Stakeholder engagement in sustainability reporting: the case study of Ukrainian public agricultural companies

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Stakeholder engagement in sustainability reporting: the case study of Ukrainian public agricultural companies

Purpose

Methodology / approach

The study utilizes widely used techniques in this field content analysis of sustainability reports based on suggested coding rules which in turn grounded in the leading literature. Authors use a multidimensional coding system (with a maximum score of 12 points) which consists of three elements and offers an aggregate assessment of the information disclosure of the involvement of stakeholders in sustainability reporting. Also authors base on frameworks for classification of the stakeholders' engagement level into three levels (information, response and involvement strategies). The paper 's sample although tiny, only five years/company observations, is comprehensive since it includes all Ukrainian agricultural companies presented in GRI SDD database one of the largest databases of its kind. To analyze only the latest relevant experience, authors have limited the report type to the latest GRI modification - GRI Standards. As a result of five steps in the sample formation process, it is equal to 3 companies that produced 5 reports in the period between 2017 and 2019 years.

Results agricultural economic stakeholder engagement

While the used coding structure allowed for a maximum of 12 points, the analysed reports were able to reach only half of this as one report earned 7, one - 6 and the rest was marked with 5 points. From the three companies from our sample frontrunner is Astarta Holding. Astarta Holding excels in materiality relevance (4 points) and is the only company assured its sustainability report. Authors find that the engagement strategy of the companies being analyzed mostly consists of action intended to inform (level 1) as well as consult and support stakeholders (level 2), whilst deep involvement strategy (level 3) is being almost neglected. In regards to focus, we find that the most cited stakeholders in engagement actions are on level 1 employees, consumers and suppliers. Consumers also alongside authorities and local communities are the most cited stakeholders on the level of response strategy, whereas the authorities are the single stakeholders' group being honoured to be treated on the highest third level. The authors' general impression is that for the most part legitimacy theory is the best theory to explain the behaviour of compilers of reports from the sample because mostly management uses rhetorical tools to cover its activities, while the reporting itself lacks specifics about negative externalities. For authors, it looks like an exercise in self-legitimization. It appears that the companies studied has not yet fully performed the transfer from `stakeholder management' to `stakeholder engagement'. It is the authors' understanding that all this has roots in the very perverted perception of sustainability reporting as a continuation of financial reporting although it is not. In financial reporting, materiality is defined internally as a percentage of some indicators in the balance sheet and/or statement of financial performance, in sustainable reporting, materiality is not only important in the assurance, but it is a cornerstone in the preparation of SR itself.

Originality / scientific novelty

Practical value / implications

Key words: agricultural economics, stakeholder engagement, sustainability reporting, sustainability reporting assurance, content analysis.

Introduction

Worldwide, societal pressures on organizations to be accountable for their environmental and social impacts are becoming pervasive (Abeydeera, Tregidga&Kearins, 2016; Boiral, Heras-Saizarbitoria&Brotherton, 2019; Dienes, Sassen & Fischer, 2016). In response to mounting pressure and to inform stakeholders about corporate social responsibility, a growing number of companies starting regularly publishing their sustainability reports (KPMG, 2017). Sustainability reports, in turn, is increasingly being analyzed by stakeholders and is believed to be able to affect the company's status quo and have implications in terms of its competitive advantage (Boiral& Heras-Saizarbitoria, 2020; Herremans, Nazari&Mahmoudian, 2016; Manetti&Toccafondi, 2012; RhianonEdgley, Jones & Solomon, 2010). Sustainability reporting has become a common practice and is broadly regarded to be positive, although a growing body of scholarly papers has condemned the transparency and utility of this practice (Boiral& Heras-Saizarbitoria, 2020; O'Dwyer& Owen, 2007; RhianonEdgleyet al., 2010; Sierra-Garcia, Zorio- Grima & Gartia-Benau, 2015).

One important note often missed is that sustainability reporting is not analogous to financial reporting and it differs from the latter in many respects and one of the main aspects is the involvement of stakeholders (Bepari&Mollik, 2016; Sierra- Gartiaet al., 2015). Sustainability reporting hinges hugely on stakeholders and what is reported should be what stakeholders demand (De Beelde&Tuybens, 2015). For example, the most used worldwide framework for Sustainability reporting (hereafter SR) Global Reporting Initiative (GRI) promulgates that `when making decisions about the content of its report, the organization is to consider the reasonable expectations and interests of stakeholders' (GSSB, 2016, p. 8). Moreover, stakeholders are very important at an assurance stage as it is stakeholders who help the assurance provider assess the SR (Bepari&Mollik, 2016). Thus, as has been noted many times in literature, the quality of SR `is closely tied to that of stakeholder engagement carried out, whether before or during drawing up of the report ' (Manetti&Toccafondi, 2012, p. 365).

The GRI is the most employed sustainability reporting framework that is endorsed across the globe (KPMG, 2017; Puroila&Mдkelд, 2019; Safari &Areeb, 2020). The GRI framework is used by firms representing 63 per cent of N100 reports (sample of 4,900 companies comprising the top 100 companies by revenue in each of the 49 countries researched in this study) and 75 per cent of G250 reports (the world's 250 largest companies by revenue based on the Fortune 500 ranking of 2016) (KPMG, 2017, p. 28). As of today, GRI standards is regarded as the de facto global standard for sustainability reporting (Hahn &Kьhnen, 2013, p. 5).

It is important to distinguish between `stakeholder management' and `stakeholder engagement' (Andriof&Waddock, 2017; Manetti&Toccafondi, 2012). The former is a simple management of the expectations of the parties involved where companies involve stakeholders in decision-making processes, include them in the company's management, share and impart information, initiate dialogue and establish a model of mutual responsibility (Manetti&Toccafondi, 2012). Whereas `stakeholder engagement' assumes mutual devotion and two-ways commitment to address and solve issues that arise in the relationship of companies with their general and specific environment (Andriof&Waddock, 2017). Therefore, stakeholder engagement is a dynamic process of building a context of interaction, mutual respect, dialogue and change, not just one-sided management of stakeholder expectations (Andriof&Waddock, 2017).

This high level of involvement of stakeholders in SR and SR assurance models explains constantly changing nature of those processes, as they incessantly must to match fluctuating expectations of stakeholders.

In the light of foregoing, our study aims at finding out how significantly stakeholders are consulted and involved by preparers, Ukrainian publicly-listed agricultural companies, while compiling SR and by assurance providers, during assurance processes of SR. Our sample although tiny, only five years/company observations, is comprehensive since it includes all Ukrainian agricultural companies presented in GRI SDD database one of the largest databases of its kind. We utilize widely used technics in SR content analysis of sustainability reports based on suggested coding rules (Guthrie &Abeysekera, 2006). According to (Parker, 2005) for researchers in the field of CSR context analysis acts as the dominant means of research from the beginning of such research (2005). Typically, content analysis has been used in the CSR literature to assess the quality and scope of disclosure of various CSR aspects in the annual report of public companies (Guthrie &Abeysekera, 2006). It should be noted that studies have tended to report on different social and environmental elements (e.g. energy usage, minority interests, labour practices, corporate governance, etc.) as well as often studies utilize this approach to compare these elements with previous research in this jurisdiction or to provide an international comparative review (Guthrie &Abeysekera, 2006). Only recently researchers expanded the use of content analysis on others social and environmental areas as testify the studies of Boutenet al. (2011), Manetti&Toccafondi (2012) and Torelliet al. (2020). The technique of content analysis `is a method of codifying the content or text of a piece of writing into categories based on chosen criteria' (Guthrie &Abeysekera, 2006, p. 118). Content analysis is a method of collecting data from sustainability reporting, which involves the codification of qualitative and quantitative information into predictable categories to determine a certain pattern in the presentation and reporting of information on a particular issue. We use a multidimensional coding system, which consists of three elements and offers an aggregate assessment of the information disclosure of the involvement of stakeholders in sustainability reporting.

We rely on three components to assess the level of stakeholder involvement. First, it is materiality relevance for SR a very important concept in sustainability reporting. The lack of references to materiality indicates the lack of stakeholder involvement and vice versa, in the case where a significant part of the SR is devoted to materiality, the involvement of stakeholders increases. Given that the level of stakeholder involvement may vary, we introduce the second indicator such as stakeholder engagement level which assesses the level of cooperation of the company with stakeholders through the closeness of contact (no, indirect/partial and direct). Since SR assurance is very important for stakeholders the third our indicator is related to this issue. Unlike in SR, where stakeholders have an advisory role, in an Sustainability reporting assurance (hereafter SRA), they act as a supervisor and controller, as they verify the information contained in the documents at the request of the auditor, who acts as a gatherer and guarantor of the process (Manetti&Toccafondi, 2012). To gauge SR assurance stakeholders engagement we utilize coding rules based on the AccountAbility, Federation of European Accountants, and GRI guidelines which favour stakeholders engagement and which has proved in much prior research (Gьrtьrk& Hahn, 2016; Perego&Kolk, 2012).

Our main research question may be formulated as follows `How deeply stakeholders are involved at Ukrainian agricultural companies in the preparation of their sustainability reporting and assurance?' We aim to understand the role that Stakeholder engagement (hereafter SE) plays in the process of SR of Ukrainian agricultural companies. The study of this issue is important due to several important aspects. First, sustainability reporting practices in Ukraine is in its infancy, and therefore any shortcomings identified will be a guide to action to adjust these approaches in the future. Secondly, our analysis can also be seen as the dissemination of best practices. The companies we have chosen are pioneers in this matter, so they can at the same time be considered as an example to follow for others, but taking into account the experience gained by them. Thirdly, to the best of our knowledge, this study is the first that analyzing the involvement of stakeholders in the sustainability reporting process in the context of Ukrainian agricultural companies. In fact, the above aspects are the contribution of this article to the literature.

The purpose of the article is to assess how significantly stakeholders are consulted and involved by preparers, Ukrainian publicly-listed agricultural companies, while compiling sustainability reporting (SR) and by assurance providers, during assurance processes of SR. The paper's main research question may be formulated as follows `How deeply stakeholders are involved at Ukrainian agricultural companies in the preparation of their sustainability reporting and assurance?'.

The paper is structured as follows. Next section situates the concept of stakeholder engagement in sustainability reporting literature and contains a detailed description of the content analysis framework used in the paper as well as the paper's sample. The penultimate section presents the paper's results. The paper concludes with a summary of the main findings, limitations of the study as well as venues for the future research all gathered in discussion and conclusion section.

Research methodology and design.Stakeholder engagement in sustainability reporting

Sustainable development is an enormously disputed and value-laden concept which offers no firm definition as well as indicators of it `with much disagreement over what is to be sustained, for whom, how and who decides' (Brown & Dillard, 2014, p. 1124). That in turn `render ideas of objective, standardized accountings highly problematic' (Brown & Dillard, 2014, p. 1124). To identify and report on its unique and unparalleled impact, each company has a responsibility to conduct an in-depth materiality assessment, involving closely stakeholders in the process. The concept of materiality aims to increase the openness, honesty of sustainability reporting, as well as the accountability of compilers by turning SR into a discussion of what matters and reducing information noise in them (Puroila&Mдkelд, 2019). AccountAbility just recently even proposed `Dynamic Materiality' concept that recognizes that `what is considered material may change over time, and therefore takes a forward-looking, adaptive approach to reprioritizing ESG topics to allow for more regular action on newly identified risks' (AccountAbility, 2020).

The concept of materiality is quite widely used in practice, as evidenced by the latest global study on the matter by KPMG (KPMG's latest 2017 survey did not contain this information) where more than three quarters (79 per cent) of G250 companies cited materiality as a guiding principle for SR (KPMG, 2013, p. 54). Although the very concept of materiality is well formulated, its application in practice is not homogeneous (and it cannot be so) (Moroney& Trotman, 2016). Moreover, identifying and prioritizing material issues or `what material is' as it turns out often becomes a challenging task (Andriof&Waddock, 2017; Puroila&Mдkelд, 2019; Salvador et al., 2020).

In this study, we rely on the three pillars of stakeholders involvement (Fig. 1). First of all, what matters is the attention to materiality in SR. Thus, the materiality and approach to it also mean the degree of involvement of stakeholders. If a company does not mention materiality in the report, it means that it reports on its vision of sustainable development, which does not coincide with the point of view of stakeholders, because there was no proper consultation. In our concept, the more a company discloses materiality in its SR, the more the company engages stakeholders.

Fig. 1. Three pillars of stakeholders involvement in SR and SRA

Source: compiled by the authors.

This in turn is based on several assumptions. First, all conceptual frameworks for SR, and first of all, the GRI on which our study is based, involve the broad involvement of stakeholders in SR and its evaluation. Second, realizing this, a company cannot provide extended materiality information without consulting stakeholders, as this will be noticed immediately. In our coding system, the more details a company presents about its materiality determination process, the more points it receives and, conversely, no mention or incident of mentioning that materiality was used as a basic principle resulting in close-to-zero disclosure will mean that the company will receive minimum points.

Second, we also take into account the level of SE, which we classify into three levels: 1) no involvement; 2) indirect and/or partial engagement and 3) direct engagement.

And thirdly an important element of stakeholder involvement is their participation in the process of SRA. Such participation not only enriches stakeholders as participants but also users of sustainable reporting, the same stakeholders, the peers of those who helped assured SR. This is a very important aspect of sustainable reporting in general, which emphasizes the overall quality.

Frameworks for classification of the stakeholders' engagement level

In the classification of the stakeholders' engagement level, we draw on the seminal prior works in the field, namely (Gable & Shireman, 2005; Gioia&Chittipeddi, 1991; Moratis& Brandt, 2017; Morsing& Schultz, 2006; Stocker, Arruda, Mascena&Boaventura, 2020).

First, we are going to employ three CSR communication strategies proposed by Morsing and Schultz that depict the stakeholder 1) information, 2) response and 3) involvement strategies (Table 1).

It is clear from the table that the movement from information strategy to involvement strategy is a line of progression.

In this relationship, it is important to grasp the gulf between sensemaking and sensegiving the terms firstly appeared in (Gioia&Chittipeddi, 1991).

Table 1