CSR-reporting is a non-financial report which is essential for firm value and reputation. In Vietnam, although there are regulations on the reporting of social responsibilities for publicly listed firms, the number of companies preparing and publishing CSR-reports are still low. Additionally, the quality of CSR-reports varies significantly among firms. This paper emphasizes the importance of CSR-reports for Vietnamese firms and provides recommendations in improving the number and quality of CSR-reports in Vietnam.
The concept of corporate social responsibility (CSR) reporting which aims to provide information about “social and environmental aspects upon which companies’ activities have an impact”, has become increasingly important for business society (Branco and Rodrigues, 2009, p.190). In recent years, not only stakeholders and the media but also companies have been increasingly paying attention to these non-financial reports. For instance, the global number of CSR-reports which was presented in both stand alone reports and annual reports has dramatically risen by 86 times (from 26 in 1992 to 2.235 in 2006) (Oetterli, 2008). According to the KPMG survey of CSR-reporting (2017), the reporting rates for N100 companies[1] have increased significantly from 18 % in 2002 to 75 % in 2017. However, in Vietnam, there is still a lack of attention to the importance of CSR-reports among corporations. Although the number of publicly listed companies publishes CSR-reports has been increasing in recent years after the implementation of Circular 155, many companies only prepare CSR-reports to deal with the regulation. Their reports are sketchy, only mentioned some general information on corporate social responsibilities without showing in details how the companies carry out those responsibilities. One of the main reasons for the underdevelopment of CSR-reporting in Vietnam is the lack of awareness among corporates about the benefits of CSR-reporting for corporate reputation and value. This paper aims to analyze the important roles of CSR-reporting, investigate the current practice of CSR-reporting in Vietnam and suggest the solutions to improve the number as well as the quality of CSR-reports.
1. The importance of CSR-reports
CSR-reports enhance corporate reputation/image
Corporate image is defined as involving other people’s perceptions of the company (Hooghiemstra, 2000). Companies with good image or reputation can enjoy comparative advantages, such as charging premium prices, getting more access to capital markets, having better credit ratings and easily attracting investors (Hooghiemstra, 2000). In contrast, if the corporate image is worsened, the company may suffer a great number of damages. This point is clearly illustrated by the case of Nike. After being accused of using child labor in 1997, Nike suffered severely because of negative public perceptions and had to spend a significant amount of money and effort to rebuild its reputation (Dhaliwal, Li, Tsang and Yang, 2011). Therefore, it is essential for firms to have strategies for creating and maintaining favorable corporate image. In order to achieve this objective, both theory and practice support the idea that one effective method is disclosing information on the firm’s social responsibility.
According to legitimacy theory, the purpose of disclosing social activities is to affect the perceptions of stakeholders and society about the firm. As a result, the information provided by these reports would legitimize the firm’s actions (Neu, Warsame and Pedwell, 1998). In this respect, CSR disclosure is described as a communication instrument which can be used to create, protect or improve organizational reputation because it can influence public awareness about the company (Hooghiemstra, 2000). To be more specific, as Hooghiemstra (2000) mentions, corporate social reporting is used to create a good image for the company so that it attracts more people to invest or buy its products. Moreover, legitimacy and stakeholder theories propose that companies with poorer social performance would disclose CSR information more actively in order to affect the perceptions of stakeholders since they are under more legitimacy pressures (Nikolaeva and Bicho, 2011). Hence, managers can expect that CSR-reports would lead to an improvement in the corporate reputation, especially when they are perceived as negative social performers.
A number of empirical researches also have been carried out to discover the association between corporate reputation and CSR-reports. For example, Dominguez (2004) examined the effect of disclosing human resources information on the reputation of 105 Spanish listed companies in 2004. The result indicates that the good reputation index is significantly positive correlated with the four human resources disclosure indices. In other words, there is a positive relationship between human resources reports and corporate reputation. More recently, Pattern and Zhao (2014), after analyzing a sample of 76 largest US retailers, explore that in spite of having poorer environmental performance, firms engaging in standalone CSR-reports still get higher environmental reputation scores than non- reporting firms. The study concludes that the purpose of enhancing the firm’s social and environmental reputation is the possible reason for deciding to disclose CSR performance.
To sum up, it is evident that companies can use CSR-reports to legitimize their social actions and there is a strongly positive association between CSR-reports and firms’ reputation. As a result, firms which actively engage in communicating CSR activities can build favorable reputations which bring about many comparative advantages.
CSR-reports improve managing human resources
Besides the external benefit of enhancing company’s reputation, disclosing information on social responsibilities also provides the internal advantage associated with human resources. It is first important to examine the linkage between CSR and human resources management. According to Peterson (2004), CSR activities are proven to have positive effects on work attitudes which can help firms to motivate and retain good employees. As a result, firms possibly have increased productivity as well as lower absenteeism and turnover rates. In addition, companies operating in a social responsible manner can have comparative advantage in attracting talented employees (Banco and Rodrigues, 2009). The reasons for these human resource benefits is that employees would prefer to work for companies with positive social reputations since their self-esteem could be enhanced (Greening and Turban, 2000). In contrast, poor corporate social performance could negatively affect staff’s self-esteem, resulting in a damaging impact on their work attitudes (Dutton, Dukerich and Harquail, 1994). Therefore, it is obvious that CSR can help firms effectively manage human resource which can reduce cost and improve productivity.
It is also vital to emphasize the role of CSR-reporting in enhancing the internal benefit of CSR on human resources. As analyzed above, corporate social reporting is considered as an effective tool to improve organizational reputation. Thus, companies can build positive social reputation with employees as well as job applicants by disclosing information about their social responsibilities (Branco and Rodrigues, 2009). If a company actually engages in CSR but does not disclose any information about its activities, it would be hard for them to be recognized as a social responsible company. As a result, social responsibility disclosure can be used as an effective medium to inform employees about the company’s social performance which in turn provides firms with the benefits of attracting, motivating and retaining employees.
One counter argument is found in the study of Ortlizsky, Schmidt and Rynes (2003), which states that there is no correlation between reporting CSR and developing the company’s internal resources. In contrast, by taking an investigation of 26 Portuguese companies (including 13 “Best companies to work for” (BCWF) and 13 matched companies), Branco and Rodrigues (2009) find out that the range of BCWF’s CSR information is significantly wider than the matched firms. It suggests that disclosure of social responsibility performance can have positive effect on the perception of employees about the company. Therefore, companies should consider CSR-reports as a way of gaining employee-related benefits derived from CSR (Branco and Rodrigues, 2009).
CSR-reports lower the cost of equity capital
The other important internal benefit of disclosing social performance is that superior CSR-reports can help firms lower the cost of equity capital. The cost of equity capital is defined as the minimum rate of return expected by investors when investing money in the company (Revert, 2012). This factor draws a great deal of attention of both executives and researchers since it is crucial for a firm’s financing and general operations decisions (Dhaliwal et al. 2011). For example, Graham, Harvey and Rajgopal (2005) explore that, from the executives’ point of view, the effect of reducing the cost of capital is considered as an important driver of making voluntary reports. Besides, a number of studies have been carried out to indicate the benefit of these non-financial reports on the company’s cost of capital. Dhaliwal et al. (2014), for instance, undertake a research on a sample of 1.093 companies located in 31 countries in the period of 1995–2007 and conclude that CSR disclosure is negatively related to the cost of capital. Focusing on the quality of CSR-reports, another survey of 114 firm-year observations for Spanish listed companies carried out by Revert (2012) indicates that CSR-reports quality is inversely associated with the cost of equity capital. Moreover, these researches find out that the relationship is more apparent in stakeholder- oriented countries (Dhaliwal et al., 2014) and environmentally sensitive industries (Revert, 2012).
According to Dhaliwal et al. (2014), there are three main channels that disclosure can lead to investors’ lower expected rate of return. First, transparent disclosure reduces information asymmetry which then improves the liquidity of the stocks. Second, disclosing information can result in lower estimation risk inherent in investors’ asset pricing models. Third, investors could require a lower rate of return for companies with improved transparency since they can enjoy decreased monitoring cost when investing in these companies. These mechanisms apply for both financial and non-financial disclosure (Dhaliwal et al., 2014). Thus, companies producing CSR-reports, as a form of non-financial disclosure, can enjoy cheaper equity financing from investors.
In short, it is evident that companies can gain the benefit of lower cost of capital by engaging in and improving social performance disclosure. As the cost of capital is one of the main determinants of firm’s value, managers should consider CSR-reports as an effective tool to enhance the value of companies.
2. The practice of CSR-reporting in Vietnam
Although CSR is not a new concept, this terminology has just been mentioned and attracted attention in Vietnam in 10 recent years, especially after a number of corporate activities destroying the environment was revealed. However, according to a research of UNIDO (2010), approximately 40 % of corporates did not know the terminology of CSR. Even though in recent years, there has been an increasing awareness among corporates about the importance of CSR, the corporate activities related to CSR have still been unpopular.
In order to raise the awareness about CSR and encourage companies to be more socially responsible, the Vietnamese government has issued a number of policies, including Circular 155/2015/TT-BTC on 6/10/2015 about regulations on reporting CSR for listed Vietnames companies. Specifically, Circular 115 regulates and guides listed companies in HOSE and HNX stock exchanges in preparing and publishing CSR-reports which include the following aspects: management of raw materials, energy consumption, water consumption, environment protection, labor policies, responsibilities for local community and green capital market activities. This regulation has marked an important step of Vietnam towards a sustainable financial market and helped to make an improvement in CSR-reporting among Vietnamese listed firms. According to an investigation of VN30 companies’ annual reports taken by the authors, the number of firms disclosing their CSR-reports increase from 17 (in 2015) to 25 (in 2017). Additionally, there is an increase in the number of independent CSR-reports (from 2 to 4) as well as the length of CSR disclosure incorporated in annual reports.
To raise the awareness among corporates about the importance of CSR-reporting, the Vietnamese listed awards have incorporated an award for best CSR-reportings of listed companies since 2013. According to the report of this award in 2018, the quality of CSR-reports has gradually improved. Most companies in Top 10 and Top 20 CSR disclosure apply information reporting standards which are higher than required. 6 reports in the Top 10 have applied GRI reporting standards[2]. The remaining 4 reports in the Top 10 also apply the GRI G4 guidelines. Among these companies, Bao Viet Group is the pioneering company in applying global standard in preparing detailed CSR-reports. It also published independent CSR-report in both Vietnamese and English with comprehensive content, high quality and creative presentation. In 2017, Bao Viet Group won the Asia’s Best Sustainability Award which was held annually by CSRWorks International. Other Vietnamese large corporations, such as Vietnam Dairy Products Joint Stock Company (Vinamilk), Hau Giang Pharmacy Company and FPT Corporations, also publish CSR-reports which have high quality and are highly evaluated by the Board of examiners of Vietnamese listed awards.
Although, there has been a considerable improvement in the number and quality of CSR-reports among listed companies, most of high-quality reports are published by large corporations. For small and medium enterprises, there is still a dearth of attention on these non-financial reports. According to the report of Vietnamese listed awards in 2018, there are many reports that do not follow any standard, resulting in the lack of basic contents, such as contact information, reporting scope and period, records of compliance issues and achievements. It is possible that these reports are prepared to merely meet the regulations on publishing CSR activities. Since the publication of standard CSR-reporting is costly, many companies may not consider this information as a good investment.
3. Solutions
The publication of information on social responsibility of companies is not only a concern of investors, the government and the community but also beneficial for the firm in a number of aspects. If companies disclose their social responsibility information, they will enhance their reputation, improve managing human resources and reduce the cost of equity capital. In Vietnam, although the number of companies understanding the benefits of disclosing their CSR has been increasing, most of them are large corporations. There are still many other companies that are not interested in preparing and publishing this non-financial information. In order to solve this problem, the authors provide some suggestions as follows:
Firstly, although the government has stipulated the disclosure of sustainable development information as compulsory for all listed companies under Circular 155, the implementation of this regulation among listed firms is still not good. Therefore, the government should have regulations for penalizing listed companies that do not publish information on CSR activities or publish inadequately as regulated.
Secondly, through the media and awards (for example, the annual report award organized by HOSE and the Securities Investment newspaper) to raise awareness about CSR-reporting among firms. These activities can help corporates realize that the disclosure of CSR not only brings benefits to the society and the community but also helps them develop sustainably.
Third, when the implementation of CSR-reports has been fully carried out in enterprises, another concern is the quality of the reports. Some companies may disclose information selectively, only show good information and hide their negative activities. This can lead to a problem named greenwash. According to Lyon and Maxwell (2011), greenwash is the action of the firm to selectively report positive information on its social responsibility while the negative information on these respective is withheld. The purpose of this action is to create an excessively good image for the firm. Empirical research proposes that in practice, greenwash has become common for firms in reporting CSR. For instance, by undertaking a research on the disclosure of environmental aspects of 40 Australian companies, Deegan and Rankin (1996) conclude that firms rarely provide negative information in their annual reports. Moreover, firms which have been successfully prosecuted for environmental law violation appear to disclose significantly m.ore favourable environmental performance than non-prosecuted ones. Hence, it can be argued that reports which omit negative information are misleading to the users in such a way that only good image of the firm is presented (Deegan and Rankin, 1996). Moreover, companies engaging in greenwash may make stakeholders lose their trust, resulting in the possibility that the benefits of CSR-reports are limited (Wylie and Ward, 2014). Therefore, encouraging enterprises to audit their CSR-reports is also a solution that should be considered to ensure the accuracy and truthfulness of the information in the report. This is also a trend of the world. Currently, Bao Viet Group is the first enterprise in Vietnam having sustainable development reports audited and this activity should be carried out in other companies.
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- https://tinnhanhchungkhoan.vn/chung-khoan/buoc-tien-lon-trong-mua-bao-cao-phat-trien-ben-vung-2018–248223.html
- http://www.baoviet.com.vn/Phat-trien-ben-vung/Bao-cao-PTBV/ArticleDetail_NoRight/154/
[1]The sample of the survey comprises 4.900 companies in 49 countries; each country has 100 top companies by revenue.
[2] GRI’s framework for sustainability reporting was first launched in 2000. This standard, which is now applied worldwide, aims to help companies identify, gather and report this information in a clear and comparable manner.
