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- Title
Sustainable governance and ESG reporting in B Corporations.
- Authors
Ferioli, Matteo
- Abstract
The research explores sustainable governance and the role of non-financial statements (NFS) and integrated reporting as tools to achieve environmental, social, and governance (ESG) performance to pursue a sustainable development in line with the European Union's directive. Specifically, the study focuses on the B Corporations belonging to the Italian fashion industry and explores how they communicate with stakeholders. The global business environment has become highly dynamic due to the increasing pressures posed by governments and the European Union, and companies started to find new ways to exploit opportunities to remain competitive and overcome the increasing threats. Unsustainable governance exposes companies to environmental and social risks, compromising their ability to be profitable in the long term. In this context, corporate social responsibility (CSR) became the new imperative for organizations to maintain a competitive advantage and be successful in the long-term because it eases financial constraints and market access (Gazzola, 2012; Gazzola et al., 2020b; Salo et al., 2020; Mion and Loza Adaui, 2020; Chkir et al., 2021; DiVito and Ingen-Housz, 2021; Ferioli et al., 2021; Ferioli, 2022). For this reason, companies must involve in socially responsible activities in line with the Sustainable Development Goals (SDGs) defined by the United Nations General Assembly. Today, there is a need to develop a resilient capacity and adopt sustainable governance to react to unforeseen events and promote the companies' success. B Corporations are companies that adopt sustainable governance (Gazzola et al., 2019; Ferioli, 2022) because they are guided by an innovative and sustainable business model which represent a synthesis of stakeholder theory (Freeman, 1984) and shareholder approach (Friedman, 1970). They are assimilated to hybrid models (Pache & Santos, 2013), resembling aspects of Social Purpose Organisations (SPOs) that contribute to the economy and society well-being (Moroz & Gamble, 2021). Thus, B Corporations are revolutionizing the way of doing business because they combine the need to be profitable with the urgency of social responsibility. Over the years, stakeholders have become increasingly attentive to how organizations pursue the corporate purpose, and started requiring more and more information to know what activities companies undertake to ensure the same living conditions and opportunities for future generations and to reduce the impact produced on society and the environment (Berthelot et al., 2012; Dhaliwal, Radhakrishnan et al., 2012; Joshi & Rahman, 2015; Amel-Zadeh & Serafeim, 2018). Stakeholders started evaluating companies along the Triple Bottom Line dimensions (i.e., financial, environmental, and social sustainability). In this way, social communication and the disclosure of non-financial information assumed a fundamental role, especially for sustainable companies such as B Corporations. Nonfinancial reporting allows companies and stakeholders to evaluate performance from an internal and external perspectives. Specifically, internal analysis allows to evaluate governance and policies regarding materiality, internal processes, and the impacts produced. On the other hand, external analysis explores the relations with all stakeholders. B Corporations have higher standards of purpose, responsibility, and transparency compared to traditional companies. They are for-profit companies adopting a business approach aimed at both financial, economic, and social sustainability, and are increasingly adopting integrated reporting, which is an effective social communication tool. The integrated report is the new trend among sustainable companies because it contains information on financial, environmental, social, and governance performance (Owen, 2013; Reimsbach et al., 2018). The fashion industry is one of the major producers of greenhouse gases in the world, mainly due to the consumption model created by fast fashion products, and clothing is perceived to be a perishable good to be thrown away after a short use. The growing sensitivity towards sustainability issues has created the need to combine profit with business ethics by ensuring that the products sold by fashion companies allow for a financial return while not generating negative impacts on society and the environment. To do it, sustainability must be integrated into the organization's strategy, culture, and entire value chain. Therefore, sustainability must not be limited to reporting, it should be implemented in a transversal and strategic way, otherwise there is a risk of losing investments, innovation, and competitiveness. Italian fashion B Corporations have already begun to act in this direction by integrating environmental and social objectives into their business model and proactively communicating to stakeholders the activities they involve and how they do it. They disclose the activities' progress, and their goals, as well as the company's vision. The non-financial statement plays a fundamental role to this purpose and is aimed at representing the impact of the companies' action on stakeholders, society, and the environment. The integrated report offers a much more articulated representation of sustainable governance because it includes the resources used to create value and all the areas involved in sustainability (strategy and business model, financial and ESG performance, and prospects). The research outcome highlights that all the Italian fashion B Corporations communicate their sustainable behaviors as an attachment to their financial statements, on their website home page, and on a webpage dedicated to tracking their impacts on society and the environment. Non-financial reporting allows B Corporations to effectively disclose information to stakeholders who are connected in a network of influences and is a useful reporting tool to achieve sustainable development in line with the EU directive and the SDGs. However, not all B Corporations make this document available on their website and explicitly communicate whether they are pursuing the SDGs by indicating which aspects of sustainable development management they are focusing on. The integrated reporting helps to meet the needs of efficiency and social communication imposed by the increasing pressure posed by stakeholders such as the European Union, the law, and B Lab. However, it has not been adopted by all B Corporations. Some of them still prefer to publish their report separately from their financial one because Italian fashion companies are mainly SMEs and smaller and non-public companies may decide not to disclose their financial information to all stakeholders. Furthermore, integrated reporting generates a higher cost that is reflected in different ways according to the size of a company, the resources they possess, and the complexity of the report. In the future, B Corporations should adopt more integrated reporting to have an integrated thinking of the business and show how they are using financial, human, and social resources in the short, medium, and long term. The study involves B Corporations and the adoption of non-financial and integrated reporting, a topic that has received little attention in the literature yet. In the future, the analysis may be repeated to include all new companies that have achieved B Corp certification.
- Subjects
ENVIRONMENTAL, social, &; governance factors; BENEFIT corporations (Business structure); SUSTAINABLE development; CORPORATE governance; SMALL business
- Publication
Economia Aziendale Online, 2023, Vol 14, Issue 3, p1
- ISSN
2038-5498
- Publication type
Article