The ethical, social and environmental reporting-performance portrayal gap

by Carol A Adams. Published in the Accounting, Auditing and Accountability Journal.  The article has been cited over 1,000 times.

Abstract  The purpose of this article is twofold. First, it assesses in detail the extent to which corporate reporting on ethical, social and environmental issues reflects corporate performance in a case study company, referred to here as Alpha. This “reporting-performance” portrayal gap is a key measure of the extent to which an organisation is accountable to its stakeholders. Alpha’s disclosures concerning its ethical, social and environmental performance for the years 1993 and 1999 were compared with information obtained on Alpha’s performance from other sources.

Two different pictures of performance emerged leading to the conclusion that, in the case of Alpha, reports do not demonstrate a high level of accountability to key stakeholder groups on ethical, social and environmental issues. Of particular concern is the lack of “completeness” of reporting. Second, the article assesses the potential of recent standards or guidelines developed by the Global Reporting Initiative (GRI) and the Institute of Social and Ethical AccountAbility (AccountAbility) as well as the industry’s own “responsible care” initiative to reduce this “reporting-performance” portrayal gap and improve corporate accountability.

The conclusions point to the need for other measures to improve accountability including mandatory reporting guidelines, better developed audit guidelines, a mandatory audit requirement for MNCs and a radical overhaul of corporate governance systems.

This article is © Emerald Group Publishing and permission has been granted for this version to appear here ( Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited.

Article citation: Carol A. Adams, (2004) “The ethical, social and environmental reporting-performance portrayal gap“, Accounting, Auditing & Accountability Journal, Vol. 17 Iss: 5, pp.731 – 757. DOI (Permanent URL): 10.1108/09513570410567791


Ethical reporting by companies has become increasingly prevalent since the mid-1980s and there is a comprehensive body of academic literature charting the extent to which multinational companies (MNCs) in particular report on ethical, social and environmental issues. The term “ethical reporting” encompasses reporting on all:

… those factors which are used by ethical investment funds to form an opinion on the appropriateness of an organisation’s business practices (see, for example, Harte et al., 1991; Rockness and Williams, 1998). This may not include much of the information on employees that is generally considered to fall within the definition of “social reporting”, but may include other issues which are not generally considered as “social reporting”. “Environmental reporting” is clearly a subset of ethical reporting and generally also considered a subset of social reporting, but as the most common type of social and ethical reporting, warrants a separate label (Adams, 2002, p. 247).

Some attention has also been paid to analysing what and how companies report on particular issues and the quality of that reporting. A great deal of effort has been put into examining why companies report what they do. Such work must continue given how rapidly the field of ethical, social and environmental reporting continues to develop internationally and given the changes in the social, political and technological context in which these developments are taking place. This study, however, examines in detail what one company does not report and how corporate portrayal of ethical, social and environmental performance compares with the portrayal of performance in sources originating from outside the corporation. Such an examination allows conclusions to be drawn about the extent to which a company has discharged its duty of accountability to stakeholders.

Accountability can be defined as the “giving of an account” encompassing, for the purposes of this article, both the “account” itself and the process followed in providing that account to stakeholders. Nowadays, stakeholders are demanding the “giving of an ethical, social or environmental account” as well as a financial account. Some companies instead now produce “sustainability reports”, but they sometimes focus on sustainability of the business rather than environmental sustainability. For example, Barry Stickings, President of the Chemical Industries Association and Chairman of BASF, finished his lecture to the Royal Society of Edinburgh on “sustainable development through innovation”, with the statement:

I see the continuing debate over sustainable development as an opportunity for responsible industries such as ours to rehabilitate the word, “profit” and bring the positive role of profits back to the centre-stage of public debate (Stickings, 2001, p. 27).

Rather than being concerned with profits and financial accountability, accountability as far as this article is concerned demonstrates corporate acceptance of its ethical, social and environmental responsibility. As such the “account” given should reflect corporate ethical, social and environmental performance.

One of the means by which companies can provide such an account is through a hard copy report. A good “ethical” report should be transparent and represent a genuine attempt to provide an account which covers negative as well as positive aspects of all material impacts. To be accountable, reports need to demonstrate corporate acceptance of its ethical, social and environmental responsibility. Such acceptance can be demonstrated through a clear statement of values with corresponding objectives and quantified targets with expected achievement dates. Companies should then report performance against those targets. Reports should give a balanced view of key ethical issues facing the company.

Perhaps the most serious problem with current reporting, and the key one addressed in this paper, is its lack of completeness. If reports are to be complete covering all material aspects from a stakeholder perspective, then key stakeholders must be consulted. The process of that consultation and the governance structures in place to ensure that stakeholders are heard are also an important consideration in moving towards completeness. The different goals of companies and their stakeholders means that reports cannot be complete unless stakeholders are consulted. And yet the much greater power of companies in this process means that the corporate perspective will dominate and stakeholder dialogue could become the ultimate legitimating tool. If an organisation can say it has consulted stakeholders in deciding what to report it makes it harder to question the content of that report. Yet it is difficult to imagine how reporting can satisfy stakeholder demands if they are not consulted. It is perhaps more difficult to see how the corporate duty of accountability can be discharged without involving stakeholders in the process. As such processes and governance structures should also be covered in the report. Prior work which highlights specific areas in which a sample of companies have failed to be accountable include:

  • Adams et al. (1995) with respect to equal opportunities disclosures;
  • Adams and Kuasirikun (2000) with respect to ethical issues in the chemical and pharmaceutical sectors; and
  • Deagan and Rankin (1996) with respect to successful prosecution under environmental legislation.

This prior work uses information available from other sources and points to non-disclosures that are material to key corporate stakeholders. The reasons for non-disclosure include a reluctance to report on negative impacts (Adams, 1999) and the social and political context at the time disclosures were made (Adams and Harte, 1998). This paper examines the extent of non-disclosure in detail for one company, Alpha[1], in two different years.

The moral arguments for greater corporate accountability arise from the increases in size, power and global spread of multinational companies and increased awareness of the impacts of companies on the environment and local communities. This increase in awareness has been brought about by the media, the Internet and the action of non-government organisations (NGOs) (see, for example, Commission of the European Communities, 2001).

In the context of little ethical, social and environmental auditing, a call for stakeholder involvement in the audit process (Commission of the European Communities, 2001) and of a huge audit expectations gap (see, Kamp-Roelands, 1999; Owen et al., 2000), the assessment of the comprehensiveness or completeness[2] of reporting provided in this paper is intended to give an indication of the extent to which stakeholders can rely on corporate reporting as a means of assessing corporate performance.

The work also briefly assesses the extent to which the current voluntary guidelines of the Global Reporting Initiative (GRI) and the Institute of Social and Ethical AccountAbility (AccountAbility)[3] might improve corporate accountability. These guidelines are recent and assessment of them is essential if they are to avoid the concerns surrounding the Sullivan principles and the way in which they masked poor performance, legitimised the corporate perpetrators and yet impressed investors (Arnold and Hammond, 1994; Patten, 1990). The GRI guidelines were selected for consideration because of their high international profile and influence and AccountAbility’s AA1000 standard because of its unique focus on the processes of accountability.

The article examines the reporting of Alpha for 1993 and 1999 comparing it with the portrayal of that company’s performance gleaned from an examination of sources external to the company. The identity of company Alpha has not been disclosed and names of products, reports, projects, initiatives and other company specific terminology have been changed. The intention is to allow the reader to focus on the accountability issues that the paper addresses rather then being influenced by their own recollections of possibly biased portrayals on the part of the company, the media or NGOs. The constraint of not revealing the company’s identity has also served to focus the writer’s attention on the purpose of examining the ethical, social and environmental portrayal gap rather than simply revealing those gaps.

Alpha is a large, multinational company operating in an industry in which environmental impacts and health and safety issues are significant. Importantly, Alpha disclosed in its environmental report for 1993 that it participated in the writing of the voluntary responsible care guidelines of the European Chemical Industry Association (CEFIC).

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Current developments in the field of ethical reporting

The purpose of this section is to review current developments in the field of ethical (including social and environmental) reporting and its processes in order to allow an assessment of Alpha’s reporting in relation to those developments. The review allows an assessment of the extent to which those developments themselves might address any shortcomings in the quality and extensiveness of reporting.

Whilst legislation is unlikely to lead to increased accountability in the UK, the duty to account for ethical, social and environmental impacts is being increasingly considered and captured by legislators around the world. For example, Australia, Denmark, The Netherlands, Norway, Sweden and the US all have mandatory requirements that companies report to the public on their environmental performance (KPMG, 1999). In the UK, only 37 of the FTSE 100 companies produce a separate environmental report (Skorecki, 2001, p. 18) and the proposals in the final report of the Company Law Review (The Company Law Review Steering Group, 2001) are unlikely to lead to improvements in accountability. They leave it to directors to decide whether or not information is:

  • “necessary to an understanding of the business” (p. 51);
  • “material” (p. 51); and
  • “necessary for an effective report” (p. 51).

In contrast, the UK Pensions Act (1995) now requires pension plans to state the extent to which ethical, social and environmental considerations are taken into account when making investment decisions. Change is slow with Friends of the Earth finding that only ten pension plans out of 100 contacted supplying information showing that they “had ‘good’ statements on socially responsible investing, monitoring mechanisms and direct engagement on these issues by money managers” (Payne, 2001, p. 15). However, in April 2001, Morley Fund Management announced that it would vote against the resolution to adopt the report and accounts of any FTSE 100 company that did not produce a separate environmental report (Skorecki, 2001). Similar legislation is being introduced in Australia and Germany. Another important development in the field which may lead to further legislation in Europe was the publication of the EC Green Paper, “Promoting a European framework for corporate social responsibility” (Commission of the European Communities, 2001, p. 3) which seeks to “bring greater transparency and to increase the reliability of evaluation and validation”.

Credibility would be added to corporate accounts of their performance if they were externally audited and data verified as part of the accountability process. However, currently, few published reports are verified or audited and the European Commission recognises that:

Verification by independent third parties of the information published in social responsibility reports is also needed to avoid criticism that the reports are public relations schemes without substance. Indeed such services are already beginning to be offered by a variety of companies, which would seek to perform them following agreed standards. The involvement of stakeholders, including trade-unions and NGOs, could improve the quality of verification (Commission of the European Communities, 2001, p. 18).

Where assurance statements are provided, credibility would be enhanced by the availability of generally applicable assurance principles and guidelines, such as those being developed by AccountAbility (ISEA, 2002).

With regard to voluntary reporting standards, there are two significant organisations involved in their development at an international level. These are the Institute of Social and Ethical AccountAbility (AccountAbility), formed in 1996 and the Global Reporting Initiative (GRI) formed in 1997. Both are international, multi-stakeholder organisations with greatest influence coming from Western developed nations[4].

The AA1000 standard was published by AccountAbility in 1999 (ISEA, 1999a, b). It does not attempt to identify issues to be addressed, but rather focuses on the processes by which companies report on their impacts. This focus is based on the premise that unless, for example, corporate values are embedded, and unless governance systems, data collection systems, reporting mechanisms and audit processes are sound, reporting is unlikely to be representative of performance or reflect stakeholder information needs. The AA1000 “principles” have been influenced by the principles of financial accounting, but a key addition is the principle of “inclusivity” referring to the reflection of the aspirations and needs of all stakeholder groups at all stages of the accounting, auditing and reporting process. Stakeholders are defined as “an individual or group of individuals who affect and/or are affected by an organisation and its activities” (ISEA, 1999b, p. 93). Customers, suppliers, employees and shareholders are recognised as stakeholders by most companies. Other stakeholders of companies in the chemical industry include local communities, politicians, the government, the media, trade unions, Friends of the Earth, Greenpeace, the Pesticides Action Network, the Royal Society for the Protection of Birds and Amnesty International. Recognising the complexity of stakeholder identification, AA1000 recommends that stakeholders assist in the identification of other stakeholders. Thus, the development of robust stakeholder engagement mechanisms is an integral part of the AA1000 process and is encapsulated by the principle of “inclusivity”, which is supported by, and infuses the operational meaning of, the remaining AA1000 principles. These can be divided into three broad groups, relating to:

The scope and nature of the organisation’s process; the meaningfulness of information; and the management of the process on an ongoing basis (ISEA, 1999b, p. 10).

The principles, which relate to the scope and nature of the organisation’s process are completeness, materiality and regularity and timeliness. Those relating to the meaningfulness of information are quality assurance, accessibility and information quality (including comparability, reliability, relevance and understandability). Those relating to the management of the process on an ongoing basis are embeddedness and continuous improvement.

This emphasis on stakeholder dialogue, and the call for it to be linked with governance structures, is an important development. AA1000 calls for stakeholder dialogue mechanisms which give stakeholders power. In practice many (deliberately) lack this robustness and inclusivity is not achieved (Adams, 1999). Some people working in this field within companies have highlighted to the writer problems of attaining inclusivity with which they are grappling. These include lack of stakeholder awareness of, and even concern for, corporate impacts. This might be industry specific or region specific and even where there is corporate will, some companies claim to have difficulty getting stakeholders to engage with them. Others have complained more explicitly of “stakeholder fatigue” in that the same stakeholder representatives are being consulted by a number of companies. One way of reducing “stakeholder fatigue” might be to engage with stakeholders on some levels on an industry basis using industry association as a vehicle[5].

There is a plethora of voluntary guidelines and standards covering various aspects of ethical, social and environmental reporting and the AA1000 Framework (ISEA, 1999b) shows how AA1000 and several of these other voluntary guidelines are linked.

The GRI’s Sustainability Reporting Guidelines first published in 2000 (GRI, 2000, 2002) focus primarily on the content of “sustainability” reports, but incorporate some of the “principles” or “characteristics” of AA1000. GRI (2000) recommends a structure for GRI reports with six key elements:

  1. CEO statement.
  2. Profile of reporting organisation.
  3. Executive summary and key indicators.
  4. Vision and strategy.
  5. Policies, organisations and management systems.
  6. Performance.

GRI (2002) moves the CEO statement to the “vision and strategy” section and removes the separate executive summary statement requirement. It adds a “GRI content index” to show where information is located in the organisation’s report. It gives guidance as to the content of each section. The GRI (2000) guidelines also call for reporting on the basis of selection of major stakeholders and approaches to stakeholder consultation, but give little guidance as to how either might be done. GRI (2002) further requires companies to report on the output and outcomes of stakeholder consultations.

Limited stakeholder dialogue is also called for in the OECD Principles of Corporate Governance (OECD, 1999). However, although the principles recognise that social, ethical and environmental impacts can have an impact on corporate reputation and long term success, their stated attention is on the governance problems arising from the separation of ownership and control. They call for “performance-enhancing mechanisms for stakeholder participation” (p. 20) and disclosure of “material issues regarding employees and other stakeholders” (p. 39), but there is little guidance on how such processes or issues should be determined. The World Bank’s Corporate Governance – A framework for implementation (World Bank, 1999, pp. 11-12) also addresses the “principal-agent” problem, but suggests that:

… the corporate governance framework should encourage active co-operation between corporations and stakeholders in creating wealth, jobs and financially sound enterprises …

However, the document talks about the board’s accountability to shareholders, not stakeholders. There is no recognition in either the OECD or World Bank documents of the conflicts that arise between stakeholder and shareholder demands, for example, when money has to be spent to protect human, animal, bird and fish plant and health life or provide for adequate and safe labelling of products.

Also at an international level there are the responsible care guidelines developed by the chemical industry and overseen by the International Council of Chemical Associations (ICCA). The European Chemical Industry Association (CEFIC) first published its own guidelines in 1993 that were revised in 1998 (CEFIC, 1998). They include 16 core indicators. Three of these are concerned with health and safety outcomes, one with distribution incidents and the remaining 12 with environmental outcomes concerning emissions and discharges of toxic substances and waste management. National federations are encouraged to add further indicators reflecting national concerns and each produces its own responsible care report (CEFIC, 1998). Each national federation collects data from its member companies for aggregation at the national level.

Many companies are still not reporting on the 16 core indicators and in this respect Alpha’s reporting is superior to many others in the industry. At the CEFIC 2000 Responsible Care conference held in Lisbon[6] there was a recognition that CEFIC and the national industry federations need to find ways of encouraging small- and medium-sized enterprises (SMEs) to report (Elghamry, 2001). There was also recognition that more needed to be done to facilitate reporting by Eastern European companies where there is still a significant proportion of government ownership and concern for economic survival (Beacham, 2001). Cultural attitudes were cited as a reason for non-reporting in some countries. Amongst other points discussed were whether broader ethical and social issues as well as health, safety and environmental (HSE) issues should be included in the core indicators, the need for global reporting standards and issues of divergence between global standards and responsible care guidelines. In particular, there was concern that any other development in responsible care should be compatible with GRI.

Despite having voluntary guidelines and reporting levels higher than many other industries, the industry still has a dirty image (see, for example, Tombs, 1993, referring to MORI poll results). One problem may be that few companies in the industry, despite their high environmental and social impacts, stand out for innovative reporting. It is quite probable that the responsible care guidelines themselves have stifled innovation, with some companies focussing only on what they require. The lack of breadth of reporting in this sector may be a case in point. King and Lenox (2000)argue that companies may sign up to industry association guidelines as a form of insurance against claims of negligence. Indeed, using data from the US Environment Protection Agency’s (EPA) toxic release inventory (TRI) they found that firms with weaker environmental performance were more likely to sign up to responsible care. Such findings lead to expectations of limited accountability confirmed by research carried out in the US by the Public Interest Research Group (PIRG) (Mullin, 1998). Druckrey (1998) head of responsible care for der Verband der chemischen Industrie (VCI), the German chemicals industry association, argues that there is a need for regulation at an international level that individual national governments cannot provide. She believes there is an “ethical vacuum” to be filled by responsible care and does not like it seen as the chemical industry’s public relations campaign.

There is currently a low level of reporting on issues known to be of concern to stakeholders, but which are not amongst the 16 responsible care core indicators. These include (Adams and Kuasirikun, 2000; UNEP, 2000):

  • equal opportunities;
  • working conditions around the world;
  • policies regarding foreign direct investment;
  • export of dangerous products or those banned in the home country;
  • labelling and packaging of chemicals; and
  • other product safety issues.

The same applies to environmental issues. Whilst the responsible care indicators are concerned with levels of emissions or discharges, stakeholders are at least as concerned with what is being done to reduce emissions and discharges of toxic substances, what the corporate targets are and why they have not been met. UNEP (2000) further raises concerns about the increasing use of fertiliser in less developed countries and its impact on the nitrogen loading. These findings apply to the industry in general whilst the next section reports on how issues omitted specifically from Alpha’s reports were found.

This article is © Emerald Group Publishing and permission has been granted for this version to appear here ( Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited.

Article citation: Carol A. Adams, (2004) “The ethical, social and environmental reporting-performance portrayal gap”, Accounting, Auditing & Accountability Journal, Vol. 17 Iss: 5, pp.731 – 757. DOI (Permanent URL): 10.1108/09513570410567791

Background information on Alpha and research method

The nature of Alpha’s business has changed significantly since 1993. During 1993, part of Alpha’s business was demerged into company Beta. At the end of 1993, Alpha was divided into a number of international businesses differentiated by product type. Since then, Alpha has bought more businesses and divested others.

Alpha produced its first environmental report in 1992 and has continued to produce one each year. The first report was 16 pages, only available in hard copy and sent to all shareholders. The report produced in 2000, covering the calendar year 1999, is packed with data and available on the Internet. A distinct hard copy format is no longer available. Prior to production of a separate environmental report, Alpha covered some health, safety, environment and community involvement information in its annual report.

The report produced in 1992 incorporated data on wastes to land, air and water for 1990 and 1991 and a commitment to reduce these wastes by 50 per cent using 1990 as a baseline, by 1995. The report produced in 1996 reported progress on that objective and launched the Environment Plus Challenge 2000 which expanded the previous focus on the environment by also setting targets for safety, health and product stewardship. In 1996, Alpha launched its approach to measuring environmental impact. It involves assigning a factor to each individual emission reflecting its impact in various environmental categories such as global warming, ozone depletion, etc. The factors are taken from scientific literature. The environmental impact of emissions is then calculated for each environmental category by summing the weight of each substance emitted multiplied by its potency factor. The intention of this is to allow Alpha to identify its most harmful emissions and provide stakeholders with a better assessment of Alpha’s environmental impacts.

The 1990s were therefore a decade of change for Alpha with regard to both the nature of its business and the development of ethical, social and environmental reporting. The selection of 1993 and 1999[7] offers the opportunity to determine the extent to which Alpha’s increased experience and expertise (as evidenced, for example, by the development of an approach to measuring environmental impact) have resulted in reporting which addresses stakeholder concerns and reflects performance. The year 1999 was selected because it was the most recent reporting year at the time of data collection and 1993 because it was one of Alpha’s early separate reports thus allowing the company to learn from its earlier reports, and its publication followed the demerger of Beta.

Initial searches for data from non-Alpha sources were conducted on all years in the 1990s that Alpha produced a separate report finding critical stories in each year. This was followed up with more detailed and extensive searching for and collection of, data for the two years 1993 and 1999 in order to ensure that the data set was complete as far as possible. The view was taken that where impacts were reported in non-Alpha sources as occurring in a particular year they should, if the reports were to demonstrate accountability, be reported in Alpha sources covering that same year. Where they were not, a check was made of the following year’s Alpha reports where impacts were significant.

A wide variety of sources including databases, reference books and Internet sites were consulted in building up a picture of Alpha’s ethical, social and environmental performance[8].

The search covered information on all ethical, social and environmental issues identified in Adams and Kuasirikun (2000) as being relevant to the industry. In reviewing media reports, issues that were either not covered at all in Alpha’s annual review, annual accounts or environmental report or for which a different portrayal was given were identified[9]. Coverage was found on some of the ethical, social and environmental issues identified in Adams and Kuasirikun (2000) and mentioned at the end of the previous section, without specific reference to Alpha or other particular companies. Some of the criticisms in connection with these issues were directed at MNCs in general and others at the chemical industry as a whole. Only articles and press cuttings that specifically mentioned Alpha were used. Lack of reference to Alpha in the media in connection with reported chemical industry issues could indicate that Alpha’s performance on them is considered satisfactory by journalists. It could also mean that poor performance is widespread and therefore that Alpha in particular has not been singled out.

It should be noted that Alpha does not claim to be accountable for all of these impacts, its 1993 separate report, for example, being called an environmental report (ER). That is, of course, not to say that it should not be accountable. It should also be noted that the non-Alpha sources of data serve to fill different information needs from corporate reports. However, if the company reports were intended to represent performance fairly and address the concerns of key stakeholder groups, one might expect similar issues to be covered by both sources. There may remain some differences in portrayal and emphasis due to focussing on concerns of different key stakeholder groups and some media reporting may be inaccurate. With regard to Alpha’s own reporting, the annual review and financial statements were reviewed as well as the environmental report.

An earlier draft of the paper was sent to the former company secretary, former manager responsible for external communications and the manager responsible for external affairs. Discussions took place with the manager for external affairs and the vice president responsible for the environment in which Alpha were specifically asked to point out any inaccuracies in that draft of the paper.

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Analysis of results

This section reports on issues reported in the sources identified in the previous section which were either not mentioned in the Alpha reports or where the portrayal by Alpha and those external sources differed. The issues are reported by year, 1993 and 1999.


Alpha’s environmental report for 1993 is 15 pages long. It covers health, safety and environment and is distributed to all shareholders. The 21 page annual review for 1993 contains one half page of information on health, safety and the environment and one half page on staff and Alpha’s community (Table 1).

Pollution, discharges and fines

The Alpha reports give the impression of a company that is trying hard and which wants to do better. For example, the chief executive, notes that he is particularly proud of Alpha’s reductions in hazardous waste, the company gone beyond its 1995 target of a 50 per cent cut. He was however disappointed by the number of times Alpha was prosecuted and fined for accidentally breaking environmental laws and regulations (Environmental report, p. 3). Performance with respect to non-hazardous waste, such as brine and gypsum, which accounts for 95 per cent of all Alpha’s wastes was not so good. Alpha’s target of a 50 per cent reduction is was described as very demanding and difficult to achieve (Environmental report, p. 7). On page 4 we are told that hazardous wastes are 64 per cent and non-hazardous wastes 23 per cent lower than in 1990. The target of a 50 per cent cut in waste by 1995 was set in 1990 and is the only one of the four “objectives” which is quantified. The other three are concerned with the environmental impact of new plants, an energy and resource conservation programme and recycling. However, some quantified information is provided on the successes in connection with both waste reduction and energy and resource conservation. In the case of wastes, comparative figures are given in the form of bar charts for the preceding three years, but detailed emissions data is given for 1993 only. Targets are not given.

The section on initiatives to reduce pollution stresses the cost savings resulting from the company’s efforts. For example, an Alpha plant in Australia reduced the cost of waste disposal by A$2.4 million and reducing waste saved A$4 million in capital expenditure. Recycling at an Alpha factory in the UK reduced costs by £300,000 p.a. This emphasis on cost savings was presumably intended to justify environmental expenditure to shareholders, a stakeholder group with a keen interest in profitability and share value. The company also provides an indication that there are limits as to how far it will go in achieving environmental improvements that incur a financial cost:

In common with all companies, and indeed all countries, spending on environmental improvements has to be balanced by environmental benefits achieved.

As we continue to improve our environmental performance, to comply with the law and to make effective products in a clean and efficient way, it is inevitable that an increasing number of situations will arise where only small improvements can be made, for a proportionately higher cost. The challenge is to set the right priorities and make the correct decisions, so that we can continue to improve our performance and remain profitable (Environmental report, p. 10).

Action taken by Greenpeace against discharges into the sea was not mentioned in Alpha’s reporting. Greenpeace prosecuted an Alpha business for discharges of chemicals into the sea under the Water Resources Act 1991. Greenpeace claimed to have found 100 organochlorine compounds in samples from 34 outflow pipes taken in September 1992 that the company had no consents to discharge. Chemistry and Industry (1993) reported that a scientist from the National Rivers Authority thought that some of the compounds found may have formed as a result of other chemicals being present rather than being discharged by Alpha[10]. Indeed this legal action did eventually fail, the levels of pollutants found not to be high enough to cause environmental damage (European Chemical News, 1994). A point worth noting here is that rather more media coverage was found of the announcement of the prosecutions than of the finding in Alpha’s favour. Nevertheless one might have expected that inclusive, complete reporting on the part of Alpha with the objective of discharging the company’s duty of accountability would have carried some discussion of it and the issues which it raised.

Five directors of an Alpha subsidiary and the company itself were charged for discharges into a river and a total of 36 offences under the Fisheries Act by Canada’s Federal Ministry for Environment (see Greenpeace Business, 1993a). The Guardian had earlier reported (The Guardian, 1993a) that Alpha had been accused of abandoning its Canadian manufacturing base and shifting its production elsewhere in reaction to the prosecution by environmental authorities. The reporter interviewed spokespersons from the environmental authority and from Alpha. The parties had different views of the effort put in by Alpha in preventing pollution indicating perhaps that more open communication may facilitate the achievement of improvements in performance and building trust with key stakeholders.

The environmental report mentions the pollution of another river in Canada that resulted from a decision to use cheaper and less pure sulphuric acid at a fertiliser plant.

Alpha informs readers of its environmental report that it was prosecuted 11 times in 1993 for breaking environmental laws. The amount and reasons for these fines are briefly outlined in the report. The National Rivers Authority also publishes information on fines giving the amount of the fine and nature of the offence.

Alpha was the first household name to be fined under provisions of Environmental Protection Act 1990 for two breaches of the duty of care incurred in June 1992 concerning a consignment of waste which caused explosions putting operators at risk. One of the breaches concerned a failure to take reasonable measures to prevent any other person from contravening the act in respect of the treatment of controlled waste in a manner likely to cause harm to human health. The second concerned the inadequate description of the waste. The fines were £1,500 for each offence plus £5,890 costs (ENDS Report, 1993b). The health and environmental impacts of breaches from which fines follow are not discussed in Alpha’s reporting. Whilst many shareholders may be concerned only with the amount of the fines, stakeholders, in this case employees, their families, consumers and those living in the local communities will be more concerned about the safety issues and measures put in place to ensure no repetition.

Environmental impacts of products

Two of Alpha’s products, Yeganam and Zetok, and their marketing of them received press coverage during 1993. Zetok (see below) is not mentioned in Alpha’s reporting and Yeganam is described as a well-established alternative to refrigerant.

Greenpeace made five complaints to the Advertising Standards Authority against Alpha relating to its claims about the environmental impact of its product Yeganam and in particular the extent to which the product would contribute to global warming (see, Greenpeace Business, 1993b, for detail of the complaints). The claims were made in an advertisement in The House magazine, distributed to members of parliament and parliamentary staff. The Advertising Standards Authority upheld four out of the five complaints made by Greenpeace (reported in ENDS Report, 1993a;European Chemical News, 1993; Financial Times, 1993). The Greenpeace action was not discussed in Alpha reports.

An Alpha business in Malaysia placed an advertisement in the Malay Mail on 15 April 1993 for its product Zetok without mentioning its potentially harmful effects on human beings, instead promoted it as “environmentally friendly”. The Global Pesticide Campaigner claimed in November that the advert contravened the UN Food and Agriculture Organisation’s (1986, amended 1996) “International code of conduct on the distribution and use of pesticides”. Zetok has been banned in some countries and a group campaigning against its use protested about expansion of Alpha’s Zetok production facility the UK. The capacity of the proposed $58 million plant would be 8,000 m/t per year (Chemical Week, 1993). Both the World Health Authority and the US Environment Protection Agency are reported to be concerned about Zetok’s safety and contamination potential (Multinational Monitor, 1992; see also, Utusan Konsumer, n.d.).

Consumer Currents (1993) quotes the Malaysian chemistry department as reporting that in the period 1978-1985 Zetok accounted for 66 per cent of 1,442 reported pesticide poisoning cases in Malaysia. Toxic Trade Update (1993) quotes a 1981 report putting the number of deaths at 1,200 per annum and reports that the Malaysian women’s organisation and the Pesticide Action Network found extensive acute Zetok poisoning amongst female pesticide sprayers in a 1991 survey.

Employment issues

There were reports of job losses in the press with The Guardian (1993e) claiming that the company had already cut 7,000 jobs that year and reporting city estimates that the workforce would be cut by 25 per cent by 1995, a loss of 24,000 jobs. Alpha’s 1993 annual report states that:

… the number of staff worldwide has fallen by 25,700, or about 28 per cent, since December 1990. Divestments have accounted for nearly 30 per cent of this reduction. In 1993 staff numbers fell by 8,200, of which divestments accounted for 3,500 (p. 3).

Other ethical, social or environmental issues

None of the following issues were mentioned in Alpha’s 1993 reports.


The Guardian (1993c) reported on the negative reactions of Alpha and other companies selling pharmaceuticals to the Medicines Information Bill that proposed the removal of section 118 of the Medicines Act. This section made it an offence to disclose anything about drug licensing or reactions suffered by patients, even to their doctors. The drug companies claimed that removal of section 118 would damage them, while people who claimed to have suffered permanent damage from tranquilliser use supported it.

The Guardian (1993d) reported on the forthcoming talks between the financial chiefs of Alpha and other drug manufacturing companies and the Department of Health to renegotiate the pharmaceutical price regulation scheme that determines the profits that companies make from selling drugs to the NHS. Profits are related to “capital employed” so the companies were reported to have invested in “post-marketing surveillance trials” whereby doctors switch a patient’s drug to one the company is selling, monitor its performance and record any adverse reactions. They describe this as safety research rather than promotion allowing them to include the cost in “capital employed” thereby increasing their profits. A former health department official was reported as telling The Guardian that their “people just got walked over” in the negotiations. The outcomes of the negotiations are kept secret and any appeals are settled by the industry’s own lobbying group, the Association of British Pharmaceuticals Industry.

Alpha’s and Glaxo’s US subsidiaries were criticised in a US Senate report for increasing drug prices faster than inflation despite promises to the contrary (The Independent, 1993a).

Alpha told this researcher that issues regarding pharmaceuticals were excluded from their reports because of the demerger of the pharmaceuticals business to Beta. The resolution to give effect to the demerger was passed at the extraordinary general meeting of the company on 28 May 1993, after the above press reports were published.

Animal testing

Outrage (1993) refers to reports that Alpha supplied beagles for experiments which induced osteoarthritis in them. The Ethical Investor (1993) reported that Alpha provides animal testing services or manufactures products commonly tested on animals.

Arms trade?

Alpha was reported to have contracts worth more than £5 million with the Ministry of Defence in any one of the previous three years (EIRIS, 1993). The nature of these contracts is not disclosed.

Political activities

The Independent (1993b) reports on a challenge made by Alpha to the EC proposal to hold companies liable for environmental damage. A month later The Guardian (1993b) carried an interview with Sean Hamil author of Britain’s Best Employers (Hamil, 1993) who reportedly claimed that the primary reason for Alpha improving its environmental performance appeared to be the potential threat of legislation, particularly from the EC.

Summary for 1993

In comparing Alpha’s own portrayal of its ethical, social and environmental performance for 1993 with the portrayal in other publicly available sources, the reports give the impression of a company trying hard, making progress, recognising a need to try harder where progress has not been made and regretting mistakes. This is tempered by a message in Alpha’s reports that environmental improvements will be balanced against financial costs and benefits.

Strikingly, the comparison of the two portrayals, by external stakeholders on the one hand and Alpha on the other, highlights some omissions from Alpha reports of information which is undoubtedly material to key stakeholder groups and which does not reflect well on Alpha’s performance. Indeed, the sources consulted indicate that Alpha’s performance on a number of ethical issues was widely regarded as poor. Low levels of fines failed to act as a deterrent and John Major’s conservative government could even be accused of colluding in unethical practices by awarding a director of Alpha a CBE for his services to environmental protection (The Guardian, 1993f).

When Alpha’s reporting is compared with current guidelines, other deficiencies can be identified. First, the report does not mention any governance structures to ensure environmental values are embedded. Second, there is a lack of quantification of targets and outcomes. Third, there is limited coverage of the background to and broader impacts of, for example, the significant job losses or the pollution incidents. Finally, there is no indication of the problematic relationship Alpha has with stakeholders such as Greenpeace or Friends of the Earth or of the controversy that surrounds some of its products and processes. It should be noted that these guidelines were not available at the time when Alpha produced its 1993 report and that report reflects the lack of development of ethical, social and environmental reporting at that time.


Alpha’s corporate vision in its annual review and accounts and form 20-F 1999 gives the impression that ethical, social and environmental concerns are not embedded within the organisation. At the end of a list of other goals, all stated positively, comes the negative: “We must … never compromise our commitment to safety, health and the environment”. There is no other mention of safety, health and the environment in the mission statement. Indeed, there is only about a page of information on the environment and health and safety in that document which discusses progress to date. Specific incidents or problems are not mentioned. The two pages in the 1999 annual review gives a similarly unproblematic impression of progress though it mentions a £2,000 fine for “two losses on containment in 1998” (p. 24) (Table 2).

Alpha’s environmental report for 1999, although much longer than the 1993 version, is written in the same glossy style, with more reporting on performance, and with the same recognition that more needs to be done. A new addition is some limited discussion of the reporting process. An organisational diagram shows that the CEOs of the international businesses are responsible to the Alpha board. It also shows the environment and health and safety department, but its role is not explained. Businesses report to the board through a process that was verified by a big four audit firm. A new management system is mentioned, but the way it fits into the governance structure is not explained. The report does state, however, that the system is designed to allow compliance with the US and UK responsible care requirements, ISO 14001 and the ICC business charter for sustainable development. There is also a brief mention of the self-assessment management system concerned with product stewardship. There were more quantified targets than had been previously set and the report quantifies progress against those targets. There are therefore some noteworthy improvements in reporting.

Pollution, discharges and fines

In reviewing Alpha’s environmental report for 1999 the ENDS Report (2000b) carries this caution:

In fact, all these data have to be taken with a pinch of salt for the time being at least. While the report says that [Alpha]’s policy is to make clear the extent of changes in its releases which were due to acquisitions and divestments by altering each year’s data back to the baseline, what it does not reveal is that the company is still in the midst of a process to determine precisely what the impact of the business changes of the past few years has been (p. 20).

Reports in The Guardian (2000a, b, c) present a different portrayal of the impact of chemical X on the local communities than that in Alpha’s environmental report for 1999. The Guardian describes the stress on the 1,000 strong population of the town, the weekly public meetings and the jamming of the special health phone line. Because of the poisonous nature of chemical X, which causes liver and kidney cancers, lowers fertility and shortens lifespans, Alpha offered to buy out the 22 homes found to be contaminated (see also ENDS Report, 2000a, b). The immediate offer to buy up houses led to suspicions about what else was in the tip and what Alpha were looking for when they dug the boreholes in the first place. In the section on “sustainability” the company’s environmental report discloses that 22 homes near the Alpha site were found to have a presence of chemical X in the air as a result of disposals over a period of 50 years which stopped around 25 years ago. Alpha reports that it is working to resolve the situation as chemical X “may cause harm to health”. When discussing an earlier draft of this article with Alpha, this researcher was directed to a Web site for more information on Alpha’s work on this and the local press. These sources are not easily available to non-local stakeholders, the Web site not (at the time) being linked from Alpha’s site. A link was added following a discussion with Alpha staff on this issue.

Hydrochloric acid from an Alpha plant in the UK contaminated a wintering ground for birds on 17 February 1999. It was the sixth such serious incident since 1997 and Michael Meacher, the environment minister, summoned senior managers from Alpha in the following week to express his concerns (Financial Times, 1999a). The acid in the mud flats and seal sands on a river estuary, an internationally designated site for migrating birds, was reported to be too strong to dip a hand in (The Guardian, 1999c). Several conservationist and animal protection groups were trying to help damaged birds and called for tougher penalties against polluters (see also ENDS Report, 1999a).

Alpha was top of the Environment Agency’s list of fines for pollution by companies in England and Wales published in March 1999 with fines amounting to £382,500 for pollution during 1998 (Business Insurance, 1999; ENDS Report, 1999b; Environment Agency, 1999; Financial Times, 1999b; Safety and Health Practitioner, 1999). The Observer (1999b) and the ENDS Report (1999d) reported that Alpha had four factories in the top ten releasing cancer causing chemicals to the air including dioxin described as “the world’s most toxic substance” and linked to reduced fertility. Indeed, The Guardian (1999b) reported that in 1996 Alpha emitted more than 5,340 tonnes of cancer-causing chemicals. Although the Environment Agency’s interventions facilitated the reduction of this figure to 3,761 tonnes, the company is still a top polluter with an Alpha site being top of the league table for 1999 discharges (ENDS Report, 2000c).

Three Alpha businesses were named as the first, fifth and 16 on a league table of top polluters. They discharge alkylphenols used in industrial detergents that are known to feminise male fish (ENDS Report, 1999e; Friends of the Earth, 1999, 2000). ENDS reported (ENDS Report, 1999f) that in 1997 Alpha discharged 1,000 tonnes of ammonia which is also toxic to fish. Friends of the Earth made their feelings known about Alpha’s pollution record by turning up at its AGM in 2000 wearing protective clothing and carrying sparkling “time bombs” (The Guardian, 2000c).

With regard to prosecutions under environmental law, Alpha’s environmental report notes only one infringement compared to four in 1998 and eleven in 1997. This one infringement related to a spill of 100 gallons of non-hazardous material in the USA, the resulting fine being only $1,000 plus a $2,141 investigation fee. In addition to this incident the report mentions that there were five further spills of significant quantities of material. There is no information about the impacts of these spills on the environment. Immediately following these reports of bad news there is a section on internal Alpha awards. It was not uncommon for companies to be concerned about negative impacts on their reputation of reporting bad news at this time (Adams, 1999).

The ENDS Report (1999c) notes that an Alpha subsidiary was criticised in the House of Commons for selling heavily contaminated land to a local authority and leaving taxpayers with a multi-million pound clean up bill. Again, this was not mentioned in Alpha’s own reports.

The section on sustainability in Alpha’s environmental report 1999, which gives Alpha’s view on a number of issues “that are particularly important to Alpha’s journey towards sustainability” contains the statement:

The basic principles of the green house effect are well understood. But the science to support projections of the effects on climate of increased concentrations of greenhouse gasses in the atmosphere, and the impact on the environment of any climate change, is still uncertain.

The Global Environmental Outlook 2000 (UNEP, 2000) report comes to a different conclusion concerning both the impact of greenhouse gasses on the climate and the impact of climate changes on the environment (UNEP, 2000). The Inter-Governmental Panel on climate change (whose Web site was linked from the Alpha Web site) has studied the impact of various levels of CO2 on temperatures and UNEP (2000) outlines the various ramifications of global warming on land displacement, frequency of outbreaks of pests, extended range of pathogens, outbreaks of fire, agricultural and food production and nutrition and health.

In discussing endocrine disrupters, Alpha argues that research about the link with development and reproduction are inconclusive and that they occur naturally in much larger quantities than in chemicals. The scientific literature appears much more certain about the effects of endocrine disrupters on human health including immune systems and breast carcinoma as well as reproduction (see, for example, Ahmed, 2000; Bhatt, 2000; Johnson-Thompson and Guthrie, 2000; Taylor et al., 1999). ENDS reported (ENDS Report, 1999a) that potential harm from alkyl phenol ethoxylate (APE) surfacants due to their endocrine disrupting traits and the likelihood of restrictions being imposed as a result (see also Friends of the Earth, 2000).

Employment issues

“Executive pay rises are loser friendly” was a claim made by The Guardian (1999b) referring in particular to pay rises of two of Alpha director’s. The article claims that, despite, poor performance, senior executives had been given pay rises of more than twice the going rate on the shop floor. Later The Guardian (1999e) reported that Alpha was to cut 600 administrative jobs in total mostly in the UK with a few also going from US offices. The Observer (1999a) reported that Alpha had announced 1,000 job cuts world wide in on of its divisions, half of which would occur in the UK concurring with reports in The Guardian (1999a) of 500 UK job losses. The annual report and accounts and form 20-F set out the salaries, benefits and bonuses of each director for the current and previous year. It also reports the average number of people employed by the group by both class of business and geographic area showing figures for discontinued operations separately. However, the only information given in Alpha reports with regard to redundancy policies or payoffs is the total “severance costs charged in arriving at profit before tax” of £61 million. The annual report mentions that the sale of an Alpha business “involved the transfer of some 2,000 employees” (p. 11). The average number of employees in the UK was reduced by 1,200 during the year. No information is given on salary negotiations.

The environmental report mentions three deaths at work during 1999 and prosecution for a death at work during 1998 under English legislation. The latter incident involved infringements of two sections of the Health and Safety at Work Act for which Alpha was fined a total of £27,000 and ordered to pay £1,953 in costs.

Other ethical, social or environmental issues

None of the following issues were mentioned in Alpha’s 1999 reports.


US Justice Department data suggests that a number of chemical manufacturers, including Alpha, resorted to price-fixing (Chemical and Engineering News, 2000).

Other ethical issues

Alpha operates in Indonesia and the Amnesty International Business Group have questioned them on their human rights policies and whether they had made representations to the Indonesian government about East Timor, acted on behalf of employees subject to human rights violations or trained managers of Indonesian subsidiaries on human rights issues (Ethical Performance, 2000). A search of the Alpha web site during 2000 produced no information on this. It would appear that Alpha did not have a policy framework incorporating human rights instruments. Whilst not uncommon at the time, such frameworks are increasingly being adopted by major corporations.

The section of Alpha’s environmental report for 1999 on activities around the world reports on activities or outcomes which are successes. They do not represent a complete account of performance. One interesting disclosure in the section on Pakistan read:

Expired stocks of pesticides were also collected from regional warehouses and sprayed on crops under supervised conditions to ensure no harm was caused.

Given concerns about Zetok mentioned above, it is perhaps unlikely that this would allay the fears of some stakeholders.

Summary for 1999

Alpha reports for 1999 carry much more information on ethical, social and environmental issues than in 1993 (see Tables 1 and 2). Particularly impressive is the extent of the data on emissions and discharges. Whilst the ENDS report (2000b) questions the reliability of these figures, casting doubt as to whether they relate to Alpha’s current business, Alpha regard such claims as unfair.

What stands out in comparing the way in which Alpha portrays its 1999 performance with the way it is portrayed in other publicly available sources, is not so much complete omissions of events and issues, but more the manner in which issues and events are portrayed. Examples of issues portrayed differently are the finding of chemical X in the air and the spilling of hydrochloric acid into a river estuary where external sources put a greater emphasis on the impacts on human health and wild life. To some extent differing portrayals will reflect specific concerns of NGOs and the media’s perceptions of reader interest, but these are, nevertheless, important stakeholders as are many newspaper readers.

The section on sustainability issues adds weight to the concerns readers would be justified in having about the commitment of the company on reading the corporate vision. In comparison with other sources, it appears to downplay the issues facing the chemical industry and Alpha. The potential impacts of many of these issues and of the breaches and spill which arise do not receive the attention many stakeholders clearly would like, though the company does provide links to other sites, such as the United Nations framework convention on climate change.

The performance of Alpha on a number of ethical, social and environmental issues remained poor. The Labour government played a more proactive role with respect to pollution incidents, but the independence of the Environment Agency was called into question. The Sunday Times (1999) reported that five members of the 15-person board of the Environment Agency had financial ties or other links with Alpha and other major British polluters. One part-time board member and former director of Alpha was reported as having 9,350 shares said to be worth more than £50,000.

This article is © Emerald Group Publishing and permission has been granted for this version to appear here ( Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited.


The most noticeable feature of Alpha’s reports is their lack of full disclosure regarding its ethical, social and environmental impacts. The Alpha reports portray the company as one that is doing well, trying hard and seeking to do better. In contrast, the data on Alpha’s impacts and efforts to curtail them from external sources is different. The more discerning readers of Alpha reports will be left with many questions even if they never pick up a newspaper. Analysing Alpha reports against the elements of accountability which were set out in this paper’s introduction, the level of accountability discharged by Alpha appears to be low. There is little coverage of negative impacts, insufficient evidence that Alpha accepts its ethical, social and environmental responsibilities, an arguably one-sided view of sustainability issues facing the company and a lack of completeness. The different coverage in external sources also raises question as to the inclusivity of stakeholders in the reporting process. The report itself provides insufficient information on the reporting process and governance structures in place with respect to ethical, social and environmental reporting.

This raises serious concerns as to the value of the responsible care guidelines as anything but a legitimating tool and insurance policy. Responsible care may have succeeded in getting companies like Alpha to report on its core indicators, but it has failed to get Alpha to report in a way which, overall, fairly reflects performance and impacts. Many of the issues identified as being important to stakeholders of the industry in Adams and Kuasirikun (2000) are not addressed by responsible care. The guidelines are voluntary and the industry associations cannot enforce compliance. There is no requirement to involve stakeholders and information and processes do not require to be verified or audited. This highlights the deficiencies of guidelines that were written by and for those who are intended to abide by them.

A particularly concerning feature of Alpha’s reporting is its lack of “completeness”, an AA1000 reporting principle (ISEA, 1999a). Reports omit details of impacts on communities and the environment which are material to key stakeholder groups. This degree of incompleteness would not be tolerated in financial reporting.

The reader of Alpha reports finds out about fines, which in the UK at least have been widely criticised as being too few and too low, but there is limited reporting on the impacts of its mistakes on human health and animal and plant life. There are several issues that have been mentioned in the press such as the large number of deaths through pesticide use, misleading advertising, accusations of price fixing, operations in countries with poor human rights issues and animal testing which are not mentioned in the reports. These items would also be regarded as “material” to some stakeholders, for example, Amnesty International, animal rights groups and some customers. The section on sustainability issues in the 1999 environmental report gives the impression of a widely held view of the impacts (or lack of them) of some of Alpha’s products and processes which was not widely supported by the external sources consulted. In addition, the coverage of overseas operations is incomplete.

There is little evidence of any consultation with stakeholders. Involving stakeholders in itself cannot, of course, be taken to mean that corporate reports accurately reflect performance. Indeed, their involvement could be used as a means of legitimating corporate reports. Sound governance structures are essential to ensure that the stakeholder dialogue process is robust, as is transparency concerning the reporting process itself (see, also ISEA, 1999a, b). Corporate governance structures are currently designed to protect shareholders, but this must change radically to give equal prominence to other stakeholder groups if companies are to reflect the aspirations of their stakeholders and survive in the long term.

Some of the key elements of the AA1000 requirements missing from the Alpha reports are outlined in Table 3. The GRI guidelines are much less concerned with process than is AA1000. They focus more on the content of the report. Table 4 sets out the main elements of report content in GRI (2000) and some of the key omissions in the Alpha reports[11]. Compliance with GRI would result in more information being reported and some stakeholder dialogue. However, Alpha already complies with responsible care and was involved in its development and it is possible that a company could provide the information outlined in the GRI (2000) guidelines without improving accountability as defined in the introduction to this paper. Although the GRI guidelines require stakeholder consultation, there is limited guidance as to the form it should take. This must be addressed if stakeholder dialogue is to be a robust exercise in enhancing trust and minimising risk rather than simply a legitimating exercise that companies can hide behind in the way that they did with the Sullivan principles (Arnold and Hammond, 1994). The case of Alpha illustrates that simply telling companies what they should report on is insufficient to ensure accountability.

An external audit is no guarantee that reports will not be used as a legitimating exercise. For external audits to add value from a stakeholder perspective, they must be conducted by appropriately qualified people who both understand the audit process and accept the ethical, social and environmental responsibilities of companies (see Adams, 2002; Kamp-Roelands, 1999; Owen et al., 2000, regarding concerns with social and environmental auditing). They must also be carried out using generally accepted auditing guidelines and, crucially, the criteria for qualification of the audit report must be clear. At present there are no guidelines that adequately cover the ethical, social and environmental audit process. There is an urgent need for their development and enforcement for companies operating globally.

The scope of the work done by KPMG on Alpha’s 1999 report was limited to one part of the reporting process. The scope of an audit is currently ultimately the company’s decision and the findings of this research point to the inappropriateness of this state of affairs with respect to large MNCs. The Ernst & Young audit report of BP dated 12 March 2001 provides an example of an audit much broader in scope. The terms of reference included, for example, reviewing “a selection of external media sources for reports relating to BP’s adherence to its policies, as a check on the appropriateness of the information reported and statements made in the report” ( It is not clear from this statement to what extent this particular review of external media sources in the audit process might improve accountability. Policies themselves tend to be vague and all encompassing and should be supported by more detailed objectives. A company may be adhering to its policies, but its reports may be incomplete as far as its impacts were concerned. A review of external media sources would seem to be an essential element of an audit process if the audit report is to give assurance as to the completeness of impacts.

The increase in reporting on the Internet, whereby companies can change their disclosures frequently, further emphasises the need to define the scope of such audits. There is concern that much of the data on the Internet is not audited. If the Ernst & Young report of BP specifically includes publication on the Internet, it provides some comfort:

BP periodically updates the report to provide information on company activities and to reflect progress in performance. As and when new assertions, statements and performance data are published by BP, they are reviewed by Ernst & Young. The date appearing on the Ernst & Young statement shows the last date at which information has been reviewed and attested to by Ernst & Young in accordance with our terms of reference (

In conclusion, this study supports the call for comprehensive mandatory requirements concerning ethical, social and environmental reporting. These must focus on processes of corporate reporting and governance structures. A radical overhaul of corporate governance structures is required. The current focus on the concerns of the shareholder stakeholder at the cost of other stakeholder groups is increasingly inappropriate as companies become larger and more powerful with ever increasing impacts on other stakeholder groups. Social and environmental audit practices should come under the same degree of scrutiny as financial audit practices. Social and environmental audit guidelines must be developed and audit practices standardised to improve the completeness of reporting and reduce the audit expectations gap. The scope of audits, the content of the audit report and the reliability of information posted on the Internet are particular areas of concern. Room for doubt as to whether reporting reflected performance on the scale highlighted here would not be tolerated in financial reporting. Companies complain that few stakeholders read their ethical reports in any detail, if at all (see, for example, Adams, 1999). Perhaps the reporting-performance portrayal gap is the reason why. The results produced here suggest that further research work is needed on: the processes of reporting; auditing guidelines and practices; and, governance structures which might best serve to improve the accountability of large global organisations to their stakeholders.

This article is © Emerald Group Publishing and permission has been granted for this version to appear here ( Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited.

Article citation: Carol A. Adams, (2004) “The ethical, social and environmental reporting-performance portrayal gap“, Accounting, Auditing & Accountability Journal, Vol. 17 Iss: 5, pp.731 – 757. DOI (Permanent URL): 10.1108/09513570410567791


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This article is © Emerald Group Publishing and permission has been granted for this version to appear here ( Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited.

Article citation: Carol A. Adams, (2004) “The ethical, social and environmental reporting-performance portrayal gap“, Accounting, Auditing & Accountability Journal, Vol. 17 Iss: 5, pp.731 – 757. DOI (Permanent URL): 10.1108/09513570410567791

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