Sustainability and triple bottom line reporting in manufacturing industry in Vietnam

Sustainability and triple bottom line reporting in
manufacturing industry in Vietnam
Hoang Thi Bich Ngoc


Outline
Literature Review
Lessons from others countries
Regression model
Recommendation
Limitation


Objectives and research questions
Objectives:
Explain why manufacturers and certain companies should issue TBL report

Research questions:
- What is TBL reporting?
- What are the factors affecting the decision of issuing Triple Bottom Line report
in Vietnam?
- What are recommendations for manufacturing companies and Vietnamese
government?


Literature review
Triple bottom line: is an accounting framework with three parts: social,
environmental (or ecological) and financial. (John Elkington, 1997).
Figure 1 Three bottom line factors
Planet

People

Profit
Source: Created by author


Literature review
CSR: Corporate Social Responsibility is the continuing commitment by business to
behave ethically and contribute to economic development while improving the
quality of life of the workforce and their families as well as of the local community
and society at large.
- The World Business Council for Sustainable Development-


Business benefits of TBL reporting
• Enhancement of reputation and brand;
• Securing a ‘social license to operate’;
• Attraction and retention of high caliber employees;
• Improved access to investors;
• Reduce risk profile;
• Identification of potential cost savings;
• Increased scope for innovation;
• Aligning stakeholders needs with management focus; and
• Creation of sound basic for stakeholder dialogue


Literature review
• Manufacturing:
The process of converting raw materials, components, or parts into finished goods
that meet a customer's expectations or specifications.

• Sustainable manufacturing:
The creation of manufactured products that use processes that minimize negative
environmental impacts, conserve energy and natural resources, are safe for
employees, communities, and consumers and are economically sound.
- the US Department of Commerce’s Sustainable Manufacturing Initiative-


Theoretical framework
• Legitimacy theory:
Legitimacy is a generalized perception or assumption that the actions of an entity
are desirable, proper, or appropriate within some socially constructed system of
norms, values, beliefs, and definitions (Suchman, 1995).
• Stakeholder theory:
suggests that companies will manage these relationships based on different
factors such as the nature of the task environment, the salience of stakeholder
groups and the values of decision makers who determine the shareholder ranking
process (Donaldson & Preston, 1995).


UK:

Lessons from others countries

• Treasury (Her Majesty's Treasury) issued guidance, minimum requirement.
• Award for sustainability reporting called Building Public Trust Awards.
• In 2013, 91% of companies published sustainability report (KPMG)
 Australia
• 82 % of firms issuing report in 2013
• Heavy industry and resources-based sectors always has high rate of publishing report

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


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


Lessons from others countries
Thailand
• The growth in manufacturing sector caused the environmental crisis
•

In 1999, Thai listed companies were asked to promote and build corporate
governance practices into their annual reports

• In 2007, voluntary reporting was changed to a “comply or explain” approach due to
the inefficiency of the previous policy. However, Thailand does not have any
regulation requiring corporate environmental reporting.
=> In developing countries, TBL reporting is increasingly concerned as a tool for dealing
with environmental crisis


Overview of TBL reporting in Vietnam
• CSR concept was first introduced by transnational companies (Nguyen, 2007).
• In 2014, 28 companies in the top 50 companies in Ara Vietnam 2014 disclosed
non-financial data
• TBL report is still a voluntary report in Vietnam. The majority of TBL disclosing
companies are big corporation.
• With the growth in economy and manufacturing sections, Vietnam are facing
with environmental crisis (Like Thailand in 1990s)

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


Relationship between TBL reporting decision
and factors
• Model: Probit and logit
• Reason: Probit and logit regression model is the nonlinear regression model
designed for binary dependent variables
• Factors:
- Company age
- Ranking in Ara Vietnam 2014
- Total debt
- Return on assets

- Total equity
- Type of industry
- Type of auditor


Table 1: Hypothesis
Variabl
e

Expected
gap

Theory

Previous research

author

Age

+/-

Stakeholder

Rank

+

Stakeholder

Debt

+

Stakeholder
and
legitimacy

Schipper (1981)

- High debt -> need to cut cost -> Increase chance to harm people and
planet -> Issue TBL to prove that they are social responsible
- Gain support from public to raise performance ->Pay debt

Equity

+

Stakeholder

Bammer and Pavelin 2008

- High equity -> Many stakeholder group -> provide information in
different aspect -> CSR
- Large company -> Excess money for CSR activities

ROA

+

Stakeholder

King and Lenox (2001),
Mathur (2000), Suttipun

- Good performance ->spare money -> Do CSR

Type of
industry

+

Stakeholder

Newson & Deegan(2002)

- High profile industry -> more negative impacts on People and planet ->
Need to prove that these impact are still acceptable -> TBL

Type of
auditor

+

Stakeholder

Brammer and Pavelin
(2008), Suttipun (2012)

Reason
- Old company -> diversify business and various stakeholders -> need to
provide information in various aspects -> TBL
- Good performance ->spare money -> Do CSR

- Company use big 4 auditor normally have good financial condition ->
have money for CSR and issue TBL report


Multiple Regression model
Table 2: Coefficients in Probit and Logit model
Variables

Coefficient

Standard error

p>|z|

Rank

-0.0136

0.0212

0.532

Age

0.0122

0.2252

0.588

Debtm

-0.0188*

0.0104

0.07

Equitym

0.2574**

0.1318

0.05

ROA

0.1007*

0.056

0.072

1.7206***

0.6691

0.01

0.0962

0.5816

0.864

Manufacturing
Big4
In which:

*is the significant level at 10%
** is the significant level at 5%

*** is the significant level at 1%

Source: Illustrated by author


Table 3: Regression model result
Variabl
e

Expected Result
sign
sign

Significant

Meaning

Age

+/-

+

Insignificant

Age of companies does not have significant impacts on TBL
reporting decision.

Rank

+

-

insignificant

Ranking of companies does not have significant impacts on TBL
reporting decision.

Debt

+

-

Significant

High debt amount companies tend to keep secret about their
non-financial information.

Equity

+

+

Significant

The higher equity amount company tends to lead to
sustainability reporting.

ROA

+

+

Significant

well-performed companies tend to be willing for sustainability
reporting

Type of
industry

+

+

*significant

Companies operating in manufacturing industry tend to issue
sustainability report.

Type of
auditor

+

-

Insignificant

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


Table 4: Result explanation
Variabl Result
e
sign

Significant

Reason

Age

+

Insignificant

Young company has been aware about CSR and TBL reporting while in
some old companies CSR is not focused activities

Rank

-

insignificant

Ranking criteria is complex (performance, activities,…)

Debt

-

Significant

High debt companies want to hide non-financial information. They do
not want to use money for CSR and TBL reporting when in loss situation

Equity

+

Significant

High equity means they need to use TBL report to inform to stakeholders
in various aspects

ROA

+

Significant

Good performance companies have nothing to hide. They use TBL report
to gain public trust.

Type of
industr
y

+

*significant

Manufacturing companies disclose TBL report to ensure their impacts
are still at acceptable level

Type of
auditor

-

Insignificant

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


Recommendation
 For government
- In long-term government should issue a guideline for Triple bottom line
reporting in Vietnam
- Regular verifying the true and fair of non-financial data by an independent
organization
- Manufacturing industry and other highly sensitive industries should be legally
required to establish triple bottom line report.

Recommendation
For Vietnamese companies
-Vietnamese companies should use GRI guidelines and Sustainability reporting
handbook issued by IFC as the framework for TBL reporting
-High debt companies are suggested to be more open with non-financial data as it
support them to gain the credit from creditors and avoid bankruptcy when
stockholders are pessimistic about the current financial situation.
-Good performance companies should issue TBL report to advertise their CSR
activities to public.


Recommendation
For manufacturers
In short term
- Manufacturers are recommended using Big4 auditor to gain information
credibility as well as use Big 4 auditor and consultant in TBL reporting.
- Manufacturers are highly recommended issuing TBL report to gain trust and
support from the public, then increase sales and performance.


Recommendation
For manufacturers
In long term
- TBL report itself does not make company develop sustainably. Only when a
company operate ethically, would they gain long-term achievement.
- Manufacturers should set up their own codes of conducts and requirements
in the working environment to avoid negative harms to environment and
people, cut down the waste and increase efficiency.

Limitation

Example 1: 1000 tons of waste were landfilled in the farm
of director of Environment company at Ha Tinh province

Subjective reasons
Vietnam corruption perception index: Rank 112/168,
Score 31/100
Institutions of the socialist-oriented market economy
According to a study of William S.M (1999) culture and
the political and civil system were the determinants of
the amount of disclosure.
=> The creditability of information is still questionable
=> Result did not show pattern in some variables.

Example 2: Vietcombank (rank 16th in Ara Vietnam 2014)
did not issue TBL report but is ranked at 11th place in the
Best 100 Vietnam working place.
Binh Minh plastic (Rank 11th in Ara Vietnam 2014)
disclosed TBL report but the working place does not belong
to the Best 100 Vietnam working place


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

Thank you for listening!


Additional references
1. Williams, S. M. (1999). Voluntary environmental and social accounting disclosure practice in the AsiaPacific region: an international empirical test of political economy theory. The International Journal of
Accounting, 34(2), 209-238.
2. Muttanachai Suttipun & Patricia Stanto (2012), Determinates of Environmental Disclosures in Corporate
Annual Reports of the Stock Exchange of Thailand (SET) ,Journal of Management Studies, School of Business
and Management, Faculty of Business and Laws, The University of Newcastle, Callaghan Campus, Australia.
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