU producers. In other words, CBAM will mirror the
EU ETS impacts for non-EU producers (European Council, Council of the EU, 2023e).
6. Social climate fund. A fund is a new tool for the financial underpinning
of vulnerable households, micro-enterprises and transport users, who are
most affected by introducing a new emissions trading system for buildings,
road transport and fuels for additional sectors. The budget accounts for up to
€65 billion of funding to Member States for 2026–2032. The fund is expected
to decarbonise the transport sector, enhance the environmental and energy
performance regarding buildings, cope with energy poverty, underpin economic
growth and create green jobs (European Council, Council of the EU, 2023f).
7. REfuelEU aviation and FuelEU maritime regulations. These regulations are
intended to increase the use of sustainable fuels by aviation and maritime
transport, which is responsible for about one-third of the total EU transport
emissions. The REfuelEU aviation regulation will induce aircraft fuel suppliers to
increase sustainable fuel share in their distribution. By 2050, this share should
achieve a level of 60%. There are also some requirements for airlines departing
from EU airports and for EU airports. The FuelEU maritime regulation will require
ships above 5000 gross tonnes to call at European ports to decrease the GHG
intensity (European Council, Council of the EU, 2023g).
2 Million tonnes of CO2 equivalent.
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8. Regulation on the methane emissions reduction. The regulation implies
the necessity for methane emissions’ measurement, reporting and verification in
the energy sector, as well as regular monitoring of the equipment used by oil and
gas companies to prevent form methane leaks. New EU rules also provide for
immediate methane reduction through mandatory leak detection and repair and
limitation of the emissions at the energy production plants (European Council,
Council of the EU, 2023h).
9. Regulation on carbon dioxide emission limits for new cars and vans. The
revised regulation raises targets for the CO2 emission reduction for 2030 and
establishes a new target of 100% for 2035, which implies that all new cars or vans
on the EU market should be free from carbon dioxide emission since 2035
(European Council, Council of the EU, 2023i).
10. Energy taxation directive (ETD). The EU takes steps to revise the ETD,
which will play a significant role in ensuring that the most polluting fuels, such as
coal, oil and gas, would be taxed the highest. This approach should incline
businesses to make greener choices based on a transition to cleaner energy, more
sustainable industry and environmentally friendly options. The update of the ETD
concentrates on two areas: the structure of tax rates and the extension of the
taxable base (European Council, Council of the EU, 2023j).
11. Renewable energy directive. This Directive aims to boost the share of
renewable energy (i.e., wind power, solar power, hydropower, tidal power,
geothermal energy, biofuels, etc.) in the UE to reduce the energy sector’s carbon
footprint. The new target for the EU assumes that by 2030, at least 40% of all its
used energy will come from renewable sources. On the national level, each
Member State will set its goal for renewables in the national energy and climate
plan. The revised Directive aims to establish new sector-specific sub-targets and
measures for 2030 (European Council, Council of the EU, 2023k).
12. Energy efficiency directive. The revised Directive will set new goals for
reducing energy consumption in the EU. The new levels are –39% for primary
consumption3 and (–36% for final consumption4. The current goals were: –32.5%
for primary consumption and –32.5% for final consumption. These changes will
affect mostly buildings, industry and transport. As it was agreed, Member States
are to define their indicative national targets. The reduction for the final energy
consumption is to take place gradually, reaching drops of 1.5% per annum
(European Council, Council of the EU, 2023l).
13. Buildings’ energy performance directive. The revision of the Direc-
tive brings new energy efficiency standards for new and renovated buildings
in the EU. It is expected that by 2050, all buildings should meet the standard
of zero-emission in the EU. There are different assumptions for new construc-
3 It is a total demand for energy.
4 It is the amount of energy actually consumed by the end users.
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212 Sustainable Performance in Business Organisations and Institutions...
tions5 and existing buildings, including residential6 and non-residential7 ones.
There are also some exemptions for historical buildings, places of worship,
buildings used for religious activities, standalone buildings smaller than 50 m2
and others. The Directive also refers to solar energy installations in buildings. The
renovations will be encouraged by financial and administrative support and tax
reductions (European Council, Council of the EU, 2023m).
The Circular Economy Action Plan is another agenda adopted to build
a cleaner and more competitive Europe in collaboration with economic institutions,
companies, consumers, citizens and civil society organisations (EC, 2020). The
agenda indicates initiatives along the entire product lifecycle and targets how
products are designed. It promotes a circular economy, sustainable consumption,
and waste management, ensuring a well-functioning internal market for high-
-quality secondary raw materials in the EU (EC 2020, p. 3; EC, n.d. a).
The EU Taxonomy regulation for sustainable activities and its Climate Dele-
gated Acts were created to underpin the green transformation of organisations
in the EU into sustainable businesses/activities that follow the objectives fixed
in the European Green Deal. The EU Taxonomy, which entered into force in July
2020, is a classification system stipulating which economic activities are environ-
mentally sustainable. The regulation set the following environmental objectives:
climate change mitigation and adaptation, sustainable use and protection of
water and marine resources, transition to a circular economy, pollution prevention
and control, and protection and restoration of biodiversity and ecosystems (EC,
n.d. a). The first Climate Delegated Act on sustainable activities for climate change
mitigation and adaptation objectives has been applicable since January 2022.
The Act formulates technical screening criteria for determining the conditions
under which an economic activity qualifies as contributing substantially to climate
change mitigation or adaptation and for determining whether that economic
activity causes no significant harm to any of the other environmental object-
ives (See: Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021).8
The second Complementary Climate Delegated Act has been applicable since
5 New buildings owned by public bodies are expected to be zero-emission by 2028, whereas all
new buildings will be by 2030. New buildings will have to possess energy performance certicates
as of 2030.
6 There is a plan for average primary energy use by buildings: by 2033 (D Energy performance
class level), by 2040 (level set by each Member State that ensures meeting a target of zero-emission),
and by 2050 (zero-emission in all existing buildings).
7 Member States are expected to establish minimum energy performance standards for non-
-residential buildings.
8 There is also an additional Delegated Act which supplements Article 8 of the EU Taxonomy
Regulation applicable also in January 2022, which stipulates the content, methodology and
presentation of information to be disclosed by nancial and non-nancial undertakings concerning the
proportion of environmentally sustainable economic activities in their business, investments or lending
activities (EC, 2023c; see also: Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021).
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January 2023 and introduces additional economic activities from the energy sector
and specific disclosure requirements for businesses related to activities in the gas
and nuclear energy sectors (EC, 2022).
Parallel to the EU Taxonomy regulation, there is a debate about its extension
to social objectives and defining what builds on ‘social investment’. Following
Funds Europe (2022), the social taxonomy is the planned classification of economic
activities that contribute to the EU’s social goals and provide guidelines for investors,
businesses and regulators concerning what is and is not sustainable from a social
perspective. The Platform on Sustainable Finance published in February 2022 the
final report regarding the possible structure of the EU Social Taxonomy.
Interestingly, this report indicated the linkages between the EU Social Taxonomy
and the Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088),
the proposal for the Corporate Sustainability Due Diligence Directive and the
draft of the Corporate Sustainability Reporting Directive (CSRD) (Platform on
Sustainable Finance, 2022).
In December 2022, the CSRD (Directive 2022/2464/EU) ceased to be a draft and
was adopted by legislators replacing Non-Financial Reporting Directive (NFRD)
(Directive 2014/95/EU). The new regulation entered into force in January 2023.
It must be emphasised that the Directive aims to improve the disclosure of sus-
tainability information in business reporting. The CSRD will require companies
indicated in the regulation to disclose (For details, see Article 19a, par. 2 of the
Directive 2022/2464/EU):
1) a brief description of the business model and strategy, and
the resilience of the business model and strategy with sustainability
risks,
the opportunities related to sustainability matters,
the implementation actions in connection with financial and investment
plans guaranteeing that the business model and strategy are in line
with the transition to a sustainable economy,
explanation of how the business model and strategy consider the
stakeholders’ interests and the impact of the company on sustainability
matters,
explanation of how strategy has been introduced with regard to sus-
tainability matters;
2) a description of:
the time-bound targets associated with sustainability matters fixed by
the company,
the progress that the company has made towards targets’ achievement,
the statement whether the targets associated with environmental
factors were based on conclusive scientific evidence;
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3) a description of:
the administrative, management and supervisory bodies’ roles con-
cerning sustainability matters,
expertise and skills of these bodies to fulfil the assigned roles,
the access of these bodies to such expertise and skills;
4) a description of policies on sustainability matters;
5) information about incentive schemes linked to sustainability matters
proposed to the members of the abovementioned bodies;
6) a description of:
the due diligence process introduced with regard to sustainability
matters,
the actual or potential adverse impacts connected with the company’s
own operations and with its value chain, and actions to identify and
monitor those impacts,
any actions to prevent, mitigate, remediate or bring an end to actual or
potential adverse impacts, and the result of such actions;
7) risks description related to sustainability matters, including a description
of the company’s dependencies on those matters and how those risks are
managed;
8) indicators relevant to the disclosures in points 1)–7).
The CSRD applies to the large EU ‘public interest entities’, EU companies and
EU consolidated groups that meet two tests of the following: (1) balance sheet
total exceeding €20 million, (2) net turnover exceeding €40 million, and (3) more
than 250 employees, other EU and non-EU companies (except micro-enterprises)
with stocks listed on EU regulated markets, non-EU enterprises with a net turnover
of more than €150 million in the EU and an EU branch or subsidiary (meeting the
‘EU Turnover Test’) (Kapotwe, Pears, Hörauf, & Brown, 2022).
Companies that are subject to the CSRD are expected to report according
to the European Sustainability Reporting Standards (ESRS) developed by the
European Financial Reporting Advisory Group (EFRAG) (for the final structure
of the ESRS see Chapter 2, p. XX). The standards will be adjusted to EU policies.
In parallel, they will build on and contribute to international standardisation
initiatives. The Commission is supposed to adopt the first set of standards by mid-
-2023, based on the draft standards published by EFRAG (EC, n.d. a).
The regulations mentioned above at the EU level already have and will
continue to have an intensive impact on the ESG landscape. Decarbonisation,
circular economy, energy transition, sustainable sourcing and land use, waste
management, e-mobility, sharing economy, diversity and inclusion, respect for
human rights, consumer protection, sustainable investments, corporate gov-
ernance, and business ethics topics create a non-exclusive list of critical issues
for ESG transformational adaptation (see Figure 12.1).
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They also enforce a need for new forms of corporate ESG commitment guiding
the execution of ESG strategy and sound ESG performance measurement systems.
It is crucial to combine ESG commitments with ESG performance assessment;
otherwise, corporate communication may become rife with ‘greenwashing’
or ‘social washing’, thus a narrative of companies marketing their environmental
or social commitment without any substance expressed in real actions (Dearnell,
2022).
Depending on the ESG commitment degree and the quality of the ESG
performance measurement system, there is a possibility to determine the ESG
maturity level9 and a need for transformational adaptation, which may require
implementing new technologies or practices, reshaping governance structures
or systems, or changing the location of activities in response to climate change
and its impacts (IPCC, 2014a, p. 80).
12.2. Formulation of ESG Strategy
as a Prerequisite for Business Model Reinvention
and Sustainable Performance Management
Under the CSRD, the companies to which the regulation applies must establish
time-bound targets related to sustainability (Directive 2022/2464/EU). Moreover,
they have to report on the progress that was made to meet those targets. The
CSRD implies that ESG reporting is no longer voluntary for some organisations.
The legal requirement to mandatorily report on sustainability issues puts in-scope
companies under pressure to ingrain ESG aspects into the corporate strategy,
policies, programs and business model.
Before developing an ESG strategy, the company should identify and map
ESG factors relevant to business activity and those that impact the external
environment (Figure 12.2).
The company should address these factors across three dimensions, including
environmental (i.e., how business operations affect the environment and vice
versa), social (i.e., how business operations affect its people and communities)
and governance (i.e., how a company behaves and governs). In this regard, it may
be helpful to consider what stakeholders have at stake.
9 Sari, Hidayatno, Suzianti, Hartono, and Susanto (2021) attempted to develop a corporate
sustainability maturity model. They determined three maturity levels. Immature organisations that
do not dene their sustainable processes or apply them ad hoc stand for the initial sustainability
maturity stage. Organisations which dene their sustainable processes, establish some standards,
and gure out indicators but do not measure them represent the managed stage. Mature organisa-
tions which measure sustainable performance and assess process improvement actions or program-
mes are in the optimised sustainability maturity stage.
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E
S
G
T
R
A
N
F
O
R
M
A
T
I
O
N
ESG STRATEGY
DEVELOPMENT
BUSINESS MODEL
REINVENTION
ESG PERFORMANCE
MEASUREMENT
SUSTAINABLE
PERFORMANCE
MANAGEMENT SYSTEM
ESG INPUTS
ESG INITIATIVES
ESG OUTCOMES
ESG TARGETS
ESG METRICS
ESG DASHBOARD
ESG REPORTING
ESG RISK MANAGEMENT
ESG ANALYSIS AND ASSESSMENT
ESG FACTORS
ESG COMMITMENTS
ESG GOALS
ESG ROADMAP
ESG POLICIES
ESG PROGRAMS
ESG TEAM
C
H
A
N
G
E
M
A
N
A
G
E
M
E
N
T
Figure 12.2. From ESG strategy to sustainable performance management system
Source: own presentation.
Then, the company should formulate ESG commitments. Following the
Oxford Dictionary, a commitment is a promise to do something or act in a particular
way. Legal Information Institute of the Cornell Law School emphasises that
commitment can refer to a contract or an obligation to undertake something, often
regarding financial or moral responsibility. Thus, ESG commitment may be defined
as a pledge of the company to comply with values and standards relevant to
achieve a more sustainable future for the company, stakeholders and the planet.
Selecting ESG factors and formulating ESG commitments helps set ESG goals and
targets that should be connected with Sustainable Development Goals (SDGs).
ESG strategy development is a prerequisite for the delineation of the
ESG roadmap. A solid ESG roadmap should start with establishing ESG policy
which serves as a blueprint for sustainable corporate management and reflects
a documented approach to ESG aspects by outlining all business practices
towards becoming a sustainable aware organisation. ESG policy should inform
about the organisation’s ambitions on specific aspects, articulate approaches
to them, and indicate stakeholders that will need to abide by these procedures.
In other words, formulations of ESG policies define the ESG programme’s intent
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(Kirby, 2022). In order to initiate an ESG program, a company must have its ESG
goals established. Then, it is important to determine the ESG initiatives, required
resources and expected outcomes, which will account for an essential part of the
new sustainable business model. Types of ESG initiatives may depend on the
company’s capacity, its budget, and stakeholders’ needs. The survey carried out
by Deloitte (2022) on 2,083 C-level executives from 21 countries proved that
among the top 5 initiatives taken were:
using more sustainable materials (67%),
increasing the efficiency of energy use (66%),
using energy-efficient or climate-friendly machinery, technologies, and
equipment (57%),
training employees on climate change actions and impacts (57%),
reducing the amount of air travel post-pandemic (57%).
On the other hand, Deloitte (2022) also reported on harder-to-implement,
needle-moving initiatives that included:
developing new climate-friendly products or services (49%),
requiring suppliers and business partners to meet specific sustainability
criteria (46%),
updating/relocating facilities to make them more resistant to climate impacts
(44%),
incorporating climate considerations into lobbying/political donations (40%),
tying senior leaders’ compensation to environmental sustainability perform-
ance (37%).
ESG program may be successful if there is a unique team responsible for the
smooth implementation and regular monitoring of the ESG program. Such a team
should consist of at least one executive representative, stakeholder representatives,
in-house team members focused on sustainability, and an external consultant
if required (Conservice ESG, n.d.). In addition to having an effective ESG team, it is
important to rethink the business model and reinvent it to deliver on ESG goals. The
necessary changes may be needed in business operations, products and services,
organisational routines (practices, policies and procedures) and corporate eco-
system regarding partnerships and relations in the value chain. Joyce and Paquin
(2016) present a new tool to underpin the creation of sustainable business models,
which is called the Triple Layer Business Model Canvas (TLBMC). This solution
complements and extends the original business model canvas of Osterwalder and
Pigneur (2010) with new layers that analyse environmental and social value creation.
The environmental layer builds on an environmental impact of a product or service
life cycle, whereas the social layer focuses on a stakeholder management approach
to capture an organisation’s social impact (Joyce & Paquin, 2016).
The next vital step is sustainable performance measurement which involves
setting clear targets related to concrete actions and ESG metrics. Sustainable
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218 Sustainable Performance in Business Organisations and Institutions...
performance measurement may be challenging due to several reasons. First, the
choice of KPIs may be selective, and responsible persons should decide which
metrics are the most appropriate regarding organisational needs and stakeholders’
expectations. Second, it is crucial to focus on metrics which present a balanced
view of the performance, signalling both positive and negative aspects. Third, it is
essential to have a reliable and stable data source for calculating KPIs to ensure
the credibility and comparability of ESG results. Finally, for the sake of clarity, it is
helpful to present the ESG metrics in the form of a dashboard. In September 2020,
World Economic Forum, in collaboration with Deloitte, EY, KPMG and PwC,
prepared a document: Measuring stakeholder capitalism towards common metrics
and consistent reporting of sustainable value creation [WEF, 2020]. It includes a set
of core10 and expanded11 metrics and disclosures on non-financial factors for
stakeholders. The metrics represent four pillars aligned with the SDGs and major
ESG domains (principles of governance, planet, people and prosperity) and can
account for a good framework for ESG metrics’ first choice.
ESG metrics can help in sustainable performance management, particularly
when an organisation has established clear targets and developed a roadmap to
monitor progress in meeting those targets. Regular revision of business operations
and implementation of resilience plans to boost ESG performance may build
a strong ESG position resulting in value creation for various stakeholder groups.
The existing TCFD (Task Force for Climate-Related Financial Disclosures)
recommendations present climate-related risks and opportunities and their
potential financial impacts, however, on the organisations only (TCFD, 2017).
Thus, these recommendations are focused mainly on the perspective of the
company and its investors as the primary stakeholder group, which may be seen
as a limitation. On the other hand, the CSRD offers the double materiality concept,
which mandates companies to report how sustainability issues affect their
business and how their own activities impact people and the environment. The
environmental risks created by the company influencing people and the planet
include emitting GHG into the atmosphere, discharging pollutants into soil and
groundwater, creating disturbances like noise and lights, overusing non-
-renewable resources, etc. The social risks severely affecting people include
creating inequalities, precluding diversity and inclusion, neglecting health and
10 Core metrics: A set of 21 more-established or critically important metrics and disclosures. These
are primarily quantitative metrics for which information is already being reported by many rms (albeit
often in dierent formats) or can be obtained with reasonable eort. They focus primarily on activities
within an organization’s own boundaries [WEF, 2020, p. 6].
11 Expanded metrics: A set of 34 metrics and disclosures that tend to be less well-established in
existing practice and standards and have a wider value chain scope or convey impact in a more
sophisticated or tangible way, such as in monetary terms. They represent a more advanced way
of measuring and communicating sustainable value creation [WEF, 2020, p. 6].
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safety issues, etc. The governance risks that may affect people and social relations
include a lack of policies and standards regulating relations with stakeholders,
failure to recognise bribery and corruption problems, lack of fair remuneration
principles, etc.
ESG risk identification and mitigation are the major elements of managing
sustainable performance. Therefore, ESG risks should be incorporated into the
Risk Appetite Statement (RAS), which is a part of the Risk Appetite Framework
(RAF). RAS articulates the aggregate level and types of risk that an organisation
can accept or should avoid in order to achieve its strategic objectives, whereas
RAF reflects policies, processes, controls, and systems through which risk appetite is
established, communicated, and monitored (FSB, 2013, p. 2). Due to such an
approach, it can be ensured that ESG risks will be regularly reviewed, monitored
and managed by risk holders who have the skills, knowledge and expertise
adequate to tackle sustainability threats.
12.3. ESG Strategy in ESG-Risk-Sensitive Companies –
Evidence from Poland
This research study aims to analyse and assess whether the most ESG-risk-sensitive
companies in Poland developed ESG strategies. The first step in selecting the
research sample was identifying companies affiliated with the WIG-ESG index
from the Warsaw Stock Exchange. The WIG -ESG index was published for the first
Table 12.3. The research sample
Company
name
Affiliation to sectoral indices/
activity scope
ESG Risk
Rating
Rating
date
PGE WIG-energy / power industry 49.0 28.05.2022
Grupa Azoty WIG-chemistry / basic chemistry 47.3 16.01.2023
Enea WIG-energy / power industry 43.8 20.01.2023
Bogdanka WIG-mining / coal mining 41.5 18.01.2023
Tauron WIG-energy / power industry 38.6 27.12.2022
JSW WIG-mining / coal mining 36.1 20.01.2023
Bumech No affiliation / mechanical equipment 35.6 12.08.2022
Alior WIG-banks / commercial banks 33.8 05.08.2022
PKP Cargo No affiliation / transport 33.2 16.01.2023
XTB No affiliation / brokerage activity 32.6 25.01.2023
KGHM WIG-mining / metal mining 32.4 04.02.2023
Budimex WIG-construction / general construction 32.2 10.01.2023
Source: own presentation based on data from Sustainalytics (as of February 4, 2023).
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Table 12.4. The research results on ESG strategy
Company
name
ESG
strategy Comments
PGE PGE Group adopted its 2030 corporate strategy with an outlook to 2050. The strategy sets out the directions for the energy transition, the
decarbonisation and the pathway to climate neutrality. Environmental aspects are firmly embedded in the corporate strategy and account for
one of three strategic priorities named ‘Environmentally friendly energy’. The inclusion of environmental aspects in the corporate strategy was
the first step towards implementing structured management of the ESG area in the Group (PGE, 2022).
Grupa
Azoty
A separate ESG strategy of Grupa Azoty for 2021–2030 was developed in response to the needs and expectations of stakeholders. It confirms
an understanding of the Group’s impact on its environment and climate. The Group’s priority under the ESG strategy is sustainable development,
which will be implemented by taking measures to protect the environment, care for society and manage corporate governance responsibly.
The actions taken in these areas were structured within the ESG strategy, which includes five strategic pillars: climate and environment (E),
sustainable products (E), sustainable supply chain (E, S), immediate environment (S, G), and friendly and safe workplace (S, G) (Grupa Azoty,
2021).
Enea In 2021, Enea made an effort to update its developmental strategy so that it fully responds to the new external environment and enables
a credible and effective transformation of the organisation in line with the new assumptions of energy transition in Poland. The company
revised its strategy up to 2030 with a perspective up to 2040. The transformation will be based on separating generation assets powered by
coal and lignite from the structures of power groups. Enea decided to focus on three strategic elements: climate neutrality by 2020, energy
storage and the company’s important place in the distributed energy model. Thus the developmental strategy of Enea reflects environmental
(E) aspects – green change – as an overarching goal (Enea, 2021).
Bogdanka Bogdanka informed on its website that works on updating the business strategy, including ESG aspects, had started in 2022. The document
was expected to be adopted in autumn 2022. However, at the beginning of February 2023, it was still not publicly available on the corporate
website. The ESG strategy will shed light on the same areas as the previous social responsibility strategy but with a focus on ESG factors, taking
into account the perspectives of diverse stakeholder groups, legal considerations, market trends and a long-term plan for a so-called just
transition and the challenges facing the mining industry. The previous strategy for 2018–2021 referred to environmental, social and governance
issues, which was reflected in the four strategic objectives: (1) to guarantee the highest level of occupational safety, (2) to reduce the impact
of operations on the safety of the local natural environment, (3) to ensure the safety and stimulate the development of the local community,
and (4) to transparent and responsible management practices (Bogdanka, n.d.).
Grupa
Tauron
Grupa Tauron adopted its 2022–2030 corporate strategy with an outlook to 2050. The Group’s overarching goal is to build its value through
modern customer and climate solutions while maintaining financial stability. The Group has set three priorities in its strategy: sustainable
operations (i.e., the transformation towards climate neutrality), growth based on the largest customer base (i.e., becoming a leader in reliability
in electricity and heat distribution and customer sales and service) and becoming an organisation that follows change (i.e., be one with a stable
financial position supported by an effective and efficient organisation) (Tauron, 2022). Although it is difficult to find in these strategic priorities
an apparent reference to social and governance dimensions, and only the first priority reflects the environmental issues, further on, there
is a mention of the Group’s sustainable development as well as a description of action directions and objectives in ESG areas.
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JSW JSW adopted its 2022–2030 strategy and set out the overarching goal, which is a value growth of the capital group. The company has
incorporated an additional perspective – people and environment – into the standard four dimensions of the balanced scorecard (i.e., finance,
customer, internal processes and development). In the additional dimension, JSW Group aims to reduce its carbon footprint by 30% by 2030
compared to 2018, move towards climate neutrality in 2050 and continue to raise its high safety standards (JSW, 2022). The social and
governance aspects are not evidently embedded in strategic perspectives. Further on in the 2022–2030 strategy document, there is a reference
to sustainable development and company social and environmental initiatives, but still, there are no mentions of social and governance goals.
Bumech The latest published management report for 2021 shows that Bumech does not have an ESG strategy. However, the Board plans to include
environmental aspects, climate change metrics and risks, and sustainability issues in its business strategy. Regarding social and labour issues,
including measures taken and planned to ensure gender equality, sound working conditions, respect for employees’ rights, dialogue with local
communities, and customer relations, the company emphasises that it will be able to apply this but to a limited extent (Bumech, 2021, pp. 23,
24).
Alior Bank Alior Bank presented its new strategy, ‘Bank for every day, bank for the future’ in February 2023. The strategy focuses on everyday banking,
customer convenience, and business development. There are three pillars of Alior Bank’s strategy: a higher culture of mobility, support for
entrepreneurship and a modern bank. The Bank wants to be a strong institution focused on building a core relationship through digital
channels. ESG elements are included in the strategy, not at the front of it, but later on at the very end. Alior Bank stresses that it will be
responsible for the social processes around it, respond to contemporary environmental and climate challenges, and apply the highest
management standards. All these areas are connected with particular SDGs (Alior Bank, 2023).
PKP Cargo The 2019–2023 corporate strategy of PKP Cargo was revised at the beginning of 2023. However, it does not include ESG aspects (PKP Cargo, 2018).
XTB XTB developed its ESG strategy based on three pillars: environment, social responsibility and corporate governance. For these three pillars, the
company determined activities that support UN Sustainable Development Goals (XTB, 2021).
KGHM KGHM has prepared a new corporate strategy until 2030 with a 2040 horizon. The mission and vision have remained unchanged from the
previous strategy. However, to reflect changes in the environment, the existing four strategic development directions (Flexibility, Efficiency,
Ecology and E-industry) were updated with an additional fifth element – Energy. The new strategy refers to social aspects by outlining the
company’s ambitions in this area and how their achievement will be measured in 2030. KGHM also emphasises that the strategy’s objectives
are consistent with the company’s climate policy and its targets for 2030 and 2050. The company presents in its strategy the main directions
of decarbonisation and the planned efforts towards them (KGHM, 2021).
Budimex Budimex developed a CSR strategy for 2021–2023 that is not exactly an ESG strategy but contains some elements relevant to ESG aspects. The
CSR strategy of Budimex is based on six pillars that refer to: (1) ensuring the highest standards of safety and occupational health, (2) limiting
a negative impact on climate and environment, (3) nurturing employee development and job satisfaction, (4) maintaining quality and
innovation, (5) countering frauds, and (6) conducting dialogue and supporting local communities. For each pillar, the company outlines several
strategic objectives. An interesting part of the CSR strategy is the attempt to measure the degree to which these objectives will be achieved by
pointing out measures and their thresholds. Budimex also presents actions taken to reach these objectives and the departments involved in
monitoring the measures level (Budimex, 2021).
Standalone ESG strategy; some ESG aspects in a corporate strategy; no ESG context in a corporate strategy. The study period is 1–08.02.2023.
Source: own presentation based on publicly available information from companies’ websites.
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time on September 3, 2019. It replaced the RESPECT index launched in 2009.
Currently, the index comprises 60 companies from various sectors. They adhere to
socially responsible business principles, particularly environmental, social, econo-
mic and corporate governance issues. All companies from the WIG-ESG index
except for two participate in Sustainalytics’ ESG Risk Ratings, which cover more
than 16 thousand companies worldwide across 42 industries. This rating measures
the exposure of the particular company to industry-specific material ESG risks and
how well the company manages them. Following the Sustainalytics methodology,
the final ESG Risk Rating score measures unmanaged risk, understood as material
ESG risk that a company has not managed. This unmanaged risk covers unmana-
geable risks which cannot be addressed by company initiatives and risks due to
management gaps that could potentially be sufficiently managed but are not
according to the Sustainalytics assessment (Sustainalytics, 2021, p. 11).
Based on Sustainalytics’ ESG Risk Rating, the companies from the WIG-ESG
index with severe (≥ 40.0) or high (≥ 30.0) ESG risk were sorted out (Table 12.3).
The study indicated that approximately 20% of the companies in the WIG-ESG
index had a severe or high ESG risk. The most ESG-risk-sensitive companies came
from the power industry (PGE, Enea), chemical industry (Grupa Azoty) and mining
industry (Bogdanka). Among the remaining eight companies characterised by
high ESG risk, those operating in the following areas of the economy can be
distinguished: the power industry (Tauron), coal mining (JSW), metal mining
(KGHM), construction (Budimex), mechanical equipment (Bumech), transport
(PKP Cargo), and interestingly, banking (Alior) and brokerage activity (XTB).
Having a sound ESG strategy in companies from the power, chemical and mining
industries seems particularly crucial since they are much more than other
organisations exposed to different material ESG risks, and their management of
relevant ESG risks may not work correctly due to the lack of adequate ESG
programs, practices and policies.
In the next step of the research procedure, the presence or absence of an ESG
strategy in the researched companies was investigated. The initial research results
are included in Table 12.4. The results indicate that only two out of 12 companies
have a standalone ESG strategy. Two companies did not have any ESG aspects
included in their corporate strategy. The remaining eight organisations are grad-
ually progressing in reformulating their corporate strategy with ESG aspects but
with varying results. Based on these results, it can be stated that Polish ESG-risk-
-sensitive companies are in an ESG transition phase. Embedding ESG issues in
a company’s strategy is the first step to remodelling the business and assessing
sustainable performance while having a separate ESG strategy is an expression
of awareness of changing environmental conditions and societal demands.
It is, therefore, worth looking at the practices of two Polish companies that
have made considerable progress in this area. Grupa Azoty developed a 6-page
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J. Dyczkowska, Is ESG Strategy in ESG-Risk-Sensitive Companies a Myth or a Reality... 223
standalone document of an ESG strategy of which the first page does not include
any merit-related content – it is a title page. The company emphasises that
sustainable development will be its priority by 2030, while ESG actions will be
conducted within five strategic pillars. Strategic priorities were formulated for
each pillar. Moreover, Grupa Azoty expressed its commitments across each pillar
by addressing concrete actions that will be taken to make strategic priorities
a reality. The last three pages were dedicated to three dimensions: environmental,
social, and governance. Each dimension has been assigned a primary objective,
SDGs and strategic pillars, strategic priorities have been identified within the
pillars, and sub-objectives have been set for each priority (Figure 12.3).
Pillar 1 Pillar 3
Priority 1
Sub-objectives by 2030
•………….
•………….
•………….
Priority 1
Sub-objectives by 2030
•………….
•………….
•………….
Priority 2
Priority 2
Sub-objectives by 2030
•………….
•………….
•………….
Pillar 2
Priority 1
Sub-objectives by 2030
•………….
•………….
•………….
Priority 2
Sub-objectives by 2030
•………….
•………….
•………….
Sub-objectives by 2030
•………….
•………….
•………….
Dimension name: [Primary objective]
Sustainable Development Goals: [……………..]
Figure 12.3. Presentation scheme of pillars, priorities and strategic objectives
regarding one of an ESG dimension
Source: own presentation based on (Grupa Azoty, 2021).
XTB, the investment and FinTech company specialising in financial instruments
trade, prepared a 22-page document of an ESG strategy. The first page does not
include any merit-related content – it is a title page. On the second page, the
company presents itself and its values. After that, there is a description of ESG
strategic pillars covering the environment, social responsibility and corporate
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224 Sustainable Performance in Business Organisations and Institutions...
governance. Each pillar has assigned activities supporting SDGs. The following
pages are dedicated to more extensive descriptions of activities within each pillar.
However, this is done in a chaotic way since there is no order in presenting
particular activities.
12.4. Conclusions
Interestingly, the analysis of corporate strategies of ESG-risk-sensitive companies
in Poland proves that possessing a standalone ESG strategy ensures that com-
panies focus on three dimensions: environmental, social and governance in
a balanced manner. The problem is the way how these aspects are presented –
the case studies of Grupa Azoty and XTB evidence that more is not always better.
The shorter ESG strategy of Grupa Azoty seems more structured and transparent
than the very long document presenting the ESG strategy of XTB.
Another issue is that companies that have not developed a separate ESG
strategy but have only embedded one or two ESG dimensions in their corporate
strategy have not done that inappropriately. PGE, for instance, has described the
sustainable energy transition process in great detail in its corporate strategy. The
company further emphasised that sustainable transformation is about creating
value in financial, social and environmental terms. Although the company’s
primary focus is on environmental issues and the pursuit of climate neutrality, the
level of exploration of this topic and the way it is presented in the strategy can
meet the stakeholder’s information needs.
Concluding, it must be emphasised that a sound ESG strategy may trigger
business transformation towards a green, accountable and sustainable future.
Based on the study presented in this chapter, it may be stated that ESG strategy
was not a myth in most of the ESG-sensitive companies examined, but it has
become a reality. Although organisations represent varying levels of engagement
in this regard, they are gradually progressing in reformulating their corporate
strategy and including ESG aspects. It is vital since ESG strategy development
is a prerequisite for the next vital stage – delineating the ESG roadmap. Based on
ESG roadmap components, the organisation can start its transformation journey
and reinvent its business model to deliver on ESG goals. Nevertheless, ESG
transformation may be challenging for many organisations since it refers to many
areas. The EU Taxonomy, for instance, expects that economic activity must
substantially contribute to at least one of the six environmental objectives,
including: climate change mitigation, climate change adaptation, sustainable use
and protection of water and marine resources, transition to a circular economy,
pollution prevention and control, and protection and restoration of biodiversity
and ecosystems. Moreover, while pursuing one or more of these objectives, the
organisation cannot cause significant harm to any of the other Taxonomy
objectives and should respect fundamental human rights and labour standards
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J. Dyczkowska, Is ESG Strategy in ESG-Risk-Sensitive Companies a Myth or a Reality... 225
(EC, n.d. c). Integrating all business actions under the sustainability umbrella may
be difficult, especially when moving from ambition to execution. According to
Santamarta et al. (2022), the main problems that may arise are identifying the
most significant impact, putting the right transformation engine in place, and
funding the transformation journey.
The results of the case studies analysis presented in this chapter cannot be
generalisable, which is a limitation. The research sample selection was purposeful
and focused on analysing the most ESG-risk-sensitive companies. Moreover, the
sample included entities representing various industries, which may cause the
comparison difficult. Nevertheless, it is worth studying the process of ESG strategy
formulation in its early stage. Today, many entities focus on how to build a standalone
ESG strategy or make it a part of a larger business strategy, but tomorrow they will
wonder how to implement it and with what tools, and then finally, it will come time
for verification, critical assessment and reflection.
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https://www.law.cornell.edu/wex/commitment
https://www.oxfordlearnersdictionaries.com/
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DOI: 10.15611/2023.83.1.13
Chapter 13
Green Controlling Methods
in Hungarian Corporate Pracces
Hajnalka Fekete-Berzsenyi
University of Pannonia
e-mail: fekete-berzsenyi.hajnalka@gtk.uni-pannon.hu
ORCID: 0000-0002-2505-3227
Dorottya Edina Kozma
University of Pannonia
e-mail: kozma.dorottya.edina@gtk.uni-pannon.hu
ORCID: 0000-0002-4948-8815
Quote as: Fekete-Berzsenyi, H., & Kozma, D. E. (2023). Green Controlling Methods in Hungarian
Corporate Practices. In J. Dyczkowska (Ed.), Sustainable Performance in Business Organisations and
Institutions: Measurement, Reporting and Management (pp. 229-244). Wroclaw: Publishing House of
Wroclaw University of Economics and Business.
Climate change is one of the most pressing issues of our time. The ongoing
ecological crises – pollution of the atmosphere, soil, biodiversity and water – are
a major concern for the long-term viability of the natural environment. The task
of economists, both at macro and micro level, is to take a multidisciplinary
approach to the interplay between economic and environmental considerations,
as environmental aspects must be taken into account when economic decisions
are made. Companies’ decision-making mechanisms are affected by the growing
environmental demands of different stakeholder groups. These include, for exam-
ple, consumers, credit institutions, the state and municipalities, local communi-
ties, the parent company, owners, through legislation and regulations. One of the
main objectives of environmental controlling is to integrate economics and environ-
mental sciences in its management decision support function and to support
the cooperation of professionals working in the fields of economics and
environmental protection at the organisational level. This will ensure the flow
of information between separate disciplines and management and examine the
economic mapping of environmental activities.
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The research is structured in the following parts: in the first part, the authors
describe controlling in the German literature as a method to support corporate
governance – known in the Anglo-Saxon literature as management accounting –
and its environmental extension, but only briefly describe the environmental
controlling toolkit. The literature review will provide knowledge about controlling,
including green controlling, its concept and tools. The next two sections present
the main research question, the related hypotheses and the research sample.
In order to facilitate the interpretation of the results, the description of the
numerous control tools examined will be presented in the ‘Results’, in parallel with
the analysis of the practical application of each tool in Hungarian companies.
The research results are summarised in the ‘Conclusions’, which also includes
the limitations of the research.
13.1. Controlling – Green Controlling and Its Tools
Controlling is a management tool that helps management to adapt to dynamic
changes in the environment, a system of planning, accountability, information,
control and stakeholder management. The controlling system is one of the main
subsystems of the management system of an organisation, which among the
functions of management, undertakes strategic and operational planning,
supervises the implementation of plans, monitors and compares plan and actual
data, and analyses discrepancies. These tasks are coordinated and regulated by its
own organisation and information system (Körmendi & Tóth, 2011).
The two branches of controlling literature are the German and the Anglo-
-Saxon trends. According to the continental (German) school of thought, controlling
is a management tool, while the Anglo-Saxon literature considers it a part of
management. Due to our economic embeddedness, the development of con-
trolling in Hungary has tended to move towards the German trend, but as
Hanyecz (2011) notes, development is moving towards a combination of the two;
they are compatible because the key is result orientation. As defined by Professor
Péter Horváth (2015), who played a major role in the development of German and
Hungarian controlling: controlling is a cross-functional management tool whose
task is to coordinate planning, control and information supply in order to ensure that
the company achieves its profit target (Horváth, 2015).
In the literature on corporate control systems that include environmental
protection, a number of different terms are used in both German and Anglo-
-Saxon literature. In the present research, the authors have used the terms
‘environmental management accounting’ and ‘green controlling’, which are most
appropriate for the research objectives.
The term ‘environmental controlling’ means the application of controlling
approaches to corporate sustainability management (Schäffer & Jais, 2005).
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H. Fekete-Berzsenyi, D.E. Kozma, Green Controlling Methods in Hungarian Corporate Practices 231
A balanced relationship between the objectives of the three dimensions of sus-
tainability (economic, social and environmental) is important (Horváth, Isensee,
& Michel, 2012). The role of sustainability controlling is to provide extensive
support to sustainability management (Bedenik, Prebežac, Strugar, & Barišić,
2019) in the formulation of sustainability goals and the development of corporate
policies covering all three dimensions (Păunică & Mocanu, 2017). Environmental
controlling focuses primarily on ecological aspects but does not ignore other
dimensions (Gould, 2011; Tschandl, 2012).
Environmental controlling can be understood as a management function
alongside other functional controlling tasks. Environmental controlling, and its role
of supporting and coordinating the system of environmental management, can be
defined as a subsystem of controlling which, through its system-building and
coordinating function, adds ecological components to the planning, management,
control and information supply functions of controlling, thus supporting the
adaptive and coordinating capacity of the whole system (Fassbender-Wynands,
Seuring, & Nissen, 2009). It is important that the environmental management
system is not developed as a separate, isolated solution but as an integral part of
the overall corporate information and communication system. Chapters 2 and 8 of
this monograph also mention the need to include management accounting
expertise in ESG reporting and management decision support. The importance of
this is also reflected in the fact that environmental considerations can influence the
economic success of companies and it is therefore recommended to integrate
environmental factors into the management and planning systems of companies
(E. Günther, T. Günther, & Endrikat, 2018).
The tools that can be used can be grouped in different ways, according to the
level of application (strategic or operational), the areas of application. Laine,
Tregidga and Unerman (2021) mention the following: material flow cost accounting,
life-cycle assessment, social return on investment (SROI), sustainable investment
appraisal, key performance indicators (KPIs), cost accounting and allocation, but
the list can be extended with, e.g., Ecological footprints, sustainability balanced
scorecard, water management ac-counting. In addition to the above, Tschandl
(2012) highlights the following tools of green controlling: ABC analysis, scenario
analysis, risk management, technology analysis, product line analysis, portfolio
analysis, material and energy balances, environmental cost budgeting.
13.2. Research Question and Hypotheses
There are several terms used in the literature for corporate control systems that
cover environmental protection. The definitions use elements of the traditio-
nal concept of controlling, whereby environmental controlling is defined as a sub-
system of corporate management. This subsystem systematically coordinates plan-
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232 Sustainable Performance in Business Organisations and Institutions...
ning, monitoring and the provision of environmental information. In its manage-
ment decision support function, it helps to develop and integrate environmental
objectives into the corporate target system. Develop a system of relevant indica-
tors to measure the achievement of objectives and carry out planactual compari-
sons. In practice, it is the implementation of strategic and operational control in
environmental management, primarily an information system for the collection,
evaluation and decision-oriented preparation of ecological information.
The aim of the authors is to conduct an empirical research on the environmental
activities, controlling tools and methods adopted or applied by the 5,000 largest
companies (headquartered or located in Hungary) based on the number of
employees. They formulated their research question as follows.
Q: Can the research sample show that companies operating in Hungary have
incorporated specific environmental goals and tools into their strategies and
operations?
Their assumptions in this regard are:
H1: The group of companies under review has set environmental targets for
environ-mental objectives, which it incorporates into its strategic objectives.
H2: The companies surveyed use the methods of the available controlling
toolbox to varying degrees to develop their environmental strategies and monitor
their implementation.
The following is an empirical examination of the above research question and
two related hypotheses.
13.3. Data and Methodology
In order to answer the research question, an empirical study using a questionnaire
survey was conducted. The 5,000 largest enterprises operating in Hungary (with
a registered office or a place of business) were selected as the database based on
the number of employees. Their online questionnaire was successfully sent to
4,606 addresses, with 205 questionnaires returned, of which 121 were completed
(answering the mandatory questions). The number of variables surveyed was 173.
Most of the companies in the sample from Pest, Somogy, Baranya, Csongrád-
-Csanád and Veszprém counties completed the questionnaire. In contrast, the
least willingness to fill in the questionnaire was in Nógrád county, where only one
company returned a completed questionnaire. Table 13.1 shows the distribution
of the companies in the sample by economic sector/industry.
By economic sector/industry, 38.05% of the surveyed enterprises are employed
in manufacturing, 10.73% in water supply, sewerage, waste management, 8.78%
in agriculture, forestry and shing, and the remaining enterprises are distributed
in a lower percentage between the areas.
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H. Fekete-Berzsenyi, D.E. Kozma, Green Controlling Methods in Hungarian Corporate Practices 233
Table 13.1. Distribution of the research sample by industry
Economic sector Frequency Share (%)
A = agriculture, forestry, fishing 18 8.78
B = mining, quarrying 2 0.98
C = manufacturing industry 78 38.05
D = electricity, gas, heat, air conditioning 7 3.41
E = water supply, wastewater collection, treatment, waste
management, decontamination 22 10.73
F = construction industry 9 4.39
G = trade, motor vehicle repair 14 6.83
H = transport, storage 14 6.83
I = accommodation and food service activities 3 1.46
J = information, communication 5 2.44
K = financial, insurance activity 3 1.46
L = real estate transactions 2 0.98
M = professional, scientific, technical activity 10 4.88
N = administrative and support service activities 12 5.85
O = public administration, defence, compulsory social
security 1 0.49
Q = human health, social care 2 0.98
R = arts, entertainment, leisure 3 1.46
In total: 205 100
Source: own presentation.
Overall, the structure of the questionnaire examined companies with the
highest occupancy data in five sections: 1) general environmental practices;
2) environmental aspects and control; 3) environmental objectives; 4) organisation
and environment; and 5) general company data. In the following, the chapter
presents some of the results of the questions on the general environmental
practices of the companies surveyed and the controlling tools used.
13.4. Research Results
For the database of the 5,000 companies with the largest number of employees in
Hungary, it is a good result that 83.4% of the companies that filled in the
questionnaire stated that they have a substantial environmental protection
activity. However, it is noteworthy that only 31.2% of them produce transparent
and regular reports on environmental protection processes. Exactly the same
proportion plan environmental initiatives, measure and evaluate their imple-
mentation. 69.8% of companies said that they have integrated environmental
considerations into their corporate governance processes. The results show that
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234 Sustainable Performance in Business Organisations and Institutions...
environmental controlling has a lot of scope and work to do, as almost 70% of
companies have environmental protection as an integral part of their corporate
governance, but only slightly more than 30% report on the issue and review the
achievement of environmental objectives.
In this area, the need for controlling to more effectively implement a system of
environmental indicators into business as an extension of controlling activities
and areas is apparent. The demand from businesses should also be investigated,
as the application of new reports, statements, indicators and their regular monitoring
is a labour-intensive and time-consuming process, which also entails costs. The
introduction of environmental controlling systems and indicators, as well as the
monitoring and communication of other sustainability elements, should also
consider the demand from stakeholders, e.g., environmentally conscious consumers,
credit institutions, and public authorities. Short-term and long-term effects, and
costs and benefits of sustainability reporting are discussed in chapter 3 of this
monograph, and the relationship between sustainability reporting and sustainability
performance is discussed in chapter 9. Companies that report and examine the
achievement of the targets can serve as a model, a best practice, and a benchmark
for companies less familiar with this area (Figure 13.1).
Figure 13.1. General environmental practices among respondents (number, %)
Source: own presentation.
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H. Fekete-Berzsenyi, D.E. Kozma, Green Controlling Methods in Hungarian Corporate Practices 235
Regarding the use of controlling tools, the respondents were surveyed in
terms of using 21 methods. The methods were grouped into four main categories:
strategic issues, administrative issues, methodological issues and economic
issues. Table 13.2 shows the number and percentage of respondents using con-
trolling tools from each category.
Table 13.2. The controlling tools used in the examined sample
Controlling tools Number Share (%)
1. Strategic issues
Development and integration of environmental objectives into the
strategy 112 75
Written environmental policy 98 66
Environmental training programme for employees 67 45
2. Administrative issues
Conducting internal environmental audits 114 77
Conducting external environmental audits 81 54
Public environmental report 42 28
3. Methodological issues
Developing and using environmental indicators 79 53
SWOT analysis 72 48
Identifying environmental success factors (KPIs, key performance
indicators) 60 40
Benchmarking environmental performance 31 21
Scenario techniques 26 17
Eco-balances 24 16
Sustainability Balanced Scorecard 14 9
4. Economic issues
Evaluation of investments (integrating economic and environmental
evaluation) 90 60
Planning, recording and assessing environmental costs 89 60
Planning, recording and evaluating revenues from environmental
protection 86 58
Examining the economics of environmental strategies 83 56
Including environmental costs in the pricing of products/services 82 55
Evaluation of environmentally friendly product alternatives 66 44
Assessing the life cycle costs of products (from innovation to disposal) 46 31
Environmental criteria used to assess and/or reward employees 30 20
Source: own presentation.
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236 Sustainable Performance in Business Organisations and Institutions...
The results show that one factor each for strategic and administrative issues is
the most widely used instrument. The companies surveyed are most likely to
conduct internal environmental audits (77%) and develop and integrate environ-
mental objectives into their strategy (75%). After strategic and administrative
issues, the factors listed under economic issues are the most commonly used
controlling tools in the surveyed companies. Of these, the evaluation of invest-
ments, which integrates economic and environmental evaluation and the
planning, recording and evaluation of environmental costs are both included
with 60%. Environmental costs can include, for example, the costs of preventing
and reducing environmental damage, the costs of disposing and controlling
the waste generated, and the costs of restoring the damage caused (Jasch, 2003).
The planning, recording and evaluation of revenues from environmental
protection are among the controlling tools used in the sample, with a similar
proportion of 58% as costs. Environmental revenues can come, for example, from
subsidies received or waste sold. Their magnitude depends on the industry, but
they are obviously a fraction of the costs in the base case. Environmental cost
accounting can not only identify cost reduction opportunities but also allow more
specific pricing (Ván, 2014).
A related factor in this research is incorporating environmental costs into the
pricing of goods and services, with 55% of the sample used. Another cost-related
factor under consideration is the assessment of the life-cycle costs of products,
which looks not only at the cost implications of the phase of the life-cycle during
which the product is on the market but also at the phase before (e.g., innovation,
development, market introduction) and after (e.g., restoration of the natural
environment, servicing, take-back obligations).
This can be done through the use of life-cycle costing, which avoids the
shortcoming of traditional costing systems of comparing the revenues and costs
of a period (usually one year). This is because they are typically only related to the
market stage, so they include only production costs and allocable overheads, and
the problem of allocating the aforementioned upstream (pre-market) and
downstream (post-market) costs to products is not solved. In the study sample,
life-cycle costing was found in 31% of the study sample. An important task for the
practical implementation of the controlling sciences is to facilitate and disseminate
the use of the extended life cycle approach and the related life cycle costing in
companies.
Figure 13.2 shows a grouping of the methods used in each category within
the scope of the surveyed companies (coded according to Table 13.2). It clearly
indicates that after carrying out internal environmental audits, which is an
administrative issue, and two strategic issues (developing and integrating
environmental objectives into the strategy and a written environmental policy),
there is a significant range of economic methods.
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H. Fekete-Berzsenyi, D.E. Kozma, Green Controlling Methods in Hungarian Corporate Practices 237
9%; 14
16%; 24
17%; 26
20%; 30
21%; 31
28%; 42
31%; 46
40%; 60
44%; 66
45%; 67
48%; 72
53%; 79
54%; 81
55%; 82
56%; 83
58%; 86
60%; 89
60%; 90
66%; 98
75%; 112
77%; 114
050 100 150
3. Sustainability Balanced ScoreCard
3. Eco-balances
3. Scenario techniques
4. Environmental criteria used to assess and/or reward
employees
3. Benchmarking environmental performance
2. Public environmental report
4. Assessing the life cycle costs of products (from innovation
to disposal)
3. Identifying environmental success factors (KPIs, key
performance indicators)
4. Evaluation of environmentally friendly product alternatives
1. Environmental training programme for employees
3. SWOT analysis
3. Developing and using environmental indicators
2. Conducting external environmental audits
4. Including environmental costs in the pricing of
products/services
4. Examining the economics of environmental strategies
4. Planning, recording and evaluation of revenues from
environmental protection
4. Planning, recording and assessing environmental costs
4. Evaluation of investments (integrating economic and
environmental evaluation)
1. Written environmental policy
1. Development and integration of environmental objectives
into the strategy
2. Conducting internal environmental audits
Figure 13.2. Application of the tested controlling tools in the sample
Source: own presentation.
Of the methodological factors, the development and use of environmental
indicators are the most common among the companies surveyed (53%). A number
of recommendations for environmental indicators can be found in the literature,
including economic ones, such as the EPA model, the Schalltegger-Burritt model,
the UNDSD model, and the IFAC model (Szauter & Madarasiné Szirmai, 2018). The
use of SWOT analysis, one of the best-known tools for strategic analysis, is 48% for
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238 Sustainable Performance in Business Organisations and Institutions...
the environment in the sample surveyed. The ultimate purpose of a SWOT analysis
is not simply to list (and in some cases weight) the internal strengths, weaknesses,
opportunities and threats of the external environment but to provide a starting
point for strategy development.
The use of environmental KPIs (key performance indicators) is 40% in the
sample. KPIs show how an activity can be successful and how a business can be
greener. So they are measurable indicators created to measure the achievement of
strategic objectives. They are needed to describe a complete system to help manage,
coordinate and communicate the link between sustainability and financial
performance, with an emphasis on compression and transparency. ISO standards
(e.g., the ISO 14000 family of standards) can help in the development of environ-
mental KPIs. Examples of environmental KPIs include CO2 emissions, gas and
electricity consumption levels, waste and recycled waste rates, plastics and bio-
degradable materials rates, company fleet mileage, reusable products as a percen-
tage of total products, and targets and commitments related to environmental
standards (Bagó, 2019). Rackow et al. (2013) defines energy consumption as the
most important KPI, the main task of green controlling is to create transparency by
visualising the company’s energy flow along the production processes, which
includes energy consumption as the fourth main target dimension in corporate
controlling, along with time, cost and quality.
Environmental performance benchmarking is used by 21% of the companies
surveyed. Benchmarking most often focuses on an element of a company’s
performance, comparing it within a company or between companies. Through it,
information from other units’ processes and management techniques can be
accessed to develop improvements. The development of organisational strategy is
a central element of continuous improvement, organisational learning, and a tool
for finding best practices (Trujillo-Gallego, Sarache, & Sellitto, 2020).
17% of respondents use scenario techniques, which is quite low. Scenarios are
possible future states, and scenario analysis is an analytical tool used before
developing strategies. Because of the expected social and economic impacts,
organisations are advised to monitor existing climate change scenarios and
environmental scenarios from various institutions and consultants on global and
national climate change (e.g., the UN Intergovernmental Panel on Climate Change
regularly publishes assessment reports for scenarios) (Intergovernmental Panel
on Climate Change [IPCC], 2021). These often include risk models and economic
forecasts. Adverse changes related to climate change are also expected or are
already being felt in Hungary, such as an increase in the frequency of extreme
weather events, a rise in mean temperature, an increase in the number of hot
summer days, cold snaps in spring, adverse changes in the amount and distribution
of precipitation, and a decrease in biodiversity. There are several possible future
pathways of socio-economic change in which the preparedness and climate
adaptation capacity of farming organisations are key elements. Besides changes
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H. Fekete-Berzsenyi, D.E. Kozma, Green Controlling Methods in Hungarian Corporate Practices 239
in natural factors, the different scenarios are also influenced by, e.g., emission
reduction agreements (Szépszó & Lakatos, 2017).
Organisations need to adapt, both to the specific changes affecting their work
and to Community and national commitments. Adaptation requires organisations
to assess the most relevant climate risks they face, which can be categorised as
physical and adaptation risks (Network for Greening the Financial System [NGFS],
2019). Physical risks include loss due to climate change events (e.g., severe weather
events, disasters). Transition risks include the impacts of measures taken to reduce
greenhouse gas emissions and put the economy on a carbon-neutral path.
Transition risks may arise due to technological shocks (e.g., market penetration of
cleaner technologies) and/or economic policy shocks (e.g., discretionary measures,
see carbon tax), and in the longer term, technological, policy, regulatory and
social shocks and processes of transition to a carbon neutral economy must also
be taken into account (Boros, 2020). The scenario analysis should take into account
both company and sector-specific physical and transition risks.
The take-up of eco-balances is also relatively low, at 16% of respondents. An
eco-balance sheet is a management accounting tool that helps organisations to
demonstrate the potential environmental and financial consequences of their
material and energy use practices, thereby providing an opportunity to improve
the environmental and financial consequences by changing existing practices.
It collects information on physical and monetary assets and the accounting
of energy flows to reflect the short-term impacts on the environment of products,
sites, departments and companies. Its disadvantage is that it focuses on short-
-term, past, routine information gathering (Burritt, Christ, & Schaltegger, 2021). An
eco-balance is often an input-output balance, contrasting the material and energy
inputs of a company with its material and energy outputs, which can be products,
materials and energy emissions.
The use of the Sustainability Balanced Scorecard (SBSC) is the lowest in the
surveyed companies at 9%. This is unfortunate because the Balanced Scorecard
(BSC) is effectively a set of strategically important targets and indicators,
expectations of the values of the indicators, and actions to be taken to achieve the
targets (Figure 13.3). All this is integrated into systems built around learning and
development, operational processes, and customer and financial perspectives,
with the cause-and-effect relationships between indicators culminating in
financial performance. The development and use of environmental indicators was
53% of respondents.
From a methodological point of view, the main question is how to integrate
sustainability aspects into the traditional BSC. Based on the literature, there are
several options for doing so (Abdelrazek, 2019; Al-Zwyalif, 2017; Hansen & Schal-
tegger, 2016; Szóka, 2022).
Integrating environmental (and social) considerations into the four perspectives:
this approach makes environmental and sustainability considerations an
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240 Sustainable Performance in Business Organisations and Institutions...
integral part of the traditional BSC and integrates them into the chain of cause
and effect.
Expanding the BSC to include a further perspective on sustainability issues: in
the approach of Kaplan and Norton (the BSC developers), the BSC is a company-
specific system and thus may involve adding or renaming a perspective. The
standard BSC perspectives only reflect the market system; adding a fifth –
environmental – perspective to the BSC is justified if the company’s strategy
includes environmental aspects outside the market system.
Developing a separate environmental scorecard: the design and implementa-
tion of a specific EBSC (Environmental Balanced ScoreCard) cannot be inde-
pendent of the traditional BSC. The EBSC used by the environmental unit of
the company should be linked to the traditional BSC to help the organisation
achieve good results in relation to the environmental management system.
Presenting the environmental strategy from all four perspectives can help to
improve the system (Hockerts, 2001), illustrating the links between the
elements of environmental performance and the strategic and financial
objectives of the organisation (Johnson, 1998). Chapter 7 also deals with the
incorporation of ESG aspects into the Balanced Scorecard, in the context of
large cities – this shows the wide applicability of the method.
Figure 13.3. The conceptual scheme of the Balanced Scorecard
Source: (Kaplan & Norton, 1998).
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H. Fekete-Berzsenyi, D.E. Kozma, Green Controlling Methods in Hungarian Corporate Practices 241
The nature of the environmental challenges, risks and their social and
economic drivers requires each company to build an environmental management
system tailored to its specificities. Each of them operates in a different sector, in a
different technological environment, with a different set of objectives and
activities, and therefore faces specific environmental costs and benefits. They
produce different products and have different processes which require different
methods. The technology they use determines their raw material and energy
consumption, production methods and efficiency, product performance, waste
reduction and management. This leads to the conclusion that, although common
standards may apply to companies, the methodology and best practice they can
rely on is not uniform.
Decisions related to green controlling and environmental protection are not
part of the general controlling system of the sampled companies, as the envi-
ronmental product is typically the responsibility of different units within the
company. In their empirical research, ten areas were examined: senior man-
agement; business (finance, accounting, controlling); health, safety, environ-
ment; manufacturing/operations; communications; marketing/sales; procure-
ment; product development; human resources and others. The results show
that environmental issues are largely the responsibility of senior management
(57%), with a high percentage of the top management (45%) also being re-
sponsible for health, safety and the environment. In addition, production/
operations (30%) and communication (16%) are also typically identified as the
unit responsible for the topic.
13.5. Conclusions
In the research on general environmental practice, it was found out that almost
70% of the companies surveyed have environmental protection as an integral
part of their corporate governance, but only slightly more than 30% of them
produce transparent reports on the subject, plan and measure the achievement
of environmental objectives.
The analysis of the application of the control tools used was divided into four
parts: strategic, administrative, methodological, and economic. It was found out
that the use of an administrative factor (carrying out internal environmental
audits) is the most common (77%), with the exception of strategic and economic
tools. These include the development and integration of environmental objectives
into strategy (75%); the integration of economic and environmental assessment
into investment appraisal (65%); the planning and recording of environmental
costs (60%) and revenues (58%); the assessment of the economic viability of
environmental strategies (56%); and the integration of environmental costs into
the pricing of products and services (55%).
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242 Sustainable Performance in Business Organisations and Institutions...
The most common methodological tools are the development and use of
environmental indicators (53%) and SWOT analysis (48%). In examining the
methodological tools, it can be concluded that there are neglected tools that
could be used to increase the use of environmental management systems. These
include environmental performance benchmarking (21%), identifying existing
good practices and best practices and implementing relevant elements. The use
of scenario techniques (17%) can be an important tool for adapting to change by
preparing scenarios in anticipation of possible outcomes of relevant physical and
transition risks. The use of a sustainability or environmental Balanced Scorecard
(9%) can contribute to the use of existing environmental indicators in a system
(53% of respondents said they use Them) and to the identification of relevant
links between targets and indicators. To show the contribution and impact of
environmental objectives on the company’s learning and development factors,
operational processes, customer-related factors and ultimately on the financial
results.
Based on the results of the research, it can be concluded that the nature of the
environmental challenges, risks and their social and economic drivers requires
companies to develop their own green controlling systems, which can be similar
to those used by other companies, but each company should take into account its
own specificities. A similar conclusion was reached regarding the motivation to
establish an environmental control system. Based on the empirical analysis, it was
found that the companies surveyed gave a wide range of responses in terms of
motivation. It is typical that achieving legal compliance, reducing environmental
risks, preventing pollution and identifying future obligations are the most
important for them. Of course, this will be accompanied by information on
operations, as well as image and visual improvement. Based on the analysis of the
research results, the hypotheses of the paper are accepted.
The main limitation of the survey is that the questionnaire sent to the 5,000
Hungarian-based enterprises with the largest number of employees resulted in
a relatively low response rate (4.45%). No representativeness check was carried
out on the returned questionnaires. A further limitation is that the classification
of the 21 controlling methods into the four main groups (strategic tools,
administrative questions, methodological questions, economic questions) was
based on the authors’ own judgement on the basis of the characteristics of each
tool as defined in the literature.
Overall, on the basis of the research sample, it can be concluded that
companies operating in Hungary have incorporated specific environmental
objectives and tools into their strategies and operations. As a thesis, it can be
formulated that the group of companies studied follow defined environmental
objectives in terms of environmental targets, which they have integrated into
their strategic objectives. In order to develop their strategies for environmental
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H. Fekete-Berzsenyi, D.E. Kozma, Green Controlling Methods in Hungarian Corporate Practices 243
protection and to monitor their implementation, the methods of the available
monitoring toolbox were used to varying degrees, according to the responses to
the questionnaire.
Acknowledgement
This work has been implemented by the TKP2021-NKTA-21 project with the
support provided by the Ministry of Culture and Innovation of Hungary from the
National Research, Development and Innovation Fund, financed under the 2021
Thematic Excellence Programme funding scheme.
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DOI: 10.15611/2023.83.1.14
Chapter 14
Digizaon and Sustainable Performance
in Brazil: Policies, Acons
and the Role of Legal Framework
Ricardo Luiz Sichel
Universidade Federal do Estado do Rio de Janeiro
Universidade Candido Mendes/RJ
e-mail: ricardo.sichel@unirio.br
ORCID: 0000-0002-8055-1384
Debora Lacs Sichel
Universidade Federal do Estado do Rio de Janeiro
e-mail: debora.sichel@unirio.br
ORCID: 0000-0003-0043-8726
Gabriel Ralile de Figueiredo Magalhães
Universidade Federal do Estado do Rio de Janeiro
e-mail: ralilegabriel@gmail.com
ORCID: 000-0002-0453-155x
Quote as: Sichel, R. L., Sichel, D. L., Ralile de Figueiredo Magalhães, G. (2023). Digitization and Sustainable
Performance in Brazil: Policies, Actions and the Role of Legal Framework. In J. Dyczkowska (Ed.),
Sustainable Performance in Business Organisations and Institutions: Measurement, Reporting and
Management (pp. 245-259). Wroclaw: Publishing House of Wroclaw University of Economics and
Business.
Although environmental degradation has been occurring since the emergence
of the Industrial Revolution, the environmental movement originated only in the
1960s. Since then, the discussion on the subject in international forums has gained
more space, leading to agreements and initiatives for promoting sustainable
development.
In 2015, the 193 United Nations General Assembly member countries signed
the UN Agenda 2030 for Sustainable Development, a non-binding international
declaration that aims to guide development policies for all signatory countries
and includes 17 Sustainable Development Goals (SDGs). These Sustainable
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Development Goals (SDGs) have been outlined to be implemented by member
states to promote sustainable economic growth, foster innovation, ensure
sustainable production and consumption patterns, and take urgent action to
combat climate change and its impacts (Pinto e Netto & Menengola, 2021, p. 17).
The growth of environmental problems ended up redirecting competitiveness
in the last decade (Pyhalto & Vanttinen, 2009, as cited in Lunardi, Frio, & Brum,
2011, p. 160), stimulating changes in social values and the development of new
technologies, which has favoured the emergence of ecologically correct products.
Because of that, several initiatives were carried out around the world to
establish a less hazardous environment. Thus, innovation and technology came as
great tools to achieve sustainable development, with emphasis on Information
and Communication Technologies (ICTs) and the digitization of processes.
In view of this, this article seeks to verify the relationship between the
digitization of services and processes by companies and sustainable development
in Brazil, considering the importance of the regulatory framework. To this end,
a measurement is made between the impact of digitization and sustainable
development in the Brazilian case, also investigating how the regulatory
framework is positioned to conceive this dynamic, highlighting relevant issues.
14.1. Impacts of the Digitalization Processes
and the Use of the New Technologies
on the Sustainability Development
There is a broad consensus that Digitalization and Artificial Intelligence (D&AI)
could be very significant for accomplishing the UN’s Sustainable Development
Goals (SDGs) (Gupta, Motlagh, & Rhyner, 2020, p. 3), as well as achieving several
benefits in the most diverse sectors of society. However, is there a positive relation
between the use of Information and Communication Technologies (ICTs), mostly
through a digitalization process, to sustainability in the broad sense (for the
business itself, society and the environment)? Most studies understand that there
is, indeed, a positive relation.
Even though there are a lot of discussions regarding the pros and cons of the
theme, the change caused by ICTs in society is undeniable, and if well used, many
benefits can be gained. In this context, it is necessary to analyse the relationship
between digitization and sustainability, which, firstly, requires understanding the
current state of development of the use of ICTs in companies.
Regarding that, The Economist Intelligence Unit, sponsored by Microsoft, has
conducted a cross-industry survey of 800 senior business executives and senior-
level government employees, spanning eight sectors and 15 economies across
the Americas, Europe and Asia-Pacific. Among other key points, the survey
concluded that organizations that were digitally prepared had an advantage
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in navigating the upheavals and challenges, such as those presented by the
pandemic (The transformation imperative…, 2021, p. 3), indicating the ability
of ICTs to improve the efficiency of companies.
Among sectors, as indicated by the survey, financial services were the
most prepared segment for various mitigation measures, particularly remote
work, reflecting the industry’s past efforts to optimize in a fast-paced sector
(The transformation imperative…, 2021, p. 5). On the other hand, the process
of deepening the use of ICTs can be seen in business in general. According
to market intelligence firm IDC, global investments in digital technologies
and services grew by 10% in 2020 to $1.3 trillion, while a survey by global
consultant KPMG revealed that companies devoted an additional $15 billion
a week to IT in the first three months of the crisis (The transformation imperative…,
2021, p. 6). Thus, it is clear that the process of digitalization of services is not
limited to just one sector but has gained increasing use among different business
segments.
Another research worth mentioning is the one conducted by AVEVA which
surveyed more than 850 digital transformation experts from different sectors.
The study brought other relevant conclusions regarding the digitization process
(AVEVA, 2021, p. 4):
85% of businesses plan to increase their investment in digital transformation
over the next three years;
industries are committed to driving to net zero and tackling climate change;
nine out of ten see it as a core responsibility – although many do not believe
that low-carbon industries will be as profitable in the short term;
nine out of ten businesses see combining IIoT, AI and cloud with their teams’
insight as key to driving better performance;
AI and automation are required to keep pace with competitors;
skills requirements are changing with more focus on value-added analytical
work;
nine out of ten agree digital transformation is about bringing change through
people;
investment in the connected workforce is a strong focus at the majority
of companies;
75% of companies feel they are on a journey to realize Performance Intelligence
in their business.
As can be seen from those conclusions, most companies intend to further
develop their digitalization process. Still, environmental issues, such as climate
change and low-carbon policies, are among the priorities in that process. It is also
worth mentioning a transformation of the desired professional by the employer,
now requiring the former to have a more analytical profile and the necessary skills
to use the new digital tools. Also, regarding the workforce, while past technology
adoption conferred resilience on companies across a range of metrics, The Econo-
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mist research has concluded the pandemic itself has substantially shifted priorities
since it elevated employee engagement from a nice-to-have into an essential
priority (AVEVA, 2021, p. 7).
In the view of both studies, three phenomena can be observed: the con-
tribution of ICTs to the sustainability of a business; the greater deepening
of the digitization process; and the ever-increasing inclusion of topics that were
not a priority before, such as the focus on employees and the environment.
As for environmental issues, in addition to the international pressure regarding
the adoption of sustainable policies, as well as consumers who increasingly value
sustainable measures when choosing the products they want to purchase,
companies have adopted an increasingly proactive profile in adhering to the
good environmental practices, making great use of technologies. Regarding this,
we have many examples, such as Henkel-AVEVA’s case. The companies have built
an energy monitoring system in order to identify savings, saving Henkel €37million
up to 2021 (AVEVA, 2021, p. 12).
Henkel’s case is not isolated, as the mindset of business increasingly considers
an alignment of efficiencies and sustainability through digital technology use.
Eight out of ten businesses expect the policy environment will drive sustainable
innovation (AVEVA, 2021, p. 13). For that reason, 89% of the surveyed companies
say they are already investing in digitally enabled sustainability, with a focus on
collaboration tools, real-time data and predictive analytics (AVEVA, 2021, p. 14).
Another example is the cryptocurrency case, which is a blockchain network
characterized as a secure, permanent, and tamper-proof digital transaction book
maintained and distributed among the involved parties (such as the so-called
‘miners’) without a central validator and can be used to promote sustainability.
An example is the cryptocurrency SolarCoin, which rewards solar energy gene-
rators with new coins, or GridCoin, which introduces a new algorithm based on
work done in BOINC projects (Berkeley Open Infrastructure for Network Com-
puting), encouraging miners to participate in scientific projects linked to health
and space exploration, among others, to provide benefits to humanity.
A great advantage regarding that initiative is the power to eliminate potentially
polluting steps and functions from the industrial and service production
chain, thus making it possible to reduce the overall emissions of harmful gases.
In a study conducted by the Coolclimate Network at the University of California,
Berkeley, it was estimated that electronic currency has 99.8% fewer emissions
than the American banking system (Pinto e Netto & Menengola, 2021, p. 25).
This process is not recent, though, as said, but has been evolving according to
technological development. For example, in the last decade, given the different
state of the art than the current one, different strategies were already adopted
by companies. A decade ago, according to a study done by Lunardi et al. (2011,
p. 166), the main initiatives adopted by companies were:
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awareness campaigns;
server merge;
parts, cartridges and equipment recycling;
use of renewable energies;
more efficient equipment;
monitor/outsource printing and scanning documents; and
energy management systems.
However, despite the prevalence of favourable literature, it appears that
digital tools are not free from environmental impacts. According to a study
conducted by Gartner Consulting (2007, as cited in Lunardi et al., 2011, p. 161),
computer equipment is responsible for 2% of CO2 emissions worldwide, which
corresponds to the amount emitted by all existing planes, data centres are
responsible for 23% of all IT emissions, while PCs and monitors account for 40%.
Also, another problem that worries both companies and society is the disposal
of obsolete electrical and electronic equipment.
Thus, although much attention has been given to Green IT (technology
only) in the commercial literature, it is emphasized that this exclusive focus
on technology is quite restricted and should be extended to the integrated
and cooperative set of people, processes, software and hardware, to support
individual, organizational and society (Lunardi et al., 2011, p. 162).
Given this, it is visible that there is capacity, and even a proactive search,
to promote sustainable development through the use of digital tools. However,
as pointed out, these technologies are not free of negative impacts on the
environment, which leads to the need for proper use and strategies to mitigate
the pollution caused. On the other hand, despite these negative points, these
technologies seem to have an inherent capacity for less environmental impact
regarding their daily use since, for example, they use the virtual environment
more than our real environment for functioning, as well as causing less waste,
as could be seen in the SolarCoin example.
In this way, it can be concluded that most studies identified a positive rela-
tionship between digitalization and sustainability, highlighting growth in the
adoption of digital tools in business models but also emphasizing some negative
environmental impacts caused by ICTs, although lower than the benefits identified.
14.2. Policies and Actions in Brazil Towards Digitisation
for Sustainable Development
As noted, the deepening of the digitization process, in general, seems to have
a positive relationship with greater sustainability of companies, either in terms
of greater efficiency (sustainability of the business itself and, consequently, the
generation of jobs) or in order to contribute to the environment.
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Thus, after an overview of the theme, it is important to verify how this
phenomenon occurs in specific cases. First, it is worth mentioning Europe as an
example since it is an important player in the subject due to its pioneering in its
discussions, technological evolution and regulatory framework. Regarding this,
it is worth mentioning the European Green Deal, which is a set of policies and
strategies articulated by the European Commission to contain the threat of global
warming. Within it, the European Union has undertaken some initiatives such
as the creation of the European Innovation Council, which aims to support
innovative companies, and the Innovation Fund, set up by the European
Commission for 2019–2021 to sustain the development of low-carbon technologies
in energy industries processes, carbon dioxide capture, utilization and storage,
and innovative renewable energy and energy storage technologies, as well as
setting a goal of achieving a rate of 80% of adults with basic digital skills by 2030
in order to manage ICTs and innovation policies (Pinto e Netto & Menengola,
2021, pp. 21, 22).
Brazil also established a policy for deepening its digitalization process, such as
the ‘Digital Government Strategy’, as well as the development of the regulatory
framework. Especially because of the need for adaptation to the pandemic,
the development of public policies on the subject and the need and search
for companies to develop themselves technologically and gain competitiveness,
the business picture in Brazil has been changing, thus impacting the sustainability
of companies and the environment.
In research prepared by market intelligence consultancy IDC (Delai & Ramos,
2018), a benchmark was created to measure the progress in Digital Transformation
in Brazil and how companies are applying the resources in order to interact with
their customers (sales, marketing and customer service areas), reaching the
following conclusions regarding the themes.
Mobility (Delai & Ramos, 2018, p. 18): Mobility is the fourth initiative in terms
of strategic importance for companies in Brazil. However, today, the emphasis
has been more on device procurement and access (data plan) than actually
on the availability of business applications, which brings more value to the
customer.
Intelligence (Delai & Ramos, 2018, pp. 24, 25): Analytical tools have an in-
creasingly intense use in the Brazilian market. However, the introduction
of advanced analytical solutions, such as Artificial Intelligence, is being delayed
by technology managers, being more common in the trade segment.
Connectivity and integration (Delai & Ramos, 2018, pp. 29–32): The dimension
of integration and connectivity was the one that received the worst score,
having low implementation, mainly due to the fact that the coverage
of communications and its availability in Brazil are not complete and costs
are high. Also, other elements of integration and connectivity are not on
the company’s managers’ radar.
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Speed and Productivity (Delai & Ramos, 2018, p. 37): Most organizations are
in the early days of this transformation, and only 3% of companies classify
themselves as ‘digital disruptors’.
On the other hand, Brazil, mainly due to its large biodiversity and natural
resources, has a long history of participation and relevance regarding international
discussions about sustainable development. Also, the position of Brazilian
companies regarding sustainability has been more and more assertive in the past
years.
According to the research done by the NPO Uniethos, 69% of Brazilian
companies recognize that the inclusion of sustainability in strategic planning
is a necessity, and 65% said that innovation and repositioning in the market
are among the main objectives when sustainability is included, as well as between
15 and 20% of the companies surveyed make the assessment of the impacts
of sustainability policies on costs and competitiveness and 68% develops some
kind of relationship with stakeholders on the subject (Magalhães & Brito, 2012,
p. 6). It is also worth mentioning that 11 Brazilian companies are part of 2020’s
portfolios of the Dow Jones Sustainability Index (DJSI), a list that brings together
the actions of global leaders in sustainability (Larghi, 2020).
As can be seen, Brazil has an awareness of the need to take more sustainable
attitudes, including in the business field, which can and must be integrated with
the use of ICTs. Regarding these technologies, despite advances, Brazilian
companies still have a lot to develop in terms of greater technological depth and
digitization of processes.
14.3. The Legal Framework Supporting Sustainability
Process
As noted, the digitization process has great potential to contribute to sustainability
by corroborating with a lower environmental impact. Furthermore, its social
impact is undeniable, ensuring greater inclusion and accessibility, as well as its
economic impacts with benefits such as more efficiency, lower costs and the
ability to generate more inclusive jobs.
However, the virtual environment has its own dynamics and particularities,
requiring a legal application for it. Without a proper legal framework, an envi-
ronment of less security is created, reducing its effectiveness and popular use,
nullifying this process of transition between physical and virtual reality. That is,
there would be no legal guarantee to sustain this new environment, thus
eliminating its sustainable contributions.
In this respect, there is no doubt that the Internet favours the practice of illegal
acts, being some examples are crimes against property, frauds in general, crimes
against honour, racism, violation of correspondence and data, violation of indu-
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strial property and copyright, child pornography, dissemination of viruses,
subtraction of credit card number and bank data, among other crimes. Further-
more, to make it worse, the Internet does not favour the compensation of damages
caused by the illegal acts that occurred in its environment, which has caused a lot
of insecurity to individuals or legal entities that use it.
Therefore, the maintenance of a business and the individual rights of those
who frequent the virtual space are also factors necessary for sustainability, and
that requires an appropriate legal framework that guarantees them. Thus, it is
necessary to analyse this framework, taking as a case study the Brazilian scenario.
General Data Protection Law (LGPD)
The General Data Protection Law (Lei Geral de Proteção de Dados – LGPD, Lei
Nº 13.709, de 14 de agosto de 2018), later amended by Law 13.853/2019
(Lei nº 13.853, de 8 de julho de 2019) entered into force on September 18, 2020,
with the objective of promoting the protection of the personal data of every
citizen in Brazil by changing some articles of the Civil Framework of the Internet
(Marco civil da internet in Portuguese) and establishing new rules for companies
and public agencies about the treatment of the privacy and security of the
information of users and customers.
According to the LGPD, personal data is one that allows the identification,
directly or indirectly, of the living person (Tribunal Regional Federal da 3ª Região
[TRF3], 2021). Also, among personal data, there are those which are subject
to specific treatment conditions: those about children and teenagers and the
‘sensitive’ ones, which are those that reveal racial or ethnic origin, religious
or philosophical convictions, political opinions, trade union membership, genetic,
biometric and about the health or sexual life of a person.
Regarding sensitive data, processing depends on the explicit consent of the
person and for a defined purpose. Without the holder’s consent, the LGPD defines
that the processing of that kind of data is only possible when it is indispensable,
such as in cases of a legal obligation or regarding a contract or process, or to
preserve a person’s life and his or her physical integrity.
The punishments provided by the LGPD have begun to be applied in August
2021 and may reach up to 2% of the billing of the infringing entity up to the limit
of R$50 million. Some cases have already begun to appear in the courts in Brazil.
An example is the conviction of a company for leaking data on pregnancy by the
Court of Justice of São Paulo (TJSP) in June 2022.
Regarding that case, it occurred that after suffering a miscarriage, a woman
received WhatsApp messages from a laboratory with an offer of umbilical cord
collection and storage, which led her to file a lawsuit against that lab (Viapiana,
2022). She claimed that she did not provide her personal data, or pregnancy
information, to the lab. The company contested that it only had used non-sensitive
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data, such as name and phone number. However, the Court decided that
pregnancy is sensitive data, as provided for Article 5(II) of the LGPD, condemning
the company.
Nevertheless, it seems that legal penalties have fallen mostly in cases where
the steps required for compliance with the LGPD have not been taken. According
to a survey carried out by Opice Blum, Bruno e Vainzof Advogados Associados
(Paiva, 2022), in 2021, there were at least 465 legal decisions on the subject,
of which 77% of them did not result in a conviction, those cases being extinguished
or dismissed mainly due the demonstration that companies carried out the
necessary due diligence, but those that were sentenced were penalized with
arbitrated damages of R$600 to R$100 thousand, although moral damages were
not automatically presumed.
Therefore, acting in the digital environment requires legal compliance. That is,
sustainable management, in that case, requires not only a compliance policy
focused on classic environmental issues, such as climate change and waste
treatment, but also one focused on the virtual space itself, being in accordance
with the LGPD. Thus, one cannot separate the ecological impact from that of the
virtual space since the latter has its own environment that gradually replaces
some aspects of the physical reality that we normally experience, demanding its
own regulation in order to work properly and safely.
Legal liability
The dynamics found in the physical reality have equivalence in the virtual reality,
which is why the legal framework also applies in this environment, as is the case
of the provisions of the Brazilian Civil Code and Consumer Protection Code (CDC).
As seen, whether in the face of data protection, the individual and collective rights
of internet users in the digital environment or the dynamics that occur in the
digital environment, it is necessary to create guarantees for its operation and to
repair it when it is not functioning properly. Thus, business sustainability, as in
physical reality, requires legal certainty in the face of what is agreed, thereby
promoting the maintenance of business and rights, otherwise creating an
unstable and insecure space that will repel the advance of the digitization of the
media.
Business sustainability, as in physical reality, requires legal certainty in the face
of what is agreed, thereby promoting the maintenance of business and rights,
otherwise creating an unstable and insecure space that will repel the advance
of the digitization of the media. Given this, civil liability is a legal institute whose
purpose is to apply measures that require someone to repair the property
or moral damage caused to others, either by the issue of contractual default
or by the issue of the practice of an unlawful act, and may be applied, even
and necessarily, in the virtual environment.
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Regarding contracts, in the digital scenario, cases of liability are visible in
hypotheses such as the default of the license agreement and use of software,
contracts for internet access, management of e-mails, and rental of space for
website hosting, among other cases, which fall within the provisions of the
Brazilian Civil Code. Furthermore, cases such as unfair terms, issues involving
contracts of association, and dynamics of consumption relationships, among
other similar issues, are also disciplined by that legal framework.
For example, the Superior Court of Justice (Superior Tribunal de Justiça – STJ)
understood the application of the CDC to the relations signed between
the holder of the community (site) and the user, understanding that it is commer-
cial exploitation of the Internet, regardless of whether there is remuneration
because the supplier can have, indirectly, profits through the view of the
advertisements made there, without prejudice to other sources of income
(Teixeira, 2022, p. 322).
Also, it is worth mentioning that a common practice to safeguard actors is
the stipulation of contractual clauses that restrict liability on the Internet, which
is another polemic theme.
In turn, there is the non-contractual liability as well, which is configured
in the case of violation of a legal rule, leaving to its infringer the duty to repair
the damage. As an example, we have cases of slander, injury, defamation, unfair
competition, misleading or abusive advertising, violation of privacy and other
situations in which, proven its illegality, it is appropriate to redress the damage.
Regarding the Superior Court of Justice (STJ) jurisprudence, the Court has
consolidated the understanding that the content provider should not be
assigned objective responsibility (the one that arises from the practice of some
unlawful act or the violation of the right of third parties), but a rather subjective
liability, which depends on the verification of guilt, as can be seen in the cases of
the Special Resources no. 1.193.764-SP, no. 1,186,616-MG and no. 1,308,830-RS.
As observed, the discussion about legal liability on the Internet is a topic that
not only bumps into traditional dynamics applied to physical reality but also
encompasses the particularities of the digital environment, such as data pro-
cessing and issues involving providers.
E-commerce and companies
As seen in the previous subtopic, legal responsibility is a relevant topic in the
virtual scenario, being commonly applied to commercial relations. The growth
of e-commerce over the past few lately, especially during the pandemic, has
shown that this form of trading has replaced those more traditional ones. In this
sense, the Internet can be considered a tool of approximation between individuals,
companies and other entities.
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As noted, virtual reality has its own peculiarities. Thus, some contracts
are proper to the Internet, such as those for connection services, storage
or maintenance of websites. Moreover, regarding the digitization of companies,
what was previously limited to a short physical space now takes international
reach, given the cross-border nature of the Internet.
Also, it is worth mentioning that domain name and brand end up being
determining factors for the sustainability of an internet business, more than
in physical reality, since companies and professionals are located and recognized,
as well as establishing their dynamics based on them. This is the case, for example,
of the consumer who finds a service through a website or of a buyer who purchases
products based on the reputation of a brand, believing that it assures him/her the
quality of a product.
In view of this, there is a risk of piracy and counterfeiting. According to
the Organization for Economic Cooperation and Development (OECD), trade
in counterfeit goods makes up 3.3% of global trade, and is growing (OECD, 2019).
In Brazil, for example, according to the Internal Revenue Service (Receita Federal
Brasileira), there was a 10% increase in the number of counterfeit and irregular
products seized in the first quarter of 2020 compared to the previous year (Época
Negócios, 2020). Common practices include counterfeiting famous brands and
illegal streaming of television and internet shows, which denigrates businesses
and brings negative impacts such as lower financial incomes and fewer jobs.
In addition, those illicit activities contribute to the strengthening of other illegal
operations since several criminal practices are interconnected.
As can be noted, with the Internet, there is a need to rethink concepts such
as merchandise, establishment, and place of service provision. This includes tax
and accounting issues, independently if related to formal business or not. Also,
the Internet brings new situations, such as the figure of the access provider
and the use of cryptocurrencies such as bitcoin. Regarding this, Brazilian Law,
as in several other countries, has had difficulty in including it taxingly; today,
understanding it as a capital gain.
Finally, it should be noted that the digitization of accounting procedures and
regularization of registration and operations of companies brought great
contributions due to its centralization of services in one place only, which brings
greater practicality and reach, as well as lower costs. Still, it is undeniable that
replacing physical materials with digital ones means not only greater ease
of management issues but also less environmental impact.
Brazil has a single portal which concentrates the services made available to
citizens in companies, the gov.br. Also, for specific services, there are digital means
to carry them out, such as opening companies on Commercial Boards’ websites,
controlling foreign trade operations through the Siscomex portal and conducting
accountability practices in the SPED system.
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Labour issues
The digitization of companies also reached the performance of their employees.
With digital tools, activities could be carried out directly from the employee’s
home or other locations outside the establishment of the company, the so-called
home office. In addition to greater practicality, said dynamics contributed
to greater inclusion in the market since the physical distance is no longer
a problem, as well as contributing to lower environmental impacts caused
by people’s traffic.
In Brazil, this modality of work, although present for some time in the world,
gained greater contours after the validity of Law No. 12,551/2011 (Lei nº 12.551,
de 15 de dezembro de 2011) and, more recently, Law No. 13,467/2017 (Lei
nº 13.467, de 13 de julho de 2017). For its adoption, the individual employment
contract must expressly provide for the modality of telework, specifying the
activities to be done by the employee. There may be a change in work regimes
if it is signed by means of a contractual additive. Thus, if there is an agreement
between the parties, there may be a change from the face-to-face regime to
teleworking and vice versa. However, if the change is determined by the employer
and the change is from the telework regime to the face-to-face, the employee
will be guaranteed at least fifteen days for adaptation and transition, according
to the Consolidation of Labor Laws (Decreto-Lei Nº 5.452, de 1º de maio de 1943,
Art. 75-C).
Moreover, about the contract, the responsibilities for the acquisition, mainte-
nance and/or supply of the necessary infrastructure and technological equipment
for the exercise of telework will be available to whom the reimbursements of the
expenses made by the employee will be made.
Regarding the operationalization of the work, an important aspect is the
control of the movement of information by employees. In view of this, companies
have launched strategies that have the function of minimizing the transit of
electronic messages of inappropriate content and the misuse of internet access.
That is, to drive the internal dynamics of the company.
Despite the broad theme, two issues stand out in the labour scenario when
it comes to the digitization of services: the adoption of the model, either by
contractual forecasting, by the definition of the tools that are going to be used
and all technical support to the employee; and the execution of activities,
especially under the organization, control and discipline of the employer that
clashes with individual rights, especially security regarding data and privacy
of employees. For a model of digital services and processes, it is necessary to look
at these themes when managing personnel.
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Contributions of the legal framework to the digitization of sustainable
development dynamics
As noted in the previous points, having Brazil as a case study, a strong legal
framework is necessary to create a secure and efficient virtual environment
capable of replicating transactions performed routinely in physical reality. Among
its main contributions are the following.
Protection of data processing creates a secure environment for the large flow
and storage of data. Also, as noted above, a large part of the sustainable
contribution of a digitalization process comes from the ability to replace
information formerly contained on paper and other physical media in a virtual
environment, thus requiring its protection in an environment of difficult
supervision.
Regarding virtual relationships (mainly from the business type), the virtual
environment needs a framework that guarantees what is contractually
available, as well as what is provided for by law. Furthermore, the virtual
environment has different dynamics, such as the role of the website domain
and the taxation of operations, thus giving rise to proper regulation on the
subject for its operation and maintenance.
Finally, labour regulation is also necessary, whether in terms of making digital
instruments available, such as ICTs, or controlling new types of relationships,
allowing for their implementation. Furthermore, it should be noted that, like
the home office, the environmental impacts caused by vehicle traffic are
reduced, demonstrating more than one type of contribution to greater sus-
tainability regarding the matter.
14.4. Conclusions
As demonstrated, most studies indicate a positive relationship between digi-
tization and sustainability, which is something beneficial, given the growing
development of ICTs. Also, the market and companies have increasingly become
aware of the need to become more sustainable.
As observed in the Brazilian case, the digitalization process has advanced
a lot, but it still encounters technical and implementation bottlenecks for its
deepening. In addition, in the legal area, mainly due to the difficulty of regulating
new types of relationships, several challenges emerge to create an environment
conducive to virtual operations. However, the analysis of the country also indicated
progress, especially with the entry into force of the LGPD and the deepening
of discussions regarding the legal framework in the virtual environment between
legal experts and courts.
Thus, it can be concluded that the digitization process is a positive contribution
to greater sustainability, especially for its ability to replace traditional relationships
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that produce a greater volume of waste and pollutants than the virtual environ-
ment. However, for its operation and maintenance, and given the specificities
of the virtual environment, an efficient legal framework is necessary, which seems
to be being implemented, even though more recent issues require more time
for its regulation.
Furthermore, it is worth noting that the digitization process, as it is intense in
technology and innovation, maintains a strong relationship with Intellectual
Property rights. Thus, there is great synergy between this chapter and the
subsequent one (chapter 15), as the latter deals with ways to boost sustainability
through Intellectual Property. Regarding this, a deeper study of the relationship
of these two segments is very beneficial for future research, as well as the analysis
of special programs in Brazil for boosting sustainable processes, such as the Green
Patents program.
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DOI: 10.15611/2023.83.1.15
Chapter 15
How to Boost Sustainability
through Intellectual Property?
Debora Lacs Sichel
Universidade Federal do Estado do Rio de Janeiro
e-mail: debora.sichel@unirio.br
ORCID: 0000-0003-0043-8726
Clara Passeri Rebouças de Oliveira
Universidade Federal do Estado do Rio de Janeiro
e-mail: clarapasseriro@outlook.com
ORCID: 0009-0006-4242-3492
Quote as: Sichel, D. L., Passeri Rebouças de Oliveira, C. (2023). How to Boost Sustainability through
Intellectual Property? In J. Dyczkowska (Ed.), Sustainable Performance in Business Organisations and
Institutions: Measurement, Reporting and Management (pp. 260-273). Wroclaw: Publishing House
of Wroclaw University of Economics and Business.
Fifty years ago, in 1987, the World Commission on Environment and Development
(WCED), a department of the United Nations, launched a report called Our Future
to answer the General Assembly’s demand for a global agenda for change. This
document contains important content related to sustainability. Its concepts and
information still have an impact and are useful for our global community to deal
with the ongoing problem: How to adopt sustainability and protective environ-
mental strategies?
During this work, we discovered that sustainability is exactly how management
should work. A business company cannot stay static through time. Leaders need
to take decisions and find solutions to small or big issues that arise every single
day. The key to management is persistence and constancy. Sustainability should
never work as a bare speech or something ‘ready and done’. It is, actually, a choice
one makes constantly. In this field, endurance matters. It must be a constant aim
that embraces different approaches according to local contexts and conditions.
The practice of being sustainable is not a unique answer to environmental
concerns. We need to understand that sustainability is not a choice an organisation
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D.L. Sichel, C. Passeri Rebouças de Oliveira, How to Boost Sustainability through Intellectual Property? 261
made once. Nevertheless, it is about constantly bringing new solutions. In this
path, failures may happen, but endurance is what matters while seeking good
solutions and being attached to the sustainable mission by correcting failures
that might occur.
One of the sustainable initiatives mentioned during this research concerns
the owner’s María Luz Marín winery in Chile. In a comment about how the
sustainable project has helped her winery to deal with internal business concerns
and increase its environmental-friendly attitude, she said in the interview
for WIPO Magazine: We are already a sustainable company, and the problem is trying
to maintain the level of sustainability (Dietterich, 2020).
It is also worth mentioning a memorable excerpt from the Common Future
Brundtland Report: Since the answers to fundamental and serious concerns are not
at hand, there is no alternative but to keep on trying to find them (United Nations,
1987, p. 5) that has inspired the motto of this chapter which sounds: Volver
al sostenible y seguir sendo sostenible – Turn into sustainability and maintain yourself
sustainable.
Sustainability is considered constant work that implies innovation and adap-
tation. In this way, technology is going to be enhanced as a useful strategy.
As seen, this chapter intends to answer the following question: How can intellec-
tual property contribute to sustainable and environmental progress?
This research starts with defining sustainability, sustainable development,
and intellectual property (IP). Next, the chapter discusses the link between these
areas of study and their various contents. This work also outlines three important
organisations in the IP field: the World Intellectual Property Organization (WIPO),
the European Union Intellectual Property Office (EUIPO) and the Industrial
Property National Institute (INPI) in Brazil. Regarding them, a brief analysis of their
sustainable and environmental initiatives and actions is made. Finally, this study
launches a list of recommendations on how IP can promote sustainability.
The methodology used was the qualitative approach. The process gathered
mainly international IP portable documents, plans, general information, inter-
views, reports, treaties, agreements, and other sources. The decision to rely
on publicly available material concerning most cybernetic sources was due to
the easy access to them on official web pages and as a sustainable way to gather
information.
We hope to join efforts in pursuing a more sustainable world and a more
efficient IP rights system by encouraging readers not only to be acquainted with
this chapter but also to search for change.
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15.1. Sustainability, Business, and Intellectual Property
In the Encyclical Laudato Sì, Pope Francis (2015) presents Our Common Home
which is not only the soil in which we walk through, but all of God’s Creation that
is connected to His Aim. We could think that an action is local, but actually, it has
a global impact because Our Common Home is universal. We can also approach
that by Scott’s (2003) studies from NASA, supporting the conclusion that:
a bushfire may cause natural habitat destruction, species extinction and land
transformation, but not only that. According to them, Beyond its effects on the
nearby area, it can have global consequences, such as worldwide changes in soils
and increased demand for freshwater for irrigation (Sanderson et al., 2002, as cited
in Scott, 2003).
Sustainability is not a 21st-century original concern. Du Pisani (2007) points
out that this concept’s originality does not come from the twentieth century.
However, instead, ancient authors already had that in mind and recommended
actions which we can call presently sustainable practices to maintain the ‘everlasting
youth’ of the earth (Columella, 1948, as recalled in Du Pisani, 2007, p. 85). Du Pisani
(2007, p. 85) remarks: the term sustainability was first used in German forestry circles
by Hans Carl von Carlowitz, who wanted to balance the harvesting trees to
guarantee new ones to replace the old ones.
Clearly, it has influenced the broad concept of sustainability nowadays. This
concept was reborn in the Brundtland Report in the sustainable development
perception: Sustainable development is the development that meets the needs
of the present without compromising the ability of future generations to meet their
own needs (UN, 1987, p. 16).
In order to understand that critical message, it is essential to look at sustain-
ability issues from various perspectives. Maryville University, for instance, presents
three sustainability pillars: (1) economic which brings the idea that a balanced
usage of resources leads to long-term business profitability; (2) environmental
which focuses on sustainable usage of natural resources, reduction of water
waste, industrial garbage, and carbon footprint; (3) social which concentrates
on awaking the awareness of businesses on the need of eco-friendly solutions
that can promote healthy communities, based on equity (Sustainability vs sustain-
able..., n.d.).
A subtle difference between sustainability itself and sustainable development
can be recognised. The first term is understood as managing resources in a long-
-term condition and improving the conditions to be sustainable. The second term
is related to ensuring economic well-being that improves life quality. A good
question that experts, institutions, governments, and people keep asking is how
to conciliate the resources with our economic dynamics and consumption.
As there is no established standard solution, the path one can take is through
innovation. Innovation is a term that covers all intellectual clues for business
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management in such a way that management expert Simon has developed it.
The Design Thinking Method of Simon is: an approach that provides innovation
through business experiments that aim to introduce a new service or product solution,
based on a new technology to its customers (Simon, 1973, as cited in De Souza
Júnior, Bergamo Filho, & Oliveira, 2022, p. 10). So, innovation is a term used to
cover all intellectual creativity that can result in a solution (World Intellectual
Property Organization [WIPO], 2022, p. 15).
Businesses, on a regular basis, need to come up with technological solutions.
Practical problems such as what to develop as a service and product and how to
do it are concrete issues that demand the application of scientifical thinking.
In its 2030 Agenda for Sustainable Development, United Nations has launched
17 goals to protect the planet and its beings (UN, n.d.). Among these goals, more
than half require technology to pursue and achieve sustainability. For instance,
(1) No poverty requires technological solutions for familiar agriculture and
to overcome water shortage; (2) Zero Hunger requires smart solutions to decrease
the waste of food, (6) Clean Water and Sanitation require efficient and affordable
pouring systems, and (7) Clean Energy requires continuous development on
alternative energy solutions etc. Other goals like (12) Responsible Consumption
and Production, (11) Sustainable Cities and Communities speak for themselves.
In addition, the ninth goal – (9) Industry, Innovation and Infrastructure – underlines
a significant reinforcement of the link between sustainability, innovative solutions
and technology applied to businesses. It is essential to mention that the last goal
– Partnerships for the Goals is a huge sign of the importance of what is developed
within this chapter: the link between IP and sustainable technological solutions.
However, why IP? – discerning readers might ask. The response is because
it is about supporting and protecting innovation, connecting farmers with indus-
tries, and raising awareness of environmentally friendly choices.
The African Organization of Intellectual Property describes IP as a new category
of goods based on the appropriation of knowledge in all areas of human activity
(Organisation Africaine de la Propriété Intellectuelle [OAPI], n.d.). While there are
owners of material goods, there are owners of immaterial goods. So, the rules that
embody the rights concerning the immaterial ones belong to the IP law sector as
well.
This legal regulation is divided into industrial property, which protects
inventions and technological transformation, and copyrights, which protect
aesthetical expression. In the industrial sense, IP concerns patents, trademarks,
geographical indications, industrial designs, and industrial secrets, and it is a clue
for technological progress.
As Wachowicz and Gonçalves (2019) state, the machine itself is not
a technology. Technology is how to produce and develop new materials and
procedures. IP is one of the possibilities for protecting technological innovation
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because it determines several ways to protect it and how enforcement has to be
made. IP protection is linked to the development of new technologies and aims to
promote the investments made in research and development.
According to WIPO, IP is a critical incentive for innovation and creativity, which in
turn are key to the United Nations Sustainable Development Goals (SDGs) success
(Dietterich, 2020). It enables that by licensing technologies and making the
inventions profitable. IP boosts innovation and technology transfer and spread.
Intellectual property and sustainable innovative solutions
According to WIPO’s Green Technology Book, the term ‘green technologies’
reflects the means to drive healthy environmental action, adapt to growing
problems, and create an innovative environment. Through the rule of the right
system, an inventor can turn an intellectual plan into reality by bringing concrete
solutions. One can have enormously good ideas in this field, but it may be
nonsense if one cannot test and develop them because of a lack of investment
and public diffusion. According to Robertson, Krasodomska, & Dyczkowska (2022,
p. 135):
Environmental concerns such as ozone depletion and rainforest destruction ignited
a Green Consumerism movement, which fuelled an increase in the development of new
technologies and products […]. This was in recognition that businesses would need
to take the lead in developing more sustainable products and processes, possibly offering
competitive advantages. In the absence of consumer demand, the second wave dimi-
nished, and many companies turned to corporate citizenship, stakeholder engagement,
and sustainability reporting […]. While earlier voluntary reporting consisted of narrative
discussions within the annual report, the 1990s saw the start of stand-alone reporting
from larger organisations […]. These stand-alone reports broadened their scope from the
mid-1990s to incorporate social and health, and safety information, in addition to
environmental information.
The IP legislation enables several solutions for the proper protection of green
and sustainable technology. A solution is going to work due to the process of
technology transfer. It means the path from the inventor to the market, enabling
him to develop, finance, publicise, market, protect and benefit from an innovation
(WIPO, 2022, p. 26).
In addition, once the patent has been granted, an invention under the legal
protection of an IP right has the exclusivity of exploitation by its owner. For this
reason, the inventor is able to recoup the investment and cope against organisation
use (European Union Intellectual Property Office [EUIPO], n.d.).
In the next section, we will learn about some global organisations’ performance:
WIPO, EUIPO and INPI. In the end, some solutions will be added to the discussion.
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15.2. Contribution of Organisations Acting in the IP Field
to Sustainable Development
Intellectual Property Right is granted by the decision of authorities based on
national law. The organisations that will be studied here include the World
Intellectual Property Organization (WIPO), the European Union Intellectual
Property Office (EUIPO) and a local institution – the Industrial Property National
Institute (INPI) from Brazil.
In order to analyse their contribution to sustainable development, the
following criteria will be used: unified documents about the theme, database
availability, balance, and endurance.
WIPO
WIPO is a United Nations agency in the IP field. This agency acts in many themes
related to innovation and creativity within the global economy. However, in 2013,
it saw the necessity of creating a new branch to care about the environmental
sector. That year, WIPO GREEN, an online platform for the green technology sector,
was launched. The platform consists of a marketplace that includes a database
that connects green technology providers to seekers and stakeholders, creating
a community in the green technology field. It contains the following thematic
areas: (1) building and construction; (2) energy; (3) agriculture and forestry;
(4) pollution and waste; (5) transportation (6) water; and (7) green products,
materials, and processes.
The organisation informs that it has made 600 technological matchmakings
and has 86 worldwide partners, from multinational companies like Siemens
through financial institutions such as the Asian Development Bank to offices like
the Brazilian and France ones and advocacy groups such as Lokernik. It generally
operates as a deep research, link, and communication tool, but it also organises
events to strengthen communications and spread knowledge in the field, from
boosting think tanks and green technological development through what they
call acceleration projects.
The acceleration projects are specific-themed geographical arenas. A region is
chosen where in-person contacts between actors take place. For instance, they
have already done projects in Latin America (2019), Indonesia, the Philippines,
Vietnam, Africa (Ethiopia, Tanzania and Kenya), and Europe (Switzerland) (WIPO,
n.d.).
INPI – the last organisation analysed in this subchapter – demanded the
acceleration project regarding Latin America. The project’s first phase, which
included the already mentioned María Luz Marín, owner of the winery Viña Casa
Marín in Chile, consisted of x-raying the needs and solutions seekers, and on the
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266 Sustainable Performance in Business Organisations and Institutions...
other hand, the possible solutions and its providers. Now it is getting through
a second phase, which includes supporting and maintaining the partnerships,
developing sectoral studies and deploying green technology.
Because the Southeast Asia Project had Indonesia as one of its spotlights, the
WIPO connected America’s Zero Mass Water solutions to a Green School in Bali.
They needed potable water, and they got it: steam of the atmosphere to produce
potable water, through voltaic energy. This school drew an efficient environment
in which sustainability was taught but also experienced. The projects were
successful because they considered local contexts and innovators. They valued
the community solution addressed to the community problems. This innovation
was developed in collaboration with the school’s employees that entered the
project. No one can better address the problem than the company and local
members.
Although many of its sustainable efforts were driven by WIPO GREEN, WIPO
itself launched the first edition of the Green Technology Book in 2022 as an effort
to provide a guide by listing technological solutions to environmental problems
that can boost innovations and help to create a network of knowledge and
awareness.
Unified documents. WIPO has launched a Strategic Plan from 2019 to 2023
(WIPO, 2019). A strategic plan is a tool that enables institutions, companies and
businesses to find out more about themselves and provide efficient measures and
solutions to achieve their goals. Typically, this management document includes
the mission, vision and value of the institution, as well as the SWOT analysis,
known better as the analysis of strengths, weaknesses, opportunities and threats.
Since institutions adopt strategic plans, they become aware of who they are as an
organisation. Due to this awareness, the actors can find solutions and opportunities
and overcome difficulties.
The Strategic Plan of WIPO GREEN works like that. It includes a mission, a back-
ground overview, the goals, and the strategic initiatives aligned to each goal.
With that, it is possible to remark on how WIPO GREEN wants to perform to achieve
the established goals.
The main goal is to accelerate the transition to a greener global economy. The
Strategic Plan contains a timetable of implementation from 2019 to 2023. An
initial report about the first five years of WIPO’s performance in this sector is
synthesised on it. We remark it as a way to acquire a general overview of the
organisations and, maybe, inspire others.
Availability. People can easily access many sustainable documents on WIPO
and WIPO Green web pages. While accessing the WIPO GREEN platform, there
is no cost, but there are many free projects to help local actors.
Balance. WIPO has seen an effort to comprise different thinking streams
and guidelines, from economic to social and environmental approaches, ideas,
and partners. In order to conquer adepts, barriers must be reduced. So, the
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balance of ideas and actors is a clue point. The organisation counts on very
different actors worldwide, MNCs, NGOs, etc.
Endurance. Bearing in mind that sustainability is a topical issue that must be
constantly developed and updated by organisations, WIPO also takes this
approach. In its Strategic Plan, WIPO states that it has updated its mission, whereas
Daren Tang – WIPO’s General Director – confirms that having an annual edition of
the Green Book is a clear intention of WIPO.
EUIPO
EUIPO administers unitary IP rights valid in the EU member states, working
not only as a registered office of trademarks and community designs but as
a contributor to enforcement, research and spreading awareness in the field,
boosting the intangible assets that far exceed the value of the companies, because
IP rights have a giant role on industry growth. Studies from EUIPO prove that
“SMEs that own IPRs perform better than those that do not (EUIPO, n.d., p. 6).
EUIPO also designed a Strategic Plan (2019–2025) which is not a specific
sustainable-related document. However, it contains a series of clue ideas
for sustainable development. They surely have an impact by supporting small
and medium-sized enterprises (SMEs). Innovators can come from small, medium,
or large businesses, as well as it can be seekers of innovations. An IP-improved
system that considers all companies’ stages would probably create an affordable
collaborative market. Sustainability demands action from different actors since
protecting nature and its resources for future generations concerns many scales
of an economy’s dynamics. One of these is about supporting growing businesses
too, who also find value in IP rights.
EUIPO’s Strategic Plan for 2025 is based on strategic drivers, which originate
goals, and key initiatives to reach each goal. The strategic drivers are the causes,
the goals are the targets, and the initiatives are the manner of achieving the target
regarding the cause. Their main role is to create an innovation ecosystem, which
relates totally to the theme because an innovative environment is a clue for
a sustainable approach to finding efficient solutions for ongoing problems.
In 2012, EUIPO decided to join forces with the European Union Commitment
to Sustainability by calculating their yearly carbon footprint. The organisation has
already turned available the 2021’s footprint report in 2022. Through that, EUIPO
reflects upon its own organisational activity’s effects through a footprint analysis
of its own office and its stakeholders. In addition, an annual Environmental
Statement (EUIPO, 2021) enlists in several tables sustainable objectives that were
achieved or not. According to the annual statement, EUIPO carries out a diagnosis
that complements the corporate stakeholder management process, following an
environmental approach (EUIPO, 2021).
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In addition, EUIPO’s Environmental Management System identifies, applies,
and periodically assesses the applicable legal provisions and/or texts, and they
also have environmental standards certification.
Unified Plan. EUIPO has a consistent document – Strategic Plan 2019–2025 –
which is presently recent. The document has significant content and can become
the source of many inspirations for the area of sustainability. Nevertheless, it has
a more implicit approach. The solutions are not expressed explicitly with
the keyword – sustainability. Although a document has more generic features, it
includes solutions that can be applied to sustainable issues.
Accessibility. The accessibility that takes the spotlight, in the case of EUIPO,
refers to the EU coordination goals. They aim to harmonise enforcement efforts
and protect the rights from infringement. EUIPO, as an office coping with different
national authorities, can develop enforcement. IP rights owners need to feel
secure because their security also feeds innovations. EUIPO also wants to improve
accessibility.
Goal 1.3 from Strategic Plan 2025 states: Actions in the Area include translating
more information and IP training material through machine translation to enhance
accessibility to office services. EUIPO calls it IP literacy, which means introducing
a broad public to the theme by helping small businesses and consumers know
better IP rights.
For instance, one of the propositions aims to help citizens identify the sources
of fake products. It is very useful when it comes to greenwashing - a practice that
wants to portray trademarks as sustainable when they are not. Visitors to the
EUIPO website can access many documents there, which adds to the transparency
for the users.
Balance. At the same time, the document speaks for a technological advance
and remarks on the importance of human assessment. In many cases, they
approach how IP-protected companies support their employees better. In addi-
tion, they focus on a consumer-centric service through technology, facilitating
feedback from enregistered products.
Endurance. They have successive plans since 2011, statements since 2012 and
reports that, as said, have innovative content applied to them. Endurance can also
be considered as their consistent approach to improving enforcement in this field.
INPI
The INPI is a federal autarchy linked to the Economic Ministry, which works as the
Brazilian public office established in Rio de Janeiro. It acts to execute the legal
standards regarding IP in Brazil, from the filing of demands to the decisions,
but they also act in educational ends and inclusively, pronouncing in case
of international law documents, such as treaties.
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The Institute’s last update of its general strategic plan was addressed from
2018 to 2022 (Instituto Nacional da Propriedade Industrial [INPI], 2018a), which
will be updated from 2023 to 2026) This new plan has already been in the process
of formulation till the end of March 2023. The strategic plan initiatives are
consolidated by the action plans, normally available twice a year, of which
execution is also available on their website’s graphic.
Unified plan. The INPI has a website that reunites many of its themed issues,
from the request for patents to educational content and access to documents
and information. As stressed by the authors in chapter 14, the digitization process,
in general, seems to have a positive relationship with greater sustainability
of companies.
On INPI’s website, there is an icon which guides visitors to a webpage where
sustainable actions are included. So, through the website (INPI, n.d.), there is
unified information and an overview of INPI’s sustainable ongoing performance.
The organization discloses three major actions.
1. Reduction of electric consumption. This is an internal effort boosted by
the presidential Decree in 2021 that has established a reduction of electric
consumption in Public Management organisations. This section contains a docu-
ment about the Sustainable Logistics Management Plan of the Institute from
2018. The document enlists actions in the INPI’s practices to promote a better
commitment to environmental worries and streamline public spending in their
organisational activities.
This plan was first made in 2015. Then in 2018, INPI made another one whose
Management Commission of the Sustainable Logistics Plan has a remarkable
approach. According to the plan, public management organisations are a source
of giant spending on public resources. Not only the private sector but the activity
of public organisations must embody sustainability. In this sense, INPI declares,
sustainability involves social justice, economic balance and respect for the
environment. Sustainability of public management requires translating discourse
into practice, concretising it in actions (INPI, 2018b). These enlisted actions applied
to public bodies can inspire private ones too. The plan is divided into seven
themes: (1) consumables; (2) electricity; (3) water and sewage; (4) selective
collection; (5) quality of life in the work environment; (6) sustainable procurement
and contracting; and (7) efficiency of public spending.
Each theme shows the initiatives executed and quantitative results in the
sectors. As said, already in this work, this document also fulfils some cornerstones
of sustainability: coherence (if you speak for it, you must apply it in your daily
institutional activities) and the worry about a good environment for employees.
2. Green Patent Program, from 2016 onwards, which provides a priority in the
analysis of filings of green technology.
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3. Partnerships with WIPO, which have a vital role in WIPO Green’s Acceleration
Project in Latin America.
Availability. INPI’s availability can be considered, principally, from two elements.
One is the good transparency in their digital environment. The organisation supplies
the public with information, which one of the categories is sustainability. So,
interested parties can follow quantitative and qualitative information from the
plans, execution, graphics, etc. It is a result of the 2022 resolution.
Another element is the counterplan to fight against the backlog. Backlog
is a problem described as the delay in the filing’s analysis and decisions, also
affecting sustainable companies and technologies.
Balance. These INPI strategic plans are linked to WIPO’s and EUIPO’s ideas
which are already very balanced plans. They conciliate economic progress with
a social function approach. It is remarkable the following paths from the EUIPO’s
Strategic Plan that value human capital in the sense that sustainability implies
valuing human lives – employees and a good work environment. As in the case
of EUIPO, they also talk about improving enforcement implementation against
IP rights violations.
Endurance. INPI shows an ongoing worry about the environment. In 2012, it
initiated the project of green patents, which was conquered in 2016. In 2015,
there was the first sustainable plan introduced. In 2018, a new remarkable
sustainable plan was launched. In 2022, INPI initiated a transparent webpage
concerning sustainable activities. Furthermore, this year’s general strategic plan
briefly cites two strategic objectives in this sense.
15.3. Recommendations on How IP Can Boost
Sustainable Development
After our study, we propose a short list of ideas on how IP could boost sustainable
development. WIPO, already mentioned in this chapter, states:
Well-managed intellectual property rights (IPRs) are a cornerstone of the protection
of the rights of the inventor and, as such, enable continued innovation and development.
Local IP offices (IPOs) which grant patents and other IP assets can, for example, support
the deployment of adaptation technologies by fast-tracking patenting processes, assisting
inventors in connecting with investors and the market, facilitating access to patent infor-
mation, and by cooperating with foreign patent processes and offices. (WIPO, 2022, p. 26)
(1) IPOs can interfere in the process phases to motivate the deployment
of green technology. They can fast-track the analysis of environmentally friendly
demand for rights. For example, the Brazilian office’s Green Patent Program
provides a priority in the analysis of filings of green technology. Another issue
is that IP rights generate costs related to applying for them, maintaining and
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D.L. Sichel, C. Passeri Rebouças de Oliveira, How to Boost Sustainability through Intellectual Property? 271
modifying them etc. There are fees to exercise these rights in local offices. One
measure the offices could take is to reduce the percentage of fees when it comes
from genuinely sustainable initiatives.
(2) Many IP bodies are aware of their roles in the economy. Some could also
address funds to startups and companies that count on environmental policies.
This can be an incentive for them to work according to strategic plans.
(3) As WIPO already focus on, a good path is to create interest in innovators for
new solutions. In this sense, ‘shark tanks’, collaborations with academic centres
and awards for the best solutions can be promoted.
(4) Awareness is also a rich movement. Although it is very outspoken, few
entrepreneurs know deeply why they need IP rights and how to conquer them.
Making this IP knowledge system approachable to entrepreneurs and enterprises
is fundamental. On the consumers’ side, providing a database of protected, truly
sustainable services and products is an excellent way to make people buy smartly,
knowing how to differentiate fake green ones from truly eco-friendly ones.
(5) Transparency is also fundamental and adds value to the last-mentioned
suggestion. In this sense, sustainability reports have a clue role. As authors in
chapter 3 remarked, they represent a good tool to communicate and manage
relationships with stakeholders, encouraging investors’ confidence, confidentiality,
and loyalty of employees.
(6) Strategies to enlarge the number of sustainable solutions competitiveness
to create a cycle of higher demand and lower prices for sustainable products is
good, too.
Last but not least is the importance of these offices investing in enforcement.
Before speaking about sustainable IP rights, we need to improve the system for all
of them. It concerns backlog too. However, coming back to enforcement, although
bodies usually do not have coercibility directly in the form of punishments to the
ones that violate the rights, they can give rewards and make partnerships only
with the ones that do not violate the rights, as a pre-requisite.
15.4. Conclusions
This chapter analysed the relations between sustainability, technology, and IP.
Some aspects of the public sources clue information of three organisations
dealing with IP have been approached.
The study of the WIPO reflected that this organisation developed a pioneer
marketplace to concentrate many of the green technology’s needs: from diffusion
and investment to the execution that makes the registration possible. Their
actions regarding local contexts to promote the generation of new intellectual
goods are also very remarkable.
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272 Sustainable Performance in Business Organisations and Institutions...
Concerning the EUIPO, it significantly contributed to the foundation of an
innovative ecosystem. The EUIPO is an office that deals with all EU member states,
so their approach needs to be more generic. When we compare to the WIPO, we
observe that, although EUIPO consistently pursues a more enforcement legal
approach, their guidelines do not affect the sovereignty of countries; however,
they have the power to impose some measures. In addition, it is a remarkable
focus of EUIPO on generating solutions and aids for startups and small and
medium enterprises, which, in many cases, have incredibly useful solutions that
require investment (both from research and financial goods).
The findings from INPI’s analysis are also very stimulating. First, it is very
positive how the INPI takes responsibility for their environmental impacts, not
playing the shuttlecock to the private sector but inspiring collaboration. Secondly,
they work on a significant incentive: reducing taxes on green technologies.
It draws attention and efforts to the sector through the Green Patent Program.
The INPI also invests in transparency by offering an easily navigated website.
Concluding, it should be noted that the initiatives of the abovementioned
three organisations are complementary.
This study also aimed to show that private actors can lead in sustainable
change. The clue is persistence. It is about making the right choice as a company
and promoting a sustainable organisational culture. A sustainable enterprise
should formulate a mission and vision that inspires technological and sustainable
transformation. A transformation may value human lives. However, it is essential
to be aware that technology is part of the solution, but humans cannot serve it.
Technology must be a solution, not a problem.
Thus, this chapter, reminding Pope Paul VI speech to the Food and Agriculture
Organisation (FAO) of the United Nations in 1970, finishes with the conclusion
that progress can lead to the most extraordinary scientific inventions, the most
astonishing technical inventions, and the most prodigious technological
development, but if they are not united to social and moral progress, it may turn
against man (Pope Paul VI, 1970).
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Summary
This monograph provides insight into challenges that business organisations
and public institutions will face due to the economy’s green and social transition.
In this context, sustainable performance managers will be expected to recognise
new market conditions, respond to customer expectations and society’s needs,
adjust to the new regulatory landscape, change the corporate mindset, and trans-
form old business models into new circular ones. In order to ensure a longitudinal,
sustainable future, organisations will need to establish new criteria for sustainable
performance measurement and design a set of indicators that enable agile ESG
management and effective prevention of ESG risks.
The monograph contributes to the literature on sustainable performance
threefold. First, the monograph offers an inquisitive overview of the current
regulatory background in the area of sustainability development, in which the
changes are gaining momentum. One may observe the increasing number of
regulations and the growing complexity of requirements to be met by
organisations. As M. Comoli et al. stress, ESG issues are now at the heart of various
legislative changes, both at the international and European levels and disclosure
of them will become increasingly important in order to capture the actual value of
organisations. J. Baumüller et al. point out that the EU Commission aims to change
European companies’ behaviours and practices. The EU Taxonomy Regulation, for
instance, set out four overarching conditions organisations must meet to confirm
that they are environmentally sustainable. Apart from ‘substantial contribution’ to
at least one environmental objective and ‘no significant harm’ to other envi-
ronmental objectives, sustainable organisations are supposed to comply with
the ‘minimum safeguards’ and ‘technical screening criteria’ (EC, 2023). The
Sustainable Finance Disclosure Regulation (SFDR) established the respective
mechanisms for the financial sector, supporting asset managers in providing
standardised disclosures on ESG factors integration at entity and product levels.
In turn, the Corporate Sustainability Reporting Directive (CSRD) introduces
European Sustainability Reporting Standards (ESRS) containing rules which must
be applied to sustainability statements published as part of management reports
of companies already subject to the NFRD from the financial year 2024 onwards
and for the other entities in-scope within the respective schedule. As J. Baumüller
et al. remark, each company that falls under the CSRD is supposed to disclose
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Summary 275
specific data from the ESRS to meet the information needs of the financial sector
as well, as prescribed by the SFDR. Thus, there is a clear connection between these
two Directives.
Second, the monograph addresses the significant challenges within
measurement, reporting and management. They may be concluded as follows:
(1) sustainable performance measurement challenges:
defining, selecting and implementing new KPIs and underlying processes for
collecting the required data,
the reliable and stable data source for calculating KPIs to ensure the credibility
and comparability of ESG results,
problems with ensuring a balanced presentation of the performance,
signalling both positive and negative aspects,
the development of advanced performance measurement and information
systems,
the correct understanding and proper measurement of the overall impacts
generated by upstream (and downstream) supply chain partners,
the inability to measure the cost-effectiveness of the main pillars of sustainable
business strategies,
(2) sustainable performance reporting challenges:
the homogenisation of sustainability reporting at the international level (just
as it is now in the case of financial reporting due to the existence of international
accounting standards),
the effective extension of mandatory sustainability disclosures to SMEs in a pro-
portionate scope enabling them to enter the ESG ‘revolution’ path smoothly,
the cessation of the spread of greenwashing practices, in particular in SMEs,
which may use unreliable data sources for non-financial disclosures,
the alignment of multiple stakeholders’ information needs within CSRD and
ESRS, in particular in the context of the double materiality concept,
the problems of arbitrariness and subjectivity in sustainability reports,
the costs of sustainability reporting, including those related to preparing,
certifying, and disseminating the reports and using digital reporting tools,
(3) sustainable performance management challenges:
the development of a sound ESG strategy that considers ESG factors, reflects
ESG commitments and verbalises ESG goals,
the design of the ESG roadmap, which formulates ESG policies, indicates ESG
programs, and determines the ESG team,
the integration of all business actions under the sustainability umbrella,
especially when moving from ambition to execution,
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276 Sustainable Performance in Business Organisations and Institutions...
the introduction of sustainability matters to the core elements of management
control systems,
the forms of stakeholder involvement and integration of stakeholder concerns
into management control systems and ultimately into corporate decision-
-making,
the maintenance of ongoing sustainability-oriented relationships with sup-
pliers in the value chain,
the inadequately structured information systems and organisational culture
that is not oriented towards the ‘best-suited-to-the-purposes’ managerial
accounting tools,
the implementation costs of sustainability strategies stemming from the need
to conform to regulatory requisites.
Third, the content of the monograph reflects the issues of sustainable per-
formance measurement, reporting and management from different angles,
presenting the experiences of both business and public sectors. M. Nowak notes
that there are various purposes for publishing voluntary reports and disclosing
non-financial information, including global, managerial, and ethical motives. Thus,
the approach to non-financial disclosures may be motivated differently in public
and business organisations. However, as M. Nowak states, if the organisations are
supposed to present their impact on society, local communities, and the envi-
ronment, it will finally incline them to act more morally as well.
T. Dyczkowski, who analysed Polish PBOs, evidenced that they prioritised non-
-financial disclosures on their websites but did not inform how they spent public
money from subsidies and grants. The Author underlined that how these types of
organisations deal with their accountability for social effects may be an essential
lesson to commercial and other public institutions. On the other hand, R. Kowalak
discusses how museums that provide specific services to society may adjust and
use the BSC to measure financial and non-financial performance. It was also
highlighted that the BSC might help the museum better communicate with
funders and other stakeholders and present a balanced view of the organisational
situation and its impact on the local communities. M. Nieplowicz stresses the role
of the extended BSC in a city. The Author introduces a new ESG perspective into
the BSC and remarks that the objectives contained in this perspective should
translate into an increase in residents’ quality of life. It is worth noting that the ESG
perspective results directly from the financial one, as it involves incurring
additional expenditures on ESG activities. M. Nieplowicz highlights that in large
cities, an additional ESG perspective is to be separated in the BSC, while in smaller
units, it is crucial to include additional goals and measures in the existing
perspectives to address how important these activities are for the city. M. Wierz-
biński also refers to the cities, but in the context of District Heating Companies
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Summary 277
(DHC) services, which provide heat to the city dwellers. The Author develops
a methodology for calculating fundamental eco-efficiency indicators. The impact
of the DHC on the natural environment is not favourable, mainly if the nega-
tive consequences of activities carried out in the earlier links of the sectoral
value chain related to fuel extraction are considered. Moreover, district heating
systems in Poland need transformation towards renewable energy sources.
As M. Wierzbiński claims, transformation can take various directions, but it should
also be evaluated from the perspective of eco-efficiency indicators.
The financial sector has a unique role in sustainability reporting due to its
particular economic functions and is therefore strongly influenced by changing
regulatory landscape. P. Kroflin and C. Kroflin formulate two research questions.
The first is whether the analysed German financial institutions fulfilled the sector-
-specific reporting requirements, and the second is whether the published metrics
had improved over the observation period. Based on the empirical study,
the Authors concluded that a high level of sector-specific relevance based on
GRI standards existed for most of the examined institutions; nevertheless,
the need for improvements was identified at some institutions. Moreover, the
financial institutions succeeded in the economic area when comparing the results
of 2017 and 2021, as they recorded the most significant number of indicators’
improvements. Similarly, the ecological indicators’ improvement was also pretty
evident, whereas the social area recorded the lowest level of improvement over
the observation period. L. Brusati et al. also focus on the financial sector, and
specifically, they scrutinised Italian banks in terms of whether their non-financial
reports live up to stakeholders’ expectations regarding completeness and
materiality. The Authors claim that currently, banks are taking a huge responsibility
since the transition of the organisations to more resilient business models relies
to a certain point on the possibility of facilitating access to bank loans
for sustainable investments and limiting funding opportunities for those who
contradict sustainable actions. Their results show that Italian banks experienced
a lack of clear guidelines in regulations that led to arbitrariness in the disclosure
of both sustainability performance and the risks and consequences for sus-
tainability associated with investment decisions. The Authors formulate a list
of recommendations in the form of interventions for European regulators duly
supported by professional associations and academia to counteract the problems
of arbitrariness and subjectivity that have afflicted so far the non-financial reports
issued by European banks.
Another sector referred to in this monograph in the context of sustainability
reporting is the construction sector, whose activities may have devastating
impacts on society and the planet through carbon emissions, pollution and waste
generation. P. Szalacha, who assessed the comprehensiveness and transparency
of the sustainability reporting of leading Polish construction companies, came to
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278 Sustainable Performance in Business Organisations and Institutions...
various conclusions. First, construction companies in Poland prepare their reports
based on GRI standards. Second, quite a number of examined entities report data
required by the EU Taxonomy, whereas compliance with the TCFD recom-
mendations is rarely met. Third, as a rule, a sustainable reporting voluntary audit
is not performed in construction companies. The Author emphasises, similarly to
P. Kroflin and C. Kroflin, who elaborate on financial institutions, that some areas
still need to be improved in the context of sustainability reporting. These areas
relate to supplier assessment from the environmental and social perspective,
reporting on non-discrimination issues and GHG emissions.
The other Authors refer in their chapters to the aspects of sustainable
performance management at various stages of business activity. J. Dyczkowska
focuses on case studies analysis to examine the existence and components of ESG
strategy in Polish ESG-risk-sensitive companies. Based on her study, she states
that ESG strategy was not a mere myth in most ESG-sensitive companies analysed
but has become a reality. Although organisations represented varying levels
of engagement in this regard, they were gradually progressing towards refor-
mulating their corporate strategy and including ESG aspects. In this vein, also
H. Fekete-Berzsenyi and D. E. Kozma confirm, based on their research sample, that
companies operating in Hungary have incorporated specific environmental
objectives into their strategies. Moreover, to monitor their implementation,
companies used the methods of the available monitoring toolbox to varying
degrees. The most common methodological tools of green controlling systems
were SWOT analysis, which can be a starting point for ESG strategy development
and the use of environmental indicators.
Fourth, the monograph also addresses how digitalisation processes and new
technologies can propel sustainability development, as well as how intellectual
property can boost sustainability. R. L. Sichel et al. assume the legal context and
elaborate on the contributions of the legal framework to the digitisation
of sustainable development dynamics. Their study reflects the Brazilian case,
where the digitalisation processes have progressed a lot, but they still encounter
technical and implementation bottlenecks in their development. In addition,
as the Authors remark, in the legal area, mainly due to the difficulty
of regulating new types of relationships, several challenges appear in creating
an environment conducive to virtual operations. D. L. Sichel and C. Passeri Re-
bouças de Oliveira highlight institutional support. After presenting the role
of global, international and national players in underpinning the sustainable
development of innovative entities, they indicate what can be the roles of small
local IP offices which grant patents. The Authors note that IP offices can interfere
in the process phases to motivate the deployment of green technology, as they
can fast-track the analysis of environmentally friendly ideas.
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Summary 279
The range of themes covered by this monograph oscillates around the topical
issue of sustainable performance, that is, the effect of sustainable development
– a broader term related to ensuring well-being that improves human life quality
while respecting the welfare of nature. In this context, a quote from American
attorney William Ruckelshaus, who once said: Nature provides a free lunch, but only
if we control our appetites – comes to mind. Thus, all business organisations and
public institutions, which are now at the turning point, should prevent themselves
from actions which may compromise the ability of future generations to meet
their own needs (Brundtland, 1987) since our further existence depends on it.
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List of Figures
1.1. Keyword Network in the area of Non-Financial Disclosure, organized by
thematic clusters ............................................................................................................. 21
1.2. Keyword Network in the area of Non-Financial Disclosure, organized by
temporal relevance ......................................................................................................... 21
5.1. Comprehensiveness of information in all examined disclosure areas ......... 96
5.2. Overall assessment of disclosure levels in the three groups of PBOs ........... 98
5.3. Mean values of disclosure metrics in the three PBO groups ........................... 99
6.1. Skandia Navigator ........................................................................................................... 110
8.1. Classification of environmental costs ....................................................................... 140
8.2. Value chain of district heating systems ................................................................... 143
8.3. Direct impact on the natural environment of activities carried out in
individual links of district heating value chain ..................................................... 144
8.4. Calculation method of eco-efficiency indicators for district heating
systems ................................................................................................................................ 145
9.1. CSR and ESG ...................................................................................................................... 150
9.2. History of sustainability reporting in Germany .................................................... 152
9.3. Germany’s largest banks by total assets .................................................................. 156
9.4. Germany’s insurance companies by premium income in 2021 ...................... 157
9.5. Areas of sustainability from a bank’s perspective ................................................ 158
9.6. The German banking market by business volume ............................................. 160
12.1. The journey towards ESG transformational adaptation .................................... 205
12.2. From ESG strategy to sustainable performance management system........ 216
12.3. Presentation scheme of pillars, priorities and strategic objectives regard-
ing one of an ESG dimension ...................................................................................... 223
13.1. General environmental practices among respondents (number, %) ........... 234
13.2. Application of the tested controlling tools in the sample ................................ 237
13.3. The conceptual scheme of the Balanced Scorecard ........................................... 240
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List of Tables
3.1. Costs of creating and verification of sustainability reports .............................. 58
3.2. Meta-analyses and literature reviews on the relationship between
sustainability reporting and a company’s financial performance ................. 62
3.3. Non-financial benefits of sustainability reporting ............................................... 65
4.1. Respondents, according to age group .................................................................... 77
4.2. Respondents, according to gender ........................................................................... 77
4.3. Respondents, according to their professional experience in accounting... 77
5.1. The methodology of assessment of the PBOs’ social responsibility dis-
closure ................................................................................................................................. 93
5.2. The factors differentiating disclosure strategies in PBOs .................................. 100
5.3. Control factors .................................................................................................................. 101
6.1. Reporting and management areas of the BSC ..................................................... 110
7.1. Strategic questions, strategic goals and measures in five BSC perspectives
for an example of a large Polish city ......................................................................... 132
8.1. Definitions of (management) environmental accounting ............................... 139
9.1. Overview of existing research ..................................................................................... 159
9.2. GRI standards relevant to financial institutions .................................................... 161
9.3. Implementation levels based on the number of used GRI standards .......... 162
9.4. Selection of sustainability KPIs ................................................................................... 164
9.5. Sustainability reporting scores ................................................................................... 166
9.6. Sustainability improvements ...................................................................................... 167
11.1. Summary of companies’ sustainability reporting ................................................ 197
11.2. Scope of sustainability reporting evaluated versus GRI Topic Standards ... 198
11.3. Detailed disclosure for GRI 305 Emissions (on GRI indicator level) ............... 200
11.4. Detailed disclosure for GRI 403 Occupational Health and Safety (on GRI
indicator level) .................................................................................................................. 200
12.1. Top five global risks by likelihood.............................................................................. 206
12.2. Top five global risks by impact ................................................................................... 207
12.3. The research sample ....................................................................................................... 219
12.4. The research results on ESG strategy ....................................................................... 220
13.1. Distribution of the research sample by industry .................................................. 233
13.2. The controlling tools used in the examined sample .......................................... 235
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