Sustainability Reporting at Ford

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Introduction

“It is increasingly well-established in the literature that most business reporting on sustainability and much business representative activity around sustainability actually have little, if anything to do with sustainability” (Gray, 2010, p. 48).

This essay critically reviews Gray’s (2010) statement by focusing on sustainability reporting of Ford. It draws upon relevant academic literature and discusses a theoretical framework that could be used to support the argument. Specifically, the essay considers the following areas:

The extent to which the sustainability report complies with the GRI’s Sustainability Reporting Guidelines G3 (GRI, 2006)
Comparison between the sustainability report and what is available in the academic literature
Whether sustainability report is or should be assured and to what extent of assurance

A sustainability report provides details about a firm’s economic, social, environmental, and governance issues. The report should not just present collected data. Instead, it should show how an organisation internalises and intends to improve on its commitment to sustainability development in a manner that can get both internal and external stakeholders’ approvals.

Any firm should ensure that sustainability accounting and reporting is transparent, traceable, and compliance. The main aim of sustainable development is to ensure that firms can meet their “present needs without adverse effects to future generations” (Global Reporting Initiative, 2006).

To what extent does the sustainability report comply with the GRI’s Sustainability Reporting Guidelines G3 (GRI, 2006)?

The GRI (Global Reporting Initiative G3) provides comprehensive guidelines, which companies that provide sustainability and accountability report should follow and ensure that their reports are more or less similar to G3 guidelines. However, from Gray’s (2010) statement, there might be significant variations. The GRI G3 has guidelines, which determine the content of the report and guarantee the quality of the report provided.

Moreover, the GRI G3 also has Standard Disclosures. These have Performance Indicators, related elements, as well as provisions on accounting for technical areas of the report. In short, the GRI guidelines identify elements that organisations should report and ways of reporting them. It has Reporting Principles of “materiality, stakeholder inclusiveness, sustainability context, and completeness” (Global Reporting Initiative, 2006).

Materiality

Contents under materiality have information and indicators that show a firm’s economic, social, environmental impacts and other factors that could influence stakeholders’ decision and assessments.

Ford has several areas or topics on which it could report (Ford, 2013). However, it only concentrates on relevant areas, which show its economic, social, and environmental outcomes or factors that could influence choices of different stakeholders. This warrants their inclusion in the report. Under materiality, any reported issues must be sufficiently significant because not all material areas would have the same importance, and a report should reflect priority areas and their indicators.

Under fiscal reporting, firms consider materiality as an important element that affects financial choices of shareholders and other stakeholders interested in fiscal statements of a company.

Stakeholder Inclusiveness

Organisations have several stakeholders. In the case of Ford, the company strives for stakeholder inclusiveness in its report and its reasonable responses to their interests and needs. Ford has identified its stakeholders as groups engaged with it, which include “communities; civil society; customers; shareholders and providers of capital; suppliers; and employees, other workers and their trade unions” (Ford, 2013).

The company recognises that its activities, products, and services could have significant effects on these groups. At the same time, Ford also acknowledges that actions of these stakeholders could reasonably affect its strategic objectives, implementation, and outcomes. These stakeholders have rights under the law or international trade treaties and conventions. Hence, they can make legitimate claims against the company.

Sustainability Context

The GRI G3 notes that the report should have a general framework of sustainability based on the firm’s activities. Any data about the company’s activities should be within its sustainability framework. The fundamental issue about sustainability that Ford aims to address through its report is how it enhances or strives to enhance the future through its present sustainable practices. Hence, the report must account for achievements or deterioration conditions of economic, social, and environment in all areas in which it operates globally.

Any organisation that reports only on a single outcome, performance, or competence, may not meet the principle of a sustainability framework. On this note, a good report must focus on a broader picture of sustainability concept.

Hence, a sustainability report under the GRI G3 guidelines should account for a firm’s activities within the context of limits and demands, which could affect social or environmental resources at all levels of operations (Global Reporting Initiative, 2006). For instance, Ford provides a report on eco-efficiency strategies, its focus on fuel economy and CO₂emissions, vehicle safety, and water among others.

Completeness

This principle requires organisations to define their scope, time, and boundary, which must provide sufficient information in accounting for environmental, economic, and social aspects. This allows stakeholders to assess the report within the right context. In addition, it must also account for practices that organisations use to gather data and ensure that the report has data gathered within the boundary. Completeness also account for reasonable and appropriate reporting alongside accuracy and balance of the report.

Ford’s sustainability data focus on financial health, climate change and the environment, water, vehicle safety, supply chain, and people across the global.

Standard Disclosures

The GRI G3 emphasises Standard Disclosures that should form a part of the sustainability report. Information in this section is significant and of concern to stakeholders of an organisation.

Strategy and Profile

This allows stakeholders to comprehend a firm’s performance under governance, profile, and strategies (Global Reporting Initiative, 2006).

Ford has clearly identified its strategy and profile with factors about the organisation, the CEO statement, the relevance of sustainability, key impacts, risks, opportunities, products, ownership, and scope and boundary among others.

Management Approach

This disclosure focuses on several topics, which provide information about specific topics of interests to stakeholders. For instance, Ford has classified its management approach into several categories, which include economic, environmental, and social aspects, such as labour practices and decent work, human rights, society, and product responsibility.

Performance Indicators

According to GRI G3, these are indicators, which show data on environmental, social, and economic performance of a company for comparison (Global Reporting Initiative, 2006). Ford treats performance indicators under social, economic, and environmental aspects. In addition, it provides detailed account of several areas related to these aspects of performance.

Overall, one can conclude that Ford has aligned its Sustainability Reporting to the Global Reporting Initiative (GRI) G3 of 2006.

How the sustainability report compares to what is known from the academic literature on this subject?

The escalating cases of corporate malpractices have forced a number of firms to review their practices. As a result, academics have also shown significant interests in firms and their sustainability practices. Most academics have focused on the Triple Bottom Line (TBL) to explain sustainability concept and its theoretical backgrounds (Roberts and Mahoney, 2004; Freeman, 2004).

The aim of TBL is to measure profits, as well as impacts of the firm’s activities on the world and people within a local and global context. The concept of TBL emanates from the need of firms to have responsibility towards the use of the environment, economy, and society. These are the elements, which make up people, profit, and planet. In some cases, people use corporate social responsibility (CSR) reporting interchangeably with the TBL concept.

Stakeholder theory is applicable in the TBL concept. Stakeholder theory relates to “organisational practices and business ethics that addresses morals and values in managing an organisation” (Freeman, 2004). Ford has identified several stakeholders in its Sustainability Report 2012/13.

Samantha Miles notes that the “nature of what is a stakeholder is highly contested because of many definitions existing in the academic literature about a stakeholder” (Miles, 2012). As a result, Ford’s Sustainability Report classifies several groups and individuals as important stakeholders because the company’s objectives could affect them or they may influence the realisation of organisational goals.

The stakeholder theory consists of other theories such as resource based and market based theories. In addition, it also focuses on socio-political elements of a firm.

Others studies have pointed out that what is necessary is how firms enhance their positive images in the community by reducing negative effects and promoting positive impacts on individuals or the community.

The focus has been on social impacts because of its closeness with the well-being of people and other organisms within a given environment. In effect, a socially responsible organisation is the one that has the greatest net social impact on the lives of people and society in general. This is what advocates of CSR believe, and Ford strives to meet these social impacts through accountability and reporting.

The triple bottom line has gained recognition in the last few decades as a framework of understanding performances of organisations. Scholars have developed frameworks in order to measure other impacts of organisations other than the profit. In this sense, they aim to highlight different values that firms have to adopt in their operations.

These included social, environmental, and economic aspects, i.e., profit, people, and planet (3Ps). In other words, the TBL accounting practice aims at going beyond the old system of reporting profits and disregarding effects of an organisation on people and the planet. Thus, it provides a framework for accounting for social and environmental performance of a firm.

According to Owen, the field of social and environmental accounting (SEA) has evolved with time as new concepts emerge (Owen, 2008). At the same time, the author tries to show that the field may continue to develop in the future.

From legitimacy theory, one can conclude that Ford has utilised its Sustainability Report to show that its activities are desirable, appropriate, and proper within all areas of its operations globally based on socially developed systems of norms, beliefs, values, and definitions (Owen, 2008).

In order to prove this concept, Ford focuses on several aspects of sustainability reporting that go beyond the previous focus on profit reporting. Today, it has included CO₂ emissions, climate change, energy, water, human rights, and fair labour practices among others in its sustainability report.

However, any organisation that diverges from societal expectations and norms may retain legitimacy when stakeholders fail to notice such divergence. This could lead to issues of ethical debates in its decision-making processes and legitimacy of organisational activities.

Ford considers legitimacy as a resource, which it must rely on for its operations across different countries globally. This implies that Ford must enhance Sustainability Reporting, gain credibility, and establish its legitimacy globally.

Businesses are social institutions. Hence, they function under a social contract, either implied or expressed, which affects their growth and survival. On this note, Ford aims to provide socially desirable benefits to regions in which it operates. In addition, the company strives to distribute economic, social, or political advantages to groups or individuals that provide its power.

One must understand that organisations operate in dynamic societies. Moreover, their sources of power and needs may change with time. On this regard, Ford must strive to meet the concept of legitimacy and stay relevant by showing that stakeholders need its services and all beneficiaries have approval from society.

From Ratner’s perspective, the social, economic, and environmental aspects of sustainability are complementary elements that focus on one meaningful goal, which an organisation could pursue through an overarching strategy or a unifying ethic (Ratner, 2004). While there are unifying factors in organisations, sustainable development has several components that work in a complex environment.

Under such social conditions, conflict may occur and a firm must develop strategies for collective action. Ratner (2004) considers a dialogue of values as a strategic approach that could aid in adopting social institutions to arbitrate conflicts that occur at different levels in a firm’s operational activities. Such conflicts in an organisation provoke the need for external assurance to guarantee the credibility of a sustainability report.

Whether the sustainability report is (or should be) assured? And, if so, what level of assurance is provided?

Firms use various strategies to enhance their credibility and contents of the sustainability report. Different firms have internal control mechanisms in place, which include internal audits. Internal audits help in controlling and reporting information. These elements of internal controls enhance the overall trustworthiness and reliability of a sustainability report (Global Reporting Initiative, 2006).

However, according to GRI G3, firms should use external assurance in their sustainability reports, as well as internal systems (Global Reporting Initiative, 2006). Various methods used to inculcate external assurance entail the use of specialised assurance providers, stakeholder groups, or other external qualified bodies or individuals.

Irrespective of the chosen method, the assurance service providers should be competent bodies or individuals who have no relations with the company. The company must ensure that its assurance service provider is an entity that follows professional standards for assurance and the industry best practices. In some instances, organisation base their assurance approaches on “systematic, documented, and evidence-based processes but are not governed by a specific standard” (Global Reporting Initiative, 2006).

From the GRI G3, the term ‘external assurance’ reflects “activities designed to result in published conclusions on the quality of the report and the information contained within it together with consideration of underlying processes for preparing information among others” (Global Reporting Initiative, 2006). These assurance activities assess or corroborate the level or standards of organizational performances e.g., compliance evaluations. The GRI GE posits that an external assurance should meet some conditions in the reporting framework.

The external body or bodies should be external to a firm, demonstrate competence on assurance practices and subject matter.
External assurance should follow a systematic, documented, evidence-based processes with defined procedures
External assurance should review whether the sustainability report presents balanced and reasonable elements of performance with reference to data authenticity and entire selection of the report contents.
The external assurance body or individuals should not be unduly restricted to perform their roles based on their relationships with the organization. Moreover, stakeholders should not have significant influences on these bodies or individuals to allow them to publish independent sustainability report.
Based on external assurance, the report should demonstrate the use of GRI principles and guidelines in order to draw reliable conclusions.
External assurance should provide a report that is available to the public in different formats. In addition, there should be a statement from the external assurance provider, which clarifies its relationship with organisation based on the prepared report.

Ford uses external assurance for its current sustainability report. The company includes the assurance report within the sustainability report, which accounts for the “range, boundary, and basis of relations with external assurance providers and the basis of reporting” (Ford, 2013).

For 2012/13 Sustainability Report and other previous reports, Ford has utilised services of Ceres and Stakeholder Committees in order to get reliable advice. Ceres works with different teams of investors, environmentalists, and other organisations that represent public interests to focus on sustainability issues.

Ceres selected “a sustainability team for Ford, and the company had to work with these teams” (Ford, 2013). It is imperative to note that Ceres Stakeholder Committee consists of autonomous parties and people from various arms of Ceres, and they represent different areas and have knowledge in social, environmental, and governance aspects (Ford, 2013).

Ford’s Committee on external assurance assessed the previous reports and contents of 2012/13 Sustainability Report and then provided a restructured materiality analysis. The Committee gathered inputs from all members through difference ways, which included meetings and teleconference.

Ford’s Committee on external assurance has suggested several ways on how the company can improve its reporting and materiality assessment.

Some critical results from external assurance evaluation show that it is the best method for an organisation to adopt. It would be difficult for internal control systems to identify all limitations within the Sustainability Report. The most critical recommendations focused on data assurance. The company subjected data to both internal and external verifications.

The organisation must thoroughly “audit its financial data for disclosure in the Form 10-K” (Ford, 2013). Ford also insists on a third party verification of its global greenhouse gas facilities. Ford also conducts voluntary CO₂ emission reporting in “Argentina, Australia, Brazil, Canada, China, the Philippines, Taiwan, and the US” (Ford, 2013).

The company also reports several data related to environmental aspects to different regulatory bodies. Ford has environmental data in its management database for comparison, evaluations, decision-making, and improvement. This offers a consistent way of monitoring and measuring emissions.

From these data and others, one can observe that external assurance has helped Ford to enhance its Sustainability Reporting. External assurance provides better insights than internal control systems. Moreover, the company’s assurance and data are clearly marked and explained in data charts.

Conclusion

Sustainability focuses on how firms should meet their present needs without comprising future generations. Ford has aligned its Sustainability Report 2012/13 and other previous reports with the Global Reporting Initiative (GRI) G3 Sustainability Reporting Guidelines released in October 2006 (Ford, 2013; Global Reporting Initiative, 2006). As a result, Ford has been able to capture and present several aspects related to economic, social, and environmental issues of sustainability.

Several theories exist to explain the concept of sustainability in organisations. These theories strive to explain why organisations and stakeholders behave in specific ways. The major framework for explaining sustainability is the triple bottom line. The TBL focuses on three critical areas (profit, people, and planet) that affect organisation and stakeholders.

Stakeholder theory emphasises the importance of critical stakeholder inclusiveness in the organisation because of their influences on strategic objectives and impacts of such strategic objectives on them. Ford continues to establish its legitimacy by satisfying the needs of stakeholders in areas in which it operates. It also recognises resource-based factors and market influences, which show that society is dynamic and the needs of stakeholders are not permanent, but change with time.

It is advisable for firms to use both internal and external assurance. While internal control systems are suitable for assessment of internal practices, external assurance focuses on broad areas beyond the organisational internal structures.

The GRI G3 recommends that organisations should use external assurance in their sustainability reports in order to establish credibility and present accurate information. On this note, Ford has used external assurance in its sustainability report. It is necessary for an organisation to have assurance at the external level because external assurance offers recommendations for improvement (Global Reporting Initiative, 2006).

Reference List

Ford 2013, Ford’s 2012/13 Sustainability Report. Web.

Freeman, E 2004, A Stakeholder Theory of Modern Corporations: Ethical Theory and Business, 7th edn, Pitman, Boston.

Global Reporting Initiative 2006, Sustainability Reporting Guidelines. Web.

Gray, R 2010, ‘Is accounting for sustainability actually accounting for sustainability…and how would we know? An exploration of narratives of organisations and the planet’, Accounting, Organizations and Society, vol. 35, no. 1, pp. 47-62.

Miles, S 2012, ‘Stakeholders: essentially contested or just confused?’, Journal of Business Ethics, vol. 108, no. 3, pp. 285–298.

Owen, D 2008, ‘Chronicles of wasted time?: A personal reflection on the current state of, and future prospects for, social and environmental accounting research’, Accounting, Auditing & Accountability Journal, vol. 21, no. 2, pp. 240 – 267. DOI 10.1108/09513570810854428.

Ratner, B 2004, ‘Sustainability as a Dialogue of Values: Challenges to the Sociology of Development’, Sociological Inquiry, vol. 74, no. 1, pp. 50–69.

Roberts, R and Mahoney, L 2004, ‘Stakeholder Concept of the Corporation: Their Meaning and Influence in Accounting Research’, Business Ethics Quarterly, vol. 14, no. 3, pp. 399-431.

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