Sustainability and triple bottom line reporting in manufacturing industry in Vietnam

Literature Review Lessons from others countries Regression model Recommendation Limitation Objectives: Explain why manufacturers and certain companies should issue TBL report Research questions: What is TBL reporting? What are the factors affecting the decision of issuing Triple Bottom Line report in Vietnam? What are recommendations for manufacturing companies and Vietnamese government? Triple bottom line: is an accounting framework with three parts: social, environmental (or ecological) and financial. (John Elkington, 1997). Figure 1 Three bottom line factors

Sustainability and triple bottom line reporting in

manufacturing industry in Vietnam

Hoang Thi Bich Ngoc

Objectives and research questions

Profit People

Literature review

Triple bottom line: is an accounting framework with three parts: social,

environmental (or ecological) and financial (John Elkington, 1997).

Figure 1 Three bottom line factors

Source: Created by author

Literature review

CSR: Corporate Social Responsibility is the continuing commitment by business to

behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.

- The World Business Council for Sustainable

Development-Business benefits of TBL reporting

• Enhancement of reputation and brand;

• Securing a ‘social license to operate’;

• Attraction and retention of high caliber employees;

• Improved access to investors;

• Reduce risk profile;

• Identification of potential cost savings;

• Increased scope for innovation;

• Aligning stakeholders needs with management focus; and

• Creation of sound basic for stakeholder dialogue

- the US Department of Commerce’s Sustainable Manufacturing

Initiative-Theoretical framework

• Legitimacy theory:

Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions (Suchman, 1995).

• Stakeholder theory:

suggests that companies will manage these relationships based on different

factors such as the nature of the task environment, the salience of stakeholder groups and the values of decision makers who determine the shareholder ranking process (Donaldson & Preston, 1995).

Lessons from others countries

UK:

• Treasury (Her Majesty's Treasury) issued guidance, minimum requirement

• Award for sustainability reporting called Building Public Trust Awards

• In 2013, 91% of companies published sustainability report (KPMG)

 Australia

• 82 % of firms issuing report in 2013

• Heavy industry and resources-based sectors always has high rate of publishing report

=> In developed countries, TBL is popular It is highly appreciated in high profile industry.

Source: KPMG International, The KPMG survey of Corporare responsibility reporting,2013

Lessons from others countries

Thailand

• The growth in manufacturing sector caused the environmental crisis

• In 1999, Thai listed companies were asked to promote and build corporate

governance practices into their annual reports

• In 2007, voluntary reporting was changed to a “comply or explain” approach due to

the inefficiency of the previous policy However, Thailand does not have any regulation requiring corporate environmental reporting.

=> In developing countries, TBL reporting is increasingly concerned as a tool for dealing with environmental crisis

Overview of TBL reporting in Vietnam

• CSR concept was first introduced by transnational companies (Nguyen, 2007)

• In 2014, 28 companies in the top 50 companies in Ara Vietnam 2014 disclosed

non-financial data

• TBL report is still a voluntary report in Vietnam The majority of TBL disclosing

companies are big corporation.

• With the growth in economy and manufacturing sections, Vietnam are facing

with environmental crisis (Like Thailand in 1990s)

• Today, TBL reporting is increasingly concerned in Vietnam, especially in the

manufacturing sector.

Relationship between TBL reporting decision

and factors

• Model: Probit and logit

• Reason: Probit and logit regression model is the nonlinear regression model

designed for binary dependent variables

Table 1: Hypothesis

Variabl

e Expected gap Theory Previous research author Reason

Age +/- Stakeholder Brammer and Pavelin

(2008), Suttipun (2012) - Old company -> diversify business and various stakeholders -> need to provide information in various aspects -> TBL Rank + Stakeholder - Good performance ->spare money -> Do CSR

Debt + Stakeholder

and legitimacy

Schipper (1981) - High debt -> need to cut cost -> Increase chance to harm people and

planet -> Issue TBL to prove that they are social responsible

- Gain support from public to raise performance ->Pay debt Equity + Stakeholder Bammer and Pavelin 2008 - High equity -> Many stakeholder group -> provide information in

Multiple Regression model

Variables Coefficient Standard error p>|z|

Rank -0.0136 0.0212 0.532 Age 0.0122 0.2252 0.588 Debtm -0.0188* 0.0104 0.07 Equitym 0.2574** 0.1318 0.05 ROA 0.1007* 0.056 0.072 Manufacturing 1.7206*** 0.6691 0.01 Big4 0.0962 0.5816 0.864

Table 2: Coefficients in Probit and Logit model

Source: Illustrated by author

*is the significant level at 10%

** is the significant level at 5%

*** is the significant level at 1%

In which:

Table 3: Regression model result

Variabl

e Expected sign Result sign Significant Meaning

Age +/- + Insignificant Age of companies does not have significant impacts on TBL

industry + + *significant Companies operating in manufacturing industry tend to issue sustainability report.

Type of

auditor + - Insignificant Type of auditor does not have significant impacts on TBL reporting decision

Table 4: Result explanation

Variabl

Age + Insignificant Young company has been aware about CSR and TBL reporting while in

some old companies CSR is not focused activities

Rank - insignificant Ranking criteria is complex (performance, activities,…)

Debt - Significant High debt companies want to hide non-financial information They do

not want to use money for CSR and TBL reporting when in loss situation Equity + Significant High equity means they need to use TBL report to inform to stakeholders

in various aspects ROA + Significant Good performance companies have nothing to hide They use TBL report

to gain public trust.

Type of

industr

y

+ *significant Manufacturing companies disclose TBL report to ensure their impacts

are still at acceptable level

Type of

auditor - Insignificant Vietnamese companies still use Big 4 auditors to gain creditability of information They have not focus on sustainable report.

For Vietnamese companies

-Vietnamese companies should use GRI guidelines and Sustainability reporting handbook issued by IFC as the framework for TBL reporting

-High debt companies are suggested to be more open with non-financial data as it support them to gain the credit from creditors and avoid bankruptcy when stockholders are pessimistic about the current financial situation

-Good performance companies should issue TBL report to advertise their CSR activities to public.

- Manufacturers should set up their own codes of conducts and requirements

in the working environment to avoid negative harms to environment and people, cut down the waste and increase efficiency.

Subjective reasons

Vietnam corruption perception index: Rank 112/168,

Score 31/100

Institutions of the socialist-oriented market economy

According to a study of William S.M (1999) culture and

the political and civil system were the determinants of

the amount of disclosure.

=> The creditability of information is still questionable

Example 1: 1000 tons of waste were landfilled in the farm

of director of Environment company at Ha Tinh province

Example 2: Vietcombank (rank 16th in Ara Vietnam 2014)

did not issue TBL report but is ranked at 11th place in the Best 100 Vietnam working place.

Binh Minh plastic (Rank 11th in Ara Vietnam 2014) disclosed TBL report but the working place does not belong

to the Best 100 Vietnam working place

Objective reasons

- Due to the limitation in time and budget, author cannot access the information source of General Statistics Office of Vietnam as well as cannot conduct interview with specialists.

Thank you for listening!

Additional references

1 Williams, S M (1999) Voluntary environmental and social accounting disclosure practice in the

Asia-Pacific region: an international empirical test of political economy theory The International Journal of

Accounting, 34(2), 209-238.

2 Muttanachai Suttipun & Patricia Stanto (2012), Determinates of Environmental Disclosures in Corporate Annual Reports of the Stock Exchange of Thailand (SET) ,Journal of Management Studies, School of Business and Management, Faculty of Business and Laws, The University of Newcastle, Callaghan Campus, Australia.

3 http://www.anphabe.com/vietnam-best-places-to-work

4

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