Reporting on Social Impact

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Reporting on Social Impact

An Analysis of the 2017 Sustainability Reports of Large Companies in Austria from the Perspective of Impact Orientation

Über gesellschaftliche Wirkung berichten

Analyse der Nachhaltigkeitsberichte 2017 der größten österreichischen Unternehmen aus Sicht der Wirkungsorientierung

Master Thesis

Submitted in partial fulfilment of the requirements for the degree of

Master of Arts in Social Sciences

to the University of Applied Sciences FH Campus Wien European master’s degree program ‘Social Work and Social Economy’

Author:

Dr. (jur.) Márta Ágnes Dunay

Student identification number:

1710600048 Supervisor:

FH Campus Wien FH-Prof. Mag. Peter Stepanek

Reviewer:

Hochschule Koblenz Prof. Dr. Armin Schneider

Date:

29.08.2019

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Declaration of authorship:

I declare that this Master Thesis has been written by myself. I have not used any other than the listed sources, nor have I received any unauthorized help.

I hereby certify that I have not submitted this Master Thesis in any form (to a reviewer for assessment) either in Austria or abroad.

Furthermore, I assure that the (printed and electronic) copies I have submitted are identical.

Date: ... Signature:

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Abstract (English)

The thesis ‘Reporting on Social Impact – An Analysis of the 2017 Sustainability Reports of Large Companies in Austria from the Perspective of Impact Orientation’ addresses the question of the responsibility of large companies for their social impact. The aim of the research is to discover the relevance of impact orientation for corporate social responsibility, to draw a picture of the current stage of impact orientation in the CSR practice of the largest Austrian companies, and finally, to formulate a critical position on the issue. The research method is exploratory and descriptive. A quantitative frequency analysis of the sustainability reports of twenty-two of the largest Austrian companies, resulting from the reporting obligation by the implementation of the EU Directive on the disclosure of non- financial and diversity information, is followed by a qualitative case study of the three best performing (most impact oriented) reports. The results of both the literature review and the empirical study show that a transformation of expectations towards for-profit companies in society has started, meaning that they are required to assume responsibility to a higher degree for their impacts on their environment and on society. While the examined companies seem to be aware of this transformation, a conscious, strategic impact orientation does not typically describe their approach to the social matters of CSR and sustainability.

Key Terms:

Impact orientation – Sustainability reporting – Corporate Social Responsibility – Social impact – NaDiVeG – CSR Directive

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Abstract (deutsch)

Die Masterarbeit „Über gesellschaftliche Wirkung berichten – Analyse der Nachhaltigkeitsberichte 2017 der größten österreichischen Unternehmen aus Sicht der Wirkungsorientierung” befasst sich mit der Frage der Verantwortung von Großunternehmen in Bezug auf ihre sozialen Auswirkungen. Ziel der Untersuchung ist es, die Relevanz der Wirkungsorientierung für die soziale Verantwortung von Unternehmen zu ermitteln, ein Bild des aktuellen Zustandes der Wirkungsorientierung in der CSR-Praxis der größten österreichischen Unternehmen zu zeichnen und schließlich eine kritische Position zu diesem Thema zu formulieren. Die Forschungsmethode ist explorativ und deskriptiv. Einer quantitativen Häufigkeitsanalyse der Nachhaltigkeitsberichte von zweiundzwanzig der größten österreichischen Unternehmen, die sich aus der Berichtspflicht der Umsetzung der EU-Richtlinie zur Offenlegung von nichtfinanziellen und die Diversität betreffenden Informationen ergeben, folgt eine qualitative Fallstudie der drei leistungsstärksten (wirkungsorientiertesten) Berichte. Die Ergebnisse sowohl der Literaturrecherche als auch der empirischen Studie zeigen, dass in der Gesellschaft eine Transformation der Erwartungen an gewinnorientierte Unternehmen eingesetzt hat, was bedeutet, dass sie vermehrt Verantwortung für ihre Auswirkungen auf ihre Umwelt und auf die Gesellschaft übernehmen müssen. Obwohl sich die untersuchten Unternehmen über diese Transformation im Klaren zu sein scheinen, beschreibt eine bewusste, strategische Wirkungsorientierung in der Regel nicht ihre Herangehensweise an die sozialen Belange von CSR und Nachhaltigkeit.

Schlüsselbegriffe:

Wirkungsorientierung – Nachhaltigkeitsberichterstattung – Gesellschaftliche Verantwortung der Unternehmen – Gesellschaftliche Auswirkungen – NaDiVeG – CSR Richtlinie

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List of abbreviations

AG Aktiengesellschaft (stock corporation, public limited company)

CC Corporate Citizenship

COP Communication on Progress

CSR Corporate Social Responsibility

EU European Union

GRI Global Reporting Initiative

IOOI Input-Output-Outcome-Impact (Logic Model by the Bertelsmann Foundation) NaDiVeG Nachhaltigkeits- und Diversitätsverbesserungsgesetz (Sustainability and Diversity

Improvement Act)

NGO Non-Governmental Organisation

NPO Non-Profit Organisation

RBI Raiffeisen Bank International

SDG Sustainable Development Goal

SIA Social Impact Assessment

UGB Unternehmensgesetzbuch (Austrian Commercial Code)

UN United Nations

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The master thesis deals with the attitude of the largest Austrian companies towards the results of their corporate social responsibility (CSR). The objective of the research is to map how these companies present their CSR activity to the public, and to draw conclusions regarding their approach to the topic. This study focuses on social matters, thus excluding other typical aspects of CSR, such as employee-related, environmental and compliance (e.g. anti- corruption and bribery) matters.

The method used in this research to map the CSR activity of the companies is the analysis of their sustainability reports (also referred to as non-financial or CSR reports). The research interest of the author stems from the novelty value of the recent legislation, the

“Nachhaltigkeits- und Diversitätsverbesserungsgesetz” (NaDiVeG – “Sustainability and Diversity Improvement Act”),¹ altering, amongst other laws, the Unternehmensgezetzbuch (UGB – the Austrian Commercial Code). The legislation, issued on 17^th January 2017, derives from an EU obligation according to the 2014 amendment of the “Directive as regards disclosure of non-financial and diversity information by certain large undertakings and groups”. (Directive 2014/95/EU, EU-Directive or Directive) According to these pieces of legislation, all large undertakings of public interest,² exceeding an average number of 500 employees during the financial year, must include a non-financial statement in their management report. This should contain information on the company’s development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee-matters, respect for human rights, anti-corruption and bribery matters.

(§243b (2) UGB) The reporting obligation applies starting from the financial year of 2017, and effects around one hundred undertakings and groups in Austria (according to the Austrian Federal Chamber of Economy: WKO Website, 2018a)

The fact that the first compulsory reports only came out in 2018 means that they have not yet been thoroughly analysed and compared, thus creating a research gap. According to a survey by the consulting firm KPMG, prior to the obligation, only 62% of the 100 largest

1 Translation by the author of this study

2 The public interest means in this case that the companies are publicly listed or financial service providers (credit and insurance companies) (Milla et al. 2017: p. 6)

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Austrian companies (by revenue) published a report on their CSR (which makes the country fall behind the European as well as the world average). (Blasco and King 2017, p. 16) The main research interest evolves around the approach of the undertakings to presenting their results, including their impact on society. The relevance of evaluating the impact of the companies’ activities is confirmed by the CSR Directive of the EU, as well as by the NaDiVeG, as both legislative texts clearly refer to this aspect. The Directive explains the necessity of the disclosure of non-financial information with its contribution to help measuring, monitoring and managing the performance and the impact of the undertakings on the society. ((3) Directive 2014/95/EU) It also states that the companies should give a fair and comprehensive view of their policies, outcomes and risks. ((5) Directive 2014/95/EU) According to the Austrian implementation, the non-financial statement should contain the information necessary to understand, amongst other matters, the impact of the undertaking’s activities. (§243b (2) UGB)

Following the review of literature, the researcher will take a position on impact orientation (Kurz and Kubek 2016, p. 6) in social matters of CSR and will attempt to confirm or refute a connection between impact orientation and the attitude towards corporate social responsibility. This position will serve as a critical standpoint when interpreting the findings of the analysis of the sustainability reports. The analysis will be the empirical part of the research and will serve the exploration of the ways and manners of how the largest Austrian companies present the result of their CSR activities in social matters. Based on the interpretation of these findings, as well as on the literature, the researcher will critically examine the approach of these companies towards CSR as well as towards impact orientation.

Aim of the research: to draw a picture of the current stage of impact orientation in CSR, and especially in reporting practices on social matters of CSR, of twenty-two of the largest companies in Austria, and to formulate a critical position on the issue.

1.1 Research questions

• What is the relevance of impact orientation for CSR and CSR reporting, especially within the social matters of CSR? (To be answered based on the review of literature.)

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• What types of results (which level according to the IOOI logic model³) do large Austrian companies highlight when describing their social matters in their 2017 Sustainability Reports?

• How relevant is impact orientation for large Austrian companies when measuring and presenting the success of their social matters in their 2017 Sustainability Reports?

1.2 The relevance of the topic for the non-profit sector

This section of the thesis explains the importance of both corporate social responsibility and impact orientation for the non-profit sector. The aim is to place the current master thesis within the broader research field of social economy.

1.2.1 CSR and the non-profit sector

The relevance of the research topic for the field of social economy can be argued for based on the role that corporate social responsibility plays for non-profit organisations (NPOs), and vice versa. NPOs can function as a sort of “civic advocates” that monitor the behaviour of for-profit enterprises and raise their voices in case of irregularities. They also often join forces with companies within the context of CSR and build partnerships that are beneficial for both of them. (Vilain 2008, p. 136)

On the other hand, NPOs are also part of society and, as legal entities, their actions have consequences. Accordingly, they have social responsibility and can even be held accountable for an eventual negative impact on society. (Ibid.) As interesting this concept is, the focus of this study is on the largest for-profit companies, therefore, the social responsibility of NPOs will not constitute a central element of the research. It does nonetheless confirm the relevance of CSR for social economy.

Finally, several organisations of the social economy play a very important role in developing CSR guidelines and providing consulting services for businesses on their social responsibility and sustainability issues. Examples for such non-profit consulting agencies are the German Phineo gAG or Keystone Accountability from the United Kingdom.

3 IOOI (Input-Output-Outcome-Impact) is a logic model, adapted specifically to measure the civic engagement of companies by the Bertelsmann Foundation Blockhaus 2010.

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1.2.2 Impact orientation and the non-profit sector

Impact orientation – just as CSR – constitutes a highly relevant topic for the sector of social economy. Due to a competition over limited resources, more and more non-profit organisations are expected to provide evidence on the effective and efficient use of funding they had received. (Stepanek 2017, p. 379) They are increasingly called upon to plan, measure and provide proof on the outcomes and impacts of their projects. This has led to a spreading “professionalisation” of the sector, whereby strategic planning, the optimisation of processes and performance, as well as orientation towards results are gaining importance.

(Ibid.)

There are areas, where the two sectors could learn from one another: as for-profits should start integrating social and environmental values into their policies, non-profit organisations could adopt skills for a more economical management. There are other aspects, however, where both sectors still have to grow. Even though the focus of this thesis is on the commercial sector, it hopes to contribute to the development of an impact-oriented attitude in both for-profit and non-profit organisations, by providing valid arguments backed up by theory, as well as by collecting a number of practical tools and methods for managing and reporting on social impact.

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2 Definition of Terms

The previous chapter established the research interest, formulated the research questions and placed the topic within the broader research field. This chapter defines the expressions that are the most relevant to this research. Besides clarifying how these phrases are used throughout this work, the following explanations also provide an overview of the topics that this thesis addresses.

2.1 Corporate Social Responsibility (CSR)

The term “social responsibility” in the context of businesses appeared in the early 1950s (Carroll 1999, p. 269) and its definition has been slightly changing ever since. Corporate social responsibility, according to the earliest definitions, means the actions of a company (or its managers) that go beyond its direct economic (or technical) interests and benefit a wider group of people. Whether the enterprise’s long-term economic gains are relevant or even desirable for the definition of CSR varies, however, it had been recognised early on that such actions do not necessarily cause economic loss, on the contrary, they can result in an increase of profit. (Ibid. p. 271)

In 2001 the European Commission defined CSR as follows:

“a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”

(COM(2001) 366 final).

To interpret this definition, it is essential to know who the stakeholders of corporations are.

The term comprises all groups and individuals that could possibly have an interest in the operations of the company. These are typically managers, shareholders, employees, customers, suppliers, government and the immediate or even the broader community. (Idowu and Capaldi 2013, p. 2317)

From the lawmaker’s point of view, CSR is a regulatory framework imposing, mostly through soft law, new commitments on companies. (Ibid. p. 579) However, according to the definition of the European Commission, CSR is voluntary. This means these operations are expected to go beyond not only the duty of the company towards its shareholders, but also the obligations stipulated by the law.

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Finally, CSR is also a dialogue between businesses and society. As suggested by the European Commission, the social and environmental concerns should be integrated in the companies’ interactions with stakeholders. CSR can also be understood as a call on businesses from civil society “to provide welfare services where national governments (…) are not willing or able to do so”. (Idowu and Capaldi 2013, p. 579) At the same time, CSR is the language in which companies answer to the public: “(CSR) addresses and captures the most important concerns of the public regarding business and society relationships.”

(Carroll 1999, p. 292)

The European Commission renewed its definition of CSR in its communication entitled ‘A renewed EU strategy 2011-14 for Corporate Social Responsibility’, adopted on 25 October 2011. According to this document, CSR is “the responsibility of enterprises for their impacts on society” (3.1 COM(2011) 681 final), which shifts the focus from the classical CSR activities, like donations or corporate volunteering – also called corporate philanthropy, (Cunningham 2014, p. 4) or corporate citizenship (Deuerlein et al. 2003, p. 8) – and highlights that all of the operations of an enterprise have impacts on the society, for which the company bears responsibility. This definition is especially relevant for this thesis, as it provides a tangible link between social impact and CSR, which brings us closer to answering the first research question.

Corporate Social Responsibility, therefore, is not a collective term for socially conscious actions such as donations to charitable projects of non-profit organisations. It is rather a company’s responsibility for the impacts on society of all of its actions, whether they are business related or philanthropic.

2.2 Corporate Citizenship (CC)

Although often used as a synonym for CSR, corporate citizenship can be understood as the part of the social responsibility of a company that is outside its core business operations.

(Deuerlein et al. 2003, p. 8) This includes donations to NPOs as well as diverse forms of partnerships with the non-profit sector. There is a very broad palette of possible motivations behind this type of activity, from economic considerations to a sense of moral obligation.

(Ibid.)

Others, on the other hand, define CC as an even broader concept as CSR. In this sense CC includes a full range of external and internal activities contributing to the “well-being of

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society” (Idowu and Capaldi 2013, p. 475), comprising both the concept of CSR and that of sustainability. (Ibid.)

As both expressions essentially embrace the same corporate behaviour, unless stated otherwise, the concept of corporate citizenship will be interpreted as a very close relative – if not a synonym – to CSR. The author will use the expression of corporate social responsibility whenever a distinction is irrelevant, however, the literature review will include research on CC in connection with impact orientation to cover as much available literature as possible. Nevertheless, it is acknowledged that corporate citizenship is a notion that has an additional meaning in comparison to CSR. Endowing corporations with citizenship similar to that of human beings opens a wide range of interesting philosophical and legal questions, however, discussing these would unfortunately exceed the limits of this thesis.

2.3 Social impact

It was established in subchapter 2.1 on CSR that companies and their actions have impacts on society. This section explains the broader meaning of social impact. More generally, it is the result of practically any activities on a societal level (Kurz and Kubek 2016, p. 5), which includes changes in the socioeconomic conditions of society. (Ibid. p. 37) As many projects are focused on a territorially limited target-group, changes in a specific community (a portion of society) can also be regarded as social impact. (Ibid.) People can be affected by a project without being directly targeted by it or involved in it. In this sense social impact affects a wider target-group then the project itself. It also has a wider time-frame, as results on a societal or community level can occur significantly later then the project activities were carried out. (Ibid. p. 38)

Social impact can also be defined as the intended, positive, long-term social results of the activities of social investment programs. (Cunningham 2014, 4; 6) This might include changes in behaviour, systems and communities. (Ibid. p. 6) When defining social impact in relation to the CSR activity of private companies, demonstrating these positive outcomes to stakeholders (for example through reporting) is an integral part of the concept of social impact. (Ibid. p. 4)

In Cunningham’s work the focus is on social investment programs (or corporate philanthropy) that are most often implemented through partnerships with non-profit organisations. (Ibid. p. 5) In this case, the impact of the company’s social investment occurs

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mostly indirectly, through the work of the NPO. (Ibid.) However, as previously mentioned (see subchapter 2.1), this thesis defines CSR as responsibility for all actions of a company, either related to core business or not. In this sense, companies can also have positive social impacts through their own operations, related to their main business: investments that develop infrastructure or create jobs, products that improve quality of life, supply chain management that empowers poor communities and ensures fair labour conditions etc.

(Visser 2014, p. 4) Throughout this thesis, unless stated otherwise, the term “social impact”

covers all possible social impacts of corporate activities, whether direct or indirect, resulting from core business or philanthropic activities.

2.4 Impact orientation

Impact orientation (or “Outcome and Impact Orientation”) is an approach to project planning and implementation. The focus during the entire process (from planning to reporting) is on achieving specific goals on the outcome and impact level. (Kurz and Kubek 2016, p. 6) These levels are described in detail in the so-called “Results staircase”, developed by PHINEO, a German analysis and consulting agency supporting effective civic engagement. Their staircase model (see Figure 1) depicts the levels of results as follows: the lowest 3 levels are the outputs (activities are carried out; target groups are reached, and they have accepted the offer). These are results, but not effects. Effects first occur on the outcome and impact levels.

The first category – the outcomes – are changes perceivable within the target group (they develop skills or a new attitude, their behaviour or even living-conditions change), whereas impacts are changes on a societal level (as explained in subchapter 2.3). (Ibid: p. 5) It is essential for impact-oriented project planning that goals are defined on level four of the

“Results staircase” and above. (Phineo 2013, p. 17)

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Figure 1: PHINEO’s “Results Staircase”

(Source: Kurz and Kubek 2016, p. 5) Another logic model that compliments the “Results staircase” is the IOOI (input-output- outcome-impact) model. (Blockhaus 2010, p. 6) Although less detailed than the “Results staircase”, it includes an additional step, the first one: resources invested in the project (input), which is missing from the staircase model, not being a result. The empirical part of this research relied on these models when evaluating the impact orientation of the analysed reports (see subchapter 5.3).

Even though the concept of impact evaluation exists everywhere, the term “impact orientation” is more common in German speaking countries (“Wirkungsorientierung”). As the word “orientation” expresses a more general approach compared to “evaluation”, the author of this thesis will use the expression “impact orientation”.

The author of this study uses the term to express motivation and willingness to plan, measure and demonstrate the social results of CSR projects, therefore, excluding the possible impact of these actions on the profit, or any other economic interests, of a company. The exact meaning and significance of impact orientation for corporate social responsibility will be explored through the literature review (chapter 3).

2.5 Sustainability report

The meaning of sustainability can be best grasped based on the definition of sustainable development of the World Commission on Environment and Development in their report,

‘Our Common Future’:

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Sustainable development is the “…development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (Brundtland et al.

1987, p. 41)

The three dimensions of sustainability are social, economic and environmental. (Idowu and Capaldi 2013, p. 2361) This so-called “triple bottom line” have been balanced by companies through their corporate social responsibility, which is why the two concepts (CSR and corporate sustainability) have often been used as synonyms. (Ibid.)

The sustainability reports are often the result of the obligation deriving from the Directive 2014/95/EU on the disclosure of non-financial and diversity information, but can also be published on a voluntary basis by companies outside the scope of the Directive or the national laws implementing it. When fulfilling the legal obligation, the report should include information on the company’s development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee-matters, respect for human rights, anti-corruption and bribery matters. (§243b (2) UGB)

A CSR report can be defined as a document published usually annually by a business corporation, that:

“…provides information to its stakeholders and the general public on its nonfinancial contributions to society – that is, all the social, economic, and environmental activities it has undertaken during a particular period,” (Idowu and Capaldi 2013, p. 594)

Thus, the contents of CSR reports are also supposed to cover the three dimensions of sustainability: social, economic and environmental matters. Since the expectations towards the contents and perspectives of the CSR and the sustainability reports are essentially the same, these expressions seem to be interchangeable. The expression “non-financial report”

is also known as a synonym of the other two, as CSR and sustainability reports mostly disclose non-financial information. (Ibid. p. 2168) As throughout the review of literature no evidence has been found of a different meaning of any of these three terms (CSR-, sustainability- or non-financial report), they will be used interchangeably in this thesis.

Sustainability reporting often follows specific standards and guidelines. One of the most common frameworks is a set of standards by the Global Reporting Initiative (GRI), sponsored by the United Nations (see section 3.4.4). GRI promotes economic, environmental and social sustainability and its reporting standards enable companies to measure and report their sustainability performance. (Ibid. p. 2170)

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After clarifying the meaning of the most important terms and concepts, the next chapters will provide the theoretical background for the research. The researcher argues for the relevance of impact orientation for corporate social responsibility from different aspects.

First, by describing the benefits of the impact-oriented approach, followed by providing evidence for its presence in the contemporary understanding of CSR and by connecting impact orientation and social responsibility to the larger context of an evolving social and economic order. The theoretical argumentation is followed by an overview of practical approaches to managing social impact.

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3 Impact orientation and CSR

This chapter aims to discover the current state of research in the field of corporate social responsibility, to confirm the relevance of the topic of this thesis and to uphold the legitimacy of the research interest, but most importantly it will provide an answer to the first research question: “What is the relevance of impact orientation for CSR and CSR reporting, especially within the social matters of CSR?”

The connection between social responsibility and social impact is implicit in the various definitions of CSR. For example, CSR is to benefit a wider group of people (Carroll 1999), or to contribute to the well-being of society (Idowu and Capaldi 2013). The concept of CSR suggests that such activities seek to achieve an improvement (“benefit” and “contribute”), they aim to have an impact. In the European Commission’s definition of corporate social responsibility, this connection becomes explicit: CSR is the responsibility of enterprises for their social impact. (3.1 COM(2011) 681 final) This definition suggests that enterprises, whether willingly or otherwise, have an impact on society, even those that are not motivated in their CSR operations by achieving a positive effect outside the immediate company interests. However, as the expression “corporate social responsibility” suggests, enterprises have a moral liability to make sure that this impact is positive, or at least not harmful.

The fact that philanthropic CSR projects – as well as other company activities – de facto have an impact on society already suggests a connection between CSR and impact orientation. However, this actual connection does not necessarily mean that companies operate in an impact-oriented manner. This would mean a conscious approach throughout planning, implementing, controlling and reporting on their CSR operations. This thesis seeks to contribute to discovering whether companies operate in such an impact-oriented manner.

3.1 Driving forces of CSR

The starting point in searching for the connection between CSR and conscious impact orientation was the idea of “social impact as a motivator” for companies that engage in corporate social investment operations. (Cunningham 2014, p. 4) In case having a positive social impact is the driving force for companies when making CSR-related decisions, their CSR is impact-oriented. In the following, a selection of theories on corporate attitudes towards CSR is presented with the purpose of discovering what are the major drives for

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companies in CSR-related decisions, especially whether the wish to have a positive impact on society plays a role in CSR policy.

3.1.1 Layers of CSR

According to Carroll’s model explaining CSR, the social responsibilities of businesses have four layers (see Figure 2). (Idowu and Capaldi 2013; Carroll 1999) The first one is economic:

the company’s primary obligation is to produce goods or services and always be profitable.

The second responsibility of businesses is legal: while operating, the company must obey certain laws and regulations. Furthermore, companies have ethical responsibilities in compliance with the moral standards of its stakeholders (shareholders, customers, employees, community etc), even if these are not codified into any law. As for the fourth layer, according to Carroll, businesses also have a philanthropic responsibility which is, unlike the other three layers, not expected, but merely desirable. Donations, employee volunteering and other similar – voluntary – actions would qualify as responsibilities of the philanthropic layer. (Idowu and Capaldi 2013, p. 581) While the guiding principle of the layer of ethics is “to avoid harm”, the layer of philanthropy goes one step further and requires the company to contribute to the community and improve the quality of life. (Carroll 1991, p. 42)

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Figure 2: The Pyramid of Corporate Social Responsibility

(Source: Carroll 1991, p. 42)

What makes this model interesting is that instead of focusing on the contrast between the economic responsibility (as an obligation towards shareholders) and the other three as responsibilities (as obligations towards society), it tries to regard these four as one unified system. This means that these components are not mutually exclusive, on the contrary, companies should make their decisions in a way that they simultaneously fulfil all of these four obligations. (Ibid.)

3.1.2 Motives of CSR

Following Carroll’s model, the second theory the researcher examined was Idowu and Capaldi’s motives of CSR. (2013) As the authors explain (Ibid. pp. 582–583), there are three motives to engage in CSR. These are intertwined in practice but can be best explained in isolation. The so-called business case, similarly to the economic layer of responsibility based on Carrol’s theory (Carroll 1991), is a financial drive for companies to engage in CSR. This covers many possibilities, from changes in the core business, such as a more environmentally

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friendly production or transportation system that is cost-saving at the same time, to competitive advantages through better consumer perception of the enterprise.

The second motive is societal pressure, exercised by consumers, NGOs and governments.

(Idowu and Capaldi 2013, p. 583) For this motive to work, the pressuring group must be involved in consultation at the least, the company needs to be willing to listen to their demands. The Directive 2014/95/EU, followed by national legislation – which is the source of research interest for this thesis –, is an example of societal pressure. Being obligated to report on CSR implies a strong expectation to engage in related activities. Even though the immediate subjects to this law are only the enterprises with more than 500 employees, it cannot be excluded that others might alter their behaviour as well, based on the societal expectations suggested by the legislation.

According to Idowu and Capaldi, the third possible motive for CSR is ethical. (Ibid.) Behind the decisions of enterprises, there are always individuals: managers, CSR officers, company owners etc. If they decide to undertake an activity or refrain from another, based on their perception of what is fair, just, or right, they must have considered ethical arguments in their decision. As decisions based on ethical motives might contradict economic arguments and therefore lead to shareholder dissatisfaction, this motive is likely to be more prevalent in smaller, family- or employee-owned businesses. (Ibid)

3.1.3 Stages of CSR

After the layers and motives of CSR, the third and last examined theory was the stages of CSR by Visser (2014). According to him, CSR has five stages: defensive, charitable, promotional, strategic and transformative. These are typical of five different ages in the evolution of CSR-understanding, while an enterprise can have activities in different stages at the same time. (Visser 2014, p. 7) Visser is very critical of the first four stages, he states that until companies are stuck in these, “CSR will continue to fail”. (Ibid.)

The first stage is the defensive CSR, characterizing the “age of greed”. (Visser 2014, p. 9) Corporations with a defensive CSR engage in corporate sustainability and responsibility practises on the condition that such actions will protect shareholder value. (Ibid.) The main goal of this approach to CSR would be the avoidance of fines and penalties through ad hoc interventions, like spending on pollution controls. (Ibid.) Such expenditures are defensive, hence the name of this stage.

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Charitable CSR, the next phase, is motivated by philanthropic considerations. (Ibid: p. 10) While philanthropy, being a human characteristic, is mostly typical for individuals, wealthy entrepreneurs often arrange their charitable donations through corporate foundations with the purpose of “giving back to society”. (Ibid: p. 11) This form of CSR has the prerequisite of having already achieved financial success (“post-wealth generosity” – Ibid.). The fact that the way of obtaining this wealth is not in question could raise an ethical debate, which is, unfortunately, outside the scope of the current thesis. This also means however, that in this stage CSR is not integrated in the core business, it is reduced to donations for causes that are entirely separated from the normal scope of the company’s activities.

Today, according to Visser, the attitude of philanthropy is increasingly becoming a form of PR and is used to promote the company’s brand. (Ibid: p. 11) Promotional CSR, the third stage, is driven by marketing. According to multiple studies Visser refers to,⁴ (Ibid: p. 12) improving company or brand image, building trust and reputation are the leading factors for CEOs to engage in CSR activities. Similarly to the charitable stage, social responsibility is separated from the core business activities. The latter can even be harmful for society, and CSR is supposed to mend the image problems caused by the negative impacts of the company.⁵ (Ibid.)

The integration of CSR activities in the core business appears in the age of management.

Strategic CSR, the fourth stage, is a complete system of planning, implementing, auditing and reporting on social responsibility. (Ibid: p. 14) It addresses the material impacts of the company by adopting codes and standards that apply to the core business and serves society through trying to avoid negative impacts in the first place. (Ibid: p. 15)

Transformative CSR or CSR 2.0 is the desirable approach, according to Visser. While strategic CSR focuses on the micro level, transformative CSR seeks to understand the interconnections of the macro level of society. Companies that have achieved this phase are not afraid to change their strategies for the benefit of the larger system. (Ibid: p. 16) These very few companies are striving for zero negative impact and even beyond (“restorative business”). Their efforts towards sustainability can even include lobbying for policy reform,

4 Accenture and UN Global Compact (2010) A new era in sustainability [CEO survey]; MIT Sloan Management Review and BCG (2009) The business of sustainability. Special Report; MIT Sloan Management Review and BCG (2011) Sustainability: The ‘Embracers’ Seize Advantage. Special Report

5 When dishonest, this practise is also referred to as “greenwashing” by its critics. Lee et al. 2018.

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working to shift practices in their industry sector and spreading sustainable and responsible cultural values. (Ibid: p. 18)

These three CSR concepts (Carroll 1991; Idowu and Capaldi 2013; Visser 2014) provided a theoretical background to understand the different attitudes of companies towards their social responsibility. In the following subchapter the researcher argues that using impact orientation as an overarching principle of corporate social responsibility would be beneficial from many aspects. The potential benefits of this approach are deduced from the above introduced concepts. As the current thesis focuses on reporting practices, impact orientation in CSR reporting is emphasized within the general CSR policy.

3.2 Stakeholder benefits of an impact-oriented CSR

Impact-oriented CSR and reporting practice mean addressing not only what the company is doing, but also what it is achieving. It represents another approach in selecting performance indicators: instead of reporting on input (e.g. money spent per project) or output (e.g. number of events organised), the focus is on the positive effects of the operations, including negative scenarios that were avoided due to the company’s activities. The effects include changes in the attitude, skills, behaviour or living conditions of the target group (outcomes), as well as changes in communities or in the society (impact). (Kurz and Kubek 2016, p. 5)

Planning and measuring outcomes and impacts is arguably more difficult than it is to plan and measure inputs and outputs, particularly as these tend to be more quantifiable. However, there are instruments to manage the outcomes and impacts of projects (some of these are discussed in subchapter 3.4). This section seeks to provide valuable arguments for not only managing results of CSR on an outcome and eventually impact level, but also including these in the non-financial report. The different CSR-theories discussed in subchapter 3.1 are reframed here from the aspect of the target groups of the CSR-related communication and consequently the target group of the reports. The researcher will argue that each target (or stakeholder) group has a major interest to be informed about the impact of the company’s operations. As these groups are at the same time stakeholders of the enterprise, it is in its best interest to meet these expectations.

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3.2.1 Shareholders, owners and investors

In Carroll’s theory (1991), this group, due to its expectation towards the enterprise to always be profitable, corresponds to the philosophy of economic layer, while in Idowu and Capaldi’s motives of CSR (2013) to the business case, as having a purely financial drive. In Visser’s stages of CSR (2014), the interests of this group are most prominent in the first – defensive – stage, where protection of shareholder value is an essential requirement for CSR.

Besides maximizing their profit, the interest of shareholders is being informed on the management of their investment. An adequate, transparent reporting practice towards shareholders would make it a priority to assure investors that the (social) return on their investment – meaning the effects resulting from the deployment of their financial resources – was as high as possible. A thorough account on the outcomes and impacts achieved through investing money that ultimately belongs to them is a clear shareholder interest.

3.2.2 Customers, prospective investors and future employees

The tremendous marketing potential in CSR is hard to deny. A profit-oriented enterprise will want to sell: sell its goods or services to customers, sell its shares to potential investors or

“sell” job opportunities to future employees to attract the best workforce. Offering good products and services (to customers), convincing numbers (to investors) or a secure workplace (to job-seekers) is no longer enough to be successful in these business transactions. According to Kotler’s theory on marketing 3.0, consumers are not one- dimensional “buyers”, only interested in the product itself when making their decisions, but much rather humans with values and visions. Therefore, marketing 3.0 must set its sights on improving our world, as opposed to the earlier goals of selling products (marketing 1.0) or satisfying and retaining customers (marketing 2.0). (Kotler et al. 2010, 24, Table 1)

“In a chaotic world, (consumers) are looking for companies with a mission, vision and values that correspond to their very own desire for social, economic and environmental justice”.⁶ (Kotler et al. 2010, p. 22)

Therefore, based on Kotler’s theory, proving that the company contributes to the triple- bottom-line of sustainability is a crucial part of marketing. The disclosure of CSR

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information can complement and verify the communication of the mission, vision and values of a company, and thus can further improve its reputation.

Visser’s category of promotional CSR (2014) also describes an activity that is driven by the desire to build trust and improve brand image. Similarly, Idowu and Capaldi’s business case CSR (2013), characterized by having a financial drive, aims to attain competitive advantages through better consumer perception of the enterprise. As for Carroll’s theory (1991), both the economic and the ethical layer of responsibility contain elements that correspond to this group of stakeholders. Based on the latter, the actions of the enterprise must comply with the moral standards of its stakeholders, such as customers, employees and investors. The good will of these actors is essential for the survival and success of the company.

The sustainability reports are not to be used as promotional material, as that would contradict their true purpose of serving transparency. However, in case the company still employs CSR as a marketing instrument, the non-financial reports could be considered a useful surface of self-representation (while observing the principle of honesty and transparency). As such, they need to attract attention and be convincing in a similar way to advertisement. Impact orientation could play a key role in this endeavour, as it has the potential to make an impression on its audience through a comprehensive, multifaceted and value-based account of activities, much more so than the listing of quantified inputs and outputs.

3.2.3 Communities and the society

Among Carroll’s layers of CSR (1991), philanthropy embraces those activities that contribute to society. The drive behind this layer is not to serve the enterprise or to please its investors and customers, but clearly to achieve an improvement in society. Similarly, the charitable CSR in Visser’s theory (2014), that is also guided by philanthropy, derives from a wish to give back to society, which also includes the notion of aiming for a positive change.

From Idowu and Capaldi’s motives of CSR (2013), the interests of this stakeholder group correspond mostly to the description of societal pressure. A group with a certain amount of influence over the company, such as consumer representatives or NGOs, exert pressure on the undertaking to use its resources in a way that benefits a community or society as a whole.

In comparison to the philanthropic layer (Carroll 1991) or the charitable CSR (Visser 2014), the concept of societal pressure focuses more on the recipients and less on the donor’s perception of what would be beneficial for society. However, the groups addressed by CSR

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that is driven by these concepts are always communities seemingly independent from the company (i.e. not investors, customers, employees or other internal actors).

RespAct – the leading CSR initiative in Austria – uses the expression “licence to operate” to describe the consent of society to the activities of a company. (respACT - Austrian Business Council for Sustainable Development 2010, p. 49) The trust and acceptance of society can be obtained through active CSR engagement, but it can be withdrawn in case of a (moral) crisis. (Ibid. p. 9; 49) In practice, society can be represented by NGOs and CSR award committees that profess the general acceptance or distrust towards a company and with that they provide feedback on its current moral assessment.

Looking at social responsibility from the aspect of society, having an impact plays a major role in CSR policy. For the beneficiaries of CSR, the inputs are irrelevant, their only concern is that the measures have a positive effect on their lives. As a potential target group for the non-financial reports, their interest, therefore, is clearly in an impact-oriented reporting practice.

3.2.4 Legislator

The next stakeholder group are the law-makers on different national and international levels (European Commission and Parliament, national parliaments and other authorities, etc.).

Their interest in CSR is also supported by evidence from the theories presented in subchapter 3.1. Carroll (1991) explains that there is a legal layer of the companies’ social responsibilities: during its operations, the enterprise is required to obey certain laws and regulations. Furthermore, based on the theory of Idowu and Capaldi (2013), social pressure can also take the form of political pressure exercised by governments through, for example, legislative instruments.

Both the EU Directive and the Austrian law on the non-financial reporting obligation include reference to the impact of the companies’ activities as a minimum reporting requirement:

“…disclosure of non-financial information helps the measuring, monitoring and

managing of undertakings' performance and their impact on society” (Preamble (3) Directive 2014/95/EU) and “(t)he non-financial statement has to contain information that is necessary for understanding (…) the impact of (the company’s) operations”⁷ (§243b (2)

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UGB). It is, therefore, obvious that the legislator has interest in the social impact of the undertakings’ operations.

Even though the law stipulates an obligation to report on social impacts, it does not attach consequences to non-compliance with this requirement. Accordingly, it is up to the companies whether they comply and introduce this aspect into the text of their sustainability reports.

3.2.5 CSR officers and the management

A strong focus on the decision-makers behind CSR is apparent within the ethical motive in the theory of Idowu and Capaldi (2013). While the ethical motive includes an additional limitation of deciding upon what one perceives as fair or just, nonetheless, the emphasis on the individual in charge of CSR highlights them as yet another stakeholder group.

Additionally, strategic CSR (Visser 2014) as a systematic approach to developing policy, setting targets and goals, implementing programs, auditing and reporting largely depends on the people executing these steps. Impact orientation and a corresponding reporting practice fits very well into the concept of strategic CSR as described by Visser (Ibid.), especially in relation to the specific task of setting targets and goals.

The non-financial reports can serve as documentation for CSR operations in a company culture where professionalism ranks high and even social responsibility is strategically planned, carried out and controlled. In this case, the yearly reports serve as a basis for comparison of past and present, as well as starting points for improvement for the future.

In conclusion, there are many benefits for different stakeholder groups to publishing an impact-oriented report, whichever stage of CSR the company is currently in (Visser 2014) and whatever might be the motives behind their corporate responsibility decisions (Carroll 1991; Idowu and Capaldi 2013). Addressing impact is also a legal requirement. On the other hand, managing outcomes and impact is more complicated than it is to plan and measure inputs and outputs, therefore, it requires more resources (competence, as well as working hours). Social impact is inherently difficult to evaluate, quantify, or otherwise tangibly express. (Cunningham 2014, p. 11) The typically long-term nature of social change further increases the difficulty of assessing it. (Ibid.) However, regardless of who the actual target group of CSR-communications is, it can be attested that every (potential) stakeholder has an

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interest in being comprehensively informed, including the outcomes and impacts of company operations.

On the other hand, companies that engage in CSR merely for the business case – to increase shareholder value – might consider the costs of a thorough, impact-oriented reporting practice disproportionate to its benefits. And even though the CSR Directive, as well as the NaDiVeG mention the disclosure of information of the companies’ impacts, they are not specific about this requirement. (Art. 1 Directive 2014/95/EU; Art. 1 NaDiVeG, modifying

§ 243b. (2) UGB) Using an impact-oriented reporting standard, such as the GRI (see section 3.4.4), is also merely voluntary, although recommended. The next subchapter argues that companies that focus on their business case and refuse to truly embrace sustainability will fall behind, as a radical transformation of our current economic system and thinking is becoming imminent.

3.3 The evolving CSR

The concept of CSR has evolved through many phases, as Visser explains in his book (Visser 2014) on CSR 2.0 (see section 3.1.3). Today, it is no longer a series of ad-hoc charitable actions or a marketing tool. As Visser points out:

“…unless CSR is actually about solving the problems and reversing the negative trends, what is the point? CSR then becomes little more than an altruistic conscience-easer at best;

or a manipulative image-management tool at worst.” (Visser 2014, pp. 2–3)

This CSR perception explains the relevance of impact orientation for CSR, even if not using the expression itself. “Solving problems” and “reversing negative trends” are goals (achieving outcomes and impacts), while altruism and image-management are motivated actions (inputs and outputs). Therefore, this new, “transformative CSR” (Visser 2014) appears to be impact-oriented.

CSR today is the acknowledgement of the companies’ responsibility for their impacts on society (see also: definition of the European Commission – COM(2011) 681 final) by integrating social and environmental sustainability into the enterprises’ core management goals. Contemporary CSR is part of corporate governance and risk management, and means proactively and directly assuming responsibility for all actions and impacts of an enterprise.

(Bice 2015, p. 161)

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Visser describes the essence of responsibility: he defines four “DNA responsibility bases”

(analogue to the biological DNA) as value creation, good governance, societal contribution and environmental integrity. (Visser 2014, p. 3) The most important feature of these DNA bases for this current thesis is that all of them have strategic goals as well as performance indicators. Visser’s CSR 2.0 concept is, therefore, not only oriented at specific goals, it is also committed to measuring performance. The strategic goal of environmental integrity is having sustainable ecosystems; societal contribution aims at stakeholder orientation; the goal of good governance is institutional effectiveness; and that of value creation is economic development. This latter, as the author explains, does not exclusively mean financial profitability for the company, but much rather improving the economic context it operates within. Value creation includes, for example, investments of public interest (e.g.

infrastructure), job and training opportunities, or products and services that truly improve quality of life. (Ibid: p. 4)

The notion of value creation, as one of the essences of the modern CSR, has become a prevalent aspect of the discussion around CSR in the 21^st century. It is also quite relevant for underlining the importance of impact orientation of modern corporate social responsibility, as the expression grasps CSR through its goal (creating value in society) and not through the actions it covers. Value creation, as one of the responsibilities of transformative CSR, links Visser’s work (2014) to another contemporary theory that is relevant for CSR: “Creating Shared Value”. (Porter and Kramer 2011)

3.3.1 Creating shared value

In its 2011 communication, the European Commission explains the aims of CSR – the responsibility of enterprises for their impacts on society – as (1) maximising the creation of shared value for their owners/shareholders and for their other stakeholders and society at large; (2) identifying, preventing and mitigating their possible adverse impacts. (3.1 COM(2011) 681 final) While the second part (preventing or mitigating negative consequences) is not a new element of CSR, the creation of shared value was a novel aspect in that time. An article by Porter and Kramer, published in that same year with the title

“Creating Shared Value” (Porter and Kramer 2011), had quite an impact on CSR theory (Visser 2014; Liel 2016; Wieland 2017) and practice (“Measuring Shared Value based on the Porter-Modell”, WKO website 2016).

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The main statement of the article is that companies can create economic value by creating societal value. (Porter and Kramer 2011, p. 67) While arguing for this principle, the authors suggest that the legitimacy of businesses together with the reputation of capitalism has sunk and, therefore, needs to be repaired. According to the authors, this is not to be done through CSR as a peripheral activity with a marketing purpose, but through the company’s core economic activities. (Ibid: p. 64) This concept is not only consistent with Visser’s ideal of modern CSR (Visser 2014), encompassing all activities of the company (core business operations as well as classical CSR projects), but also fits the European Commission’s idea of social responsibility.

The implications of the concept of shared value for government and regulation are, according to the authors, to stop “putting blame” on companies and instead enable them in creating societal value (Porter and Kramer 2011, p. 64), as well as shifting the focus from the funds and efforts spent to results achieved. (Ibid: p. 72) The authors’ suggestion is that regulations should focus on the introduction of standards for measuring performance (including results), allowing phase-in periods and supporting innovation to encourage investment in shared values, rather than imposing punishment for harms that are already done. (Ibid: p. 72) The authors suggest that regulations should help companies realize that social harms are in fact their internal costs instead of internalizing “externalities” through penalties. (Ibid: p. 65) According to Porter and Kramer, a universal measurement and performance-reporting system will be essential in the future. (2011: p. 74) They argue that a reporting system where companies can be audited by the government if necessary is more appropriate than imposing detailed compliance processes on all actors. (Ibid.) The CSR Directive of the EU fits well into this vision and could prove to be the start of such a standardised measurement and performance-reporting system, at least in Europe. The authors define creating shared value as:

“…policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates” (Ibid. p. 67)

Advancing the economic and social conditions is an intended, positive result, thus these policies and practices could also be described as having a positive social impact. Therefore, a reporting system with the intention to measure the creation of shared value is, in other words, an impact-oriented reporting system.

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The central element of Porter and Kramer’s essentially capitalistic concept of creating shared value is economic growth. The novelty is that growth is to be achieved through creating societal value. (Porter and Kramer 2011, p. 65) To explain how economic growth could go hand in hand with the creation of societal value, the authors give an example. Companies, instead of just buying raw materials from poor farmers, also support them by improving their growing techniques and establishing or strengthening local clusters in underdeveloped areas so as to increase efficiency, product quality and yield of suppliers (Ibid.) While there appears to be a very sound logic in this argument, some other authors (Paech 2015; Rull 2011) believe that such a strong focus on growth is per se contrary to sustainable development, which leads to the next step: looking at impact-oriented CSR as a force in forming a new economic order.

3.3.2 CSR and a new economic order

Although Porter and Kramer argue for the most part within the limiting frames of the business case (profit maximalisation), growth and capitalism, the concept of creating shared value holds up just as well beyond these boundaries. As discussions around the crisis of capitalism become more and more wide-spread (Stepanek 2017, 385; Felber 2010, pp. 19–

23), new economic philosophies appear, such as post-growth economy (Paech 2015), or economy for the common good. (Felber 2010)

Felber argues that creating profit is not necessarily the only goal companies could strive to achieve. He is very critical of the capitalist market economy and suggests a new measure of success in business: contribution to the common good. (Felber 2010, p. 24) In this concept, generating profit would only be allowed for specific purposes, none of which is distribution to shareholders (unless they are employees of the firm). (Ibid. 38) Even if this sounds radical or somewhat utopian, the idea of raising the regard for creating common good to the level of the regard for generating profit within the business world is quite compelling.

Defining common good, according to Felber, is the responsibility of a democratically elected economic convention. (Felber 2010, p. 25) According to his instructions, the convention should 1) establish the fundamental values of the democratic community and even more importantly 2) determine performance indicators to measure the attainment of the new common goals. (Ibid. pp. 26-27) The focus on achieving specific goals throughout a process, as explained in subchapter 2.4, is a distinctive feature of impact orientation. Therefore, it can

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be established that impact orientation is inherent in Felber’s approach to the economy of the common good. (Section 3.4.3.2 addresses the practical use of Felber’s theory in more detail.) Visser also sees his transformative CSR as an instrument in building what he calls

“responsible capitalism”. (Visser 2014, p. 86) This new form of capitalism would serve society and sustain our planet. As principles of his concept, Visser advocates for long- termism, productive investments instead of speculative trading, including the so-called bottom of the pyramid markets (the low-income consumers), as well as creating shared value. Further fundamental principles of responsible capitalism are transparency in reporting and finally, full cost accounting. This latter translates into the internalization of social and environmental costs through either taxes or “social and environmental profit and loss accounts”. (Ibid.)

A desire for a social and environmental accounting to complement economic accounting is essentially a call on companies to add impact on society to their list of concerns, measure and improve it: in other words, to act in a (social and environmental) impact-oriented way.

Just as the annual financial report is the outcome document of traditional accounting, the annual non-financial report could be the document of social – or common good – accounting in the future. By increasing the importance of non-financial achievements, the new obligation to publish non-financial reports (according to the CSR Directive and the NaDiVeG) could be a promising step towards replacing profit-maximalization with contribution to the common good as the ultimate corporate goal.

3.4 Impact orientation in practice

After focusing on the relevance of impact orientation for corporate social responsibility in theory, this section will describe a collection of practical possibilities for companies that wish to address their social (and environmental) impacts. The following list does not cover all available tools and methods for strategically planning and managing impacts, it is a subjective selection of promising, as well as already prevailing options. The aim of this overview is to show that an impact-oriented approach is not only present in the theory, but there are already existing practical instruments that facilitate strategic management and communication of social impacts.

Reporting on Social Impact