the state of disclosures on stakeholder engagement

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The state of disclosures on stakeholder engagement

in sustainability reporting

in Australian local councils

Amanpreet Kaur and Sumit K. Lodhia

University of South Australia Business School,

University of South Australia, Adelaide, Australia

Abstract

Purpose This study aims to examine the state and extent of disclosures on stakeholder

engagement in sustainability reporting in Australian local councils.

Design/methodology/approach Content analysis was used to analyse 23 sustainability/state of

environment/annual reports out of a total of 563 local councils (city, shire, district, borough and

regional) in Australia for the year 2009-2010 those found to be using stakeholder engagement in the

development of sustainability reports. A stakeholder engagement index was developed on the basis of

the literature review to examine the extent of disclosures on stakeholder engagement.

Findings This study identies: the Australian local councils that are engaging with their

stakeholders in the development of sustainability reports; key stakeholders for sustainability reports;

extent of engagement; media and approaches used for engagement; and difculties in the engagement

process. The results suggest that stakeholder engagement is an essential component in the

development of sustainability reporting as it informs reporters of material concerns, issues and

aspirations of key stakeholders.

Research limitations/implications The focus of this paper is the state of disclosures on

stakeholder engagement in sustainability reporting. The ndings of the paper are limited to only one

level of governance of the public sector, that is, local councils.

Originality/value International standards such as Global Reporting Initiative and AccountAbility

(AA) 1000 have signied the role of stakeholder engagement in the development of sustainability

reports. However, there has been a little research that demonstrates whether or not organisations

engage with their stakeholders for reporting purposes. This paper provides evidence of stakeholder

engagement in sustainability reporting in Australian local councils.

Keywords Sustainability reporting, Disclosure, Stakeholders, Stakeholder engagement, Local councils

Paper type Research paper

Pacic Accounting Review

Vol. 26 No. 1/2, 2014

pp. 54-74

q Emerald Group Publishing Limited

0114-0582

DOI 10.1108/PAR-07-2013-0064

1. Introduction

Since the Brundtland (1987) Report on sustainable development, the importance of

environmental issues and the pursuit of sustainable development have been on the

agenda of both the government and corporate sectors (Bebbington and Gray, 1993).

Stakeholders from organisations require greater transparency and accountability than

ever before. In order to demonstrate an organisations contribution towards sustainable

development, sustainability reporting is considered by many to be necessary to fully

inform stakeholders about the activities and performance of an organisation

(Lamberton, 2005; Milne and Gray, 2007; Guthrie and Farneti, 2008). The Global

Reporting Initiative (GRI, 2004, p. 20) denes sustainability reporting as:

[. . .] a vehicle to assess the economic, environmental and social impacts of the organisations

operations, products, and services, and its overall contribution to sustainable development.

During the preparation of a sustainability report, stakeholders reasonable expectations

and interests are a key reference point for many decisions involved, such as the scope,

boundary, application of indicators and assurance (GRI, 2006, 2011; Herbohn and

Grifths, 2007). International accountability guidelines such as the GRI and the Institute

of Social and Ethical Accountabilitys AA1000 place a major emphasis on stakeholder

engagement as the primary means for developing sustainability reporting structures.

Stakeholder engagement is critical for sustainability reporting because it facilitates the

identication and understanding of the material concerns, issues, perceptions, needs and

expectations of stakeholders in relation to sustainability issues (AA, 2005, 2011;

GRI, 2006), and thereby enhances stakeholder receptivity and the usefulness of the

report (GRI, 2006, 2011). Adams and Larrinaga-Gonzalez (2007, p. 385) argue that:

[. . .] stakeholder engagement, an important aspect of many organisations sustainability

reporting process, has the potential to be a particularly powerful driver for change, because

its purpose is to challenge the companys role in social and environmental sustainability.

Disclosures on

stakeholder

engagement

55

The importance of stakeholder engagement as an overall interactive mechanism and more

precisely as a part of the reporting process has become increasingly critical in both the

corporate and public sectors (ACCA, 2005). However, the position of the public sector in

this regard has been discounted, in spite of the indispensable need and scope for

stakeholder engagement in public sector organisations (PSOs). This is especially the case

in the local government sector, which shares a close relationship with the community and

other stakeholders. Being at the level of governance which is closest to people, local

governments have a critical role in educating the public and responding to social and

environmental issues in their local areas (Sitarz, 1993). Local governments were

acknowledged as a focal point for the implementation of Local Agenda 21, which is part of

the primary policy document that emerged from the Rio conference on sustainable

development (Gray, 2001). Local Agenda 21 (1993) recognised that environmental issues

and solutions have their roots in local activities and encouraged local governments to

develop stronger partnerships and networks with their communities to advance social,

economic and environmental sustainability. In line with this, the change in performance

expectations of local governments has extended their accountability from mere

compliance with spending mandates to overall performance reporting (Ryan et al., 2002).

This implies that local governments are expected to engage with stakeholders on

signicant sustainability issues in their areas, and report to them in order to demonstrate

their contribution in advancing sustainable development (Lamprinidi and Kubo, 2008).

Although stakeholder engagement and dialogue is a critical aspect of sustainability

reporting, there is a lack of evidence for such engagement and dialogue actually

happening in current sustainability reporting practices. Further, where stakeholder

engagement and dialogue is happening, evidence is required of what sort of mechanisms

are in place (Gao and Zhang, 2001; ACCA, 2005; Unerman, 2007). This study aims to

respond to this gap in the sustainability accounting and reporting literature by examining

the state and extent of disclosures on stakeholder engagement in sustainability reporting

by Australian local councils. These ndings should be of interest to policymakers who are

concerned with formulating policies and strategies related to stakeholder engagement in

sustainable development programmes, particularly those in the public sector.

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The paper is organised as follows. The next section presents an overview of

sustainability reporting in Australian PSOs. This is followed by a review of stakeholder

theory with a particular focus on stakeholder engagement and its relevance in the

sustainability reporting process. Section 4 outlines the research method used in this

study and discusses the development of the stakeholder engagement index for analysing

disclosures. Sections 5 and 6 present ndings of this study and discuss them in light of

the literature review before drawing conclusions.

2. Sustainability accounting and reporting in the Australian public sector

Research studies on the social and environmental disclosure practices of Australian

PSOs rst emerged in the mid 1990s. Since then, numerous studies have been conducted

to explore: the state of sustainability accounting and reporting practices; trends in

sustainability reporting; and inuences on sustainability reporting in Australian PSOs.

This section of the paper highlights the ndings of prior studies to identify gaps in the

existing literature.

An increase in the uptake of sustainability reporting in the Australian public sector

has been reported in several studies (Burritt and Welch, 1997; Dickinson et al., 2005;

Lynch, 2010; GRI, 2005). Sustainability reporting in Australian PSOs is driven by a

range of factors such as: sustainability performance monitoring; public relations;

regulatory requirements; leadership; concerns about climate change, population and

urban growth; a high level of interest in sustainability issues within local councils; and

national and international pressures (Dickinson et al., 2005; Herbohn and Grifths, 2007;

Farneti and Guthrie, 2009; Sciulli, 2011; Lodhia et al., 2012). In addition to these factors,

the quantity and type of sustainability disclosures in the majority of PSOs including

local councils is related to their perceived importance by internal stakeholders such as

employees (Frost and Toh, 1998; Dickinson et al., 2005; Herbohn and Grifths, 2007;

Farneti and Guthrie, 2009) external pressure by mandatory stakeholders such as

ministers (Farneti and Guthrie, 2009), and level of the community engagement

(Sciulli, 2011). However, prior research shows a low level of involvement of external

stakeholders in sustainability reporting (Herbohn and Grifths, 2007).

Australian PSOs are embracing the GRI reporting guidelines to report on

sustainability issues (Dickinson et al., 2005; Farneti and Guthrie, 2009). Moreover, the

majority of local governments reports are consistent with the GRI sustainability

reporting guidelines (Burritt et al., 2009). The key elements included in sustainability

reports comprise: indicators/data; business strategy and objectives; performance

outcomes; stakeholder engagement and strategies; and disclosures on corporate

governance (Dickinson et al., 2005). Disclosures on stakeholder engagement indicate that

although sustainability reporting is internally driven, PSOs are engaging with their

external stakeholders. However, it is still not clear how and to what extent this

engagement is taking place in public sector entities.

Prior literature suggests that although there has been a substantial increase in the

public sectors sustainability reporting practices over the last two decades, it is still in its

infancy when compared to private sector reporting practices (Gibson and Guthrie, 1995;

Dickinson et al., 2005; Ball and Grubnic, 2007; GRI, 2005). Guthrie and Farneti (2008) in

their study examined disclosures on social and environmental issues by seven

Australian PSOs. The study revealed that these organisations cherry picked the GRI

indicators they wished to disclose, and their reports lacked complete disclosures on

the social, environmental and economic impacts of their activities. Relatively similar

ndings were made by Sciulli (2009) in an examination of sustainability disclosures in

Australian local councils in six coastal regions. He found an overall low level of

disclosures on sustainability issues in these councils and recognised stakeholders needs

as an inuence for encouraging disclosure on social and environment issues.

The other issues concerned with sustainability reporting in the Australian public

sector are: insufciency of environmental performance standards and accountability

assessment frameworks (Burritt and Welch, 1997); heterogeneous reporting practices in

relation to scope, format and quality (Ryan et al., 2002; Jones et al., 2005; GRI, 2005); and

assurance and verication (Dickinson et al., 2005). Recently, Lynch (2010) examined

annual reports of 18 state government departments in four Australian states over the

period from 2000-2001 to 2007-2008. She noticed a low level of external stakeholders

participation in sustainability reporting, as there were few stakeholders comments

on the reports and only occasional enquiries were received. She argued that lack of

disclosure in some departments could be due to lack of pressure from external

stakeholders, as, unless external pressures exist, departments may nd little benet in

reporting on sustainability issues.

Given the current state of sustainability reporting practices in the Australian public

sector, prior research has not explored elements that could accelerate sustainability

reporting practices among PSOs. Hence, there is a need to take a step back and study the

key elements in structuring a sustainability report. One such crucial element is

stakeholder engagement (GRI, 2006; Unerman, 2007; Manetti, 2011). Although

stakeholder engagement is critical to the sustainability reporting process, these

previous studies have examined it in a limited manner. It is argued that low level

stakeholder engagement could be the reason for the low level of sustainability

disclosures on the presumption that PSOs have not yet managed to identify the

information needs and expectations of their stakeholders and report accordingly. An

in-depth study is required to explore the current state of stakeholder engagement in

sustainability reporting by PSOs. This paper adds to the literature by examining how

stakeholder engagement mechanisms function during the development of sustainability

reports for Australian local councils and to what extent this engagement takes place. The

focus of this paper is to analyse stakeholder engagement through document analysis.

3. Theoretical framework

Stakeholder theory

Stakeholders are broadly dened as any group or individual who can affect or are

affected by the achievement of the organisations objectives (Freeman, 1984, p. 46).

Stakeholder theory asserts that organisations should consider the concerns of individuals

and groups that can affect or are affected by their activities (Clarkson, 1995; Gibson, 2000)

while making decisions and achieving organisational goals. Organisations are expected to

do so because they are responsible and accountable to a broad range of stakeholders for

their social and environmental impacts, rather than just shareholders (Hillman and Keim,

2001). In effect, recent literature suggests that shareholders are also concerned about and

could be the key drivers for organisational responses towards social and environmental

issues (De Villiers and Van Staden, 2011, 2012).

Stakeholder theory recognises the existence of a dynamic and complex relationship

between organisations and their stakeholders (Gray et al., 1996) and, emphasises the

Disclosures on

stakeholder

engagement

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58

management of these relationships (Friedman and Miles, 2002). Therefore,

stakeholder theory plays a signicant role in understanding stakeholders inuences

on organisations actions and how organisations respond to these inuences.

Organisations can have a broad range of stakeholders with different interests and it

is not possible for them to address the issues and concerns of all their stakeholders.

Therefore, identication of stakeholders which can impact or are impacted by an

organisations actions becomes essential (Clarkson, 1995). In the absence of stakeholder

identication, the effectiveness of stakeholder engagement becomes questionable or

doubtful (Belal, 2002). The key criteria for identifying and prioritizing stakeholders

include attributes of power, legitimacy and urgency, and the stakeholders ability to

affect or be affected by the organisations actions (Mitchell et al., 1997).

In order to explain how organisations respond to stakeholders pressure and

expectations, Donaldson and Preston (1995) recognise descriptive/empirical,

instrumental and normative as the three distinct but supportive features of

stakeholder theory. Descriptive/empirical stakeholder theory is used to describe what

organisations actually do to manage their relationships with stakeholders ( Jones, 1995)

and whether or not stakeholder interests are taken into account by organisations

(Gibson, 2000). Instrumental stakeholder theory has been used to explain that

the predicted outcomes are contingent on behaviour of a certain type (Jones and Wicks,

1999). It emphasises the role of management to achieve a balance between the interests of

all stakeholders (Shankman, 1999). Normative stakeholder theory is used to explain

moral and philosophical principles to state how an organisation should deal with its

stakeholders (Donaldson and Preston, 1995).

Stakeholder theory provides the foundations for studying stakeholder engagement.

Its descriptive variant involves studying the extent of and how stakeholders are

managed. It therefore provides the basis for studying the extent of and approach taken to

stakeholder engagement in local councils. The rest of the section discusses stakeholder

engagement, drawing upon the insights offered by descriptive stakeholder theory.

Stakeholder engagement

In recent years the focus of stakeholder theory has shifted from a stakeholder

management approach towards more of a network-based, relational and

process-oriented approach of stakeholder engagement (Andriof and Waddock, 2002).

The main reason why organisations are moving towards stakeholder engagement is to

increase trust, transparency and accountability and to provide better communication

on their activities and impacts (Burchell and Cook, 2006). Stakeholder engagement

aims at enhancing mutual understanding and alignment between organisations and

their stakeholders (Gable and Shireman, 2005).

According to Andriof and Waddock (2002, p. 42) stakeholder engagement can be

dened as a trust-based collaboration between individuals and/or social institutions

with different objectives that can only be achieved together. Advancing sustainable

development is one such goal that needs the trust-based collaborative effort of both the

organisations and their stakeholders to ensure its success (Andriof and Waddock, 2002;

Gao and Zhang, 2006). While pursuing sustainable development objectives,

organisations realise that they cannot act alone to develop a sustainability report

(Isenmann and Kim, 2006), and they require the cooperation of their stakeholders to

identify the social and environmental issues perceived by stakeholders.

Stakeholder engagement has emerged as an important tool for understanding the

reasonable expectations and interests of different stakeholders (ISEA, 1999). Stakeholder

engagement facilitates organisations to recognise stakeholders information demands

regarding content, form and media to prepare a sustainability report that meets their

specic needs (Isenmann and Kim, 2006). A meaningful engagement demonstrates

organisational accountability towards stakeholders and ensures that organisational

decisions are based on an accurate and full understanding of stakeholder aspirations and

needs (ISEA, 1999). The basic purpose to engage stakeholders is to:

[. . .] drive strategic direction and operational excellence for organisations and to contribute to

the kind of sustainable development from which organisations, their stakeholders and wider

society can benet by [. . .] learning, innovating and performing (AA, 2005).

Disclosures on

stakeholder

engagement

59

Stakeholders can be involved in the planning, accounting, auditing and reporting stages

to bring transparency and enhance mutual understanding on the sustainability actions

of corporations (Gao and Zhang, 2006). During the sustainability reporting process

stakeholders can be engaged in the following manner (Isenmann and Kim, 2006):

.at the beginning of the reporting process, to involve stakeholders to articulate

their needs and expectations as to reporting;

.during the reporting process, to obtain feedback and criticism of reports; and

.during publication and release, to get consultation on future efforts on

sustainability issues and the coming reporting cycle.

A range of media can be used for engaging stakeholders in all these activities. These

include: questionnaires; telephone; blogs; media releases; interviews; magazines and

internet bulletin boards; public meetings; round table discussions; community forums;

seminars; conferences and workshops; and brieng sessions (Cummings, 2001; Gao and

Zhang, 2001; Belal, 2002; Gable and Shireman, 2005; Thomson and Bebbington, 2005).

However, the selection of the appropriate engagement method is dependent upon the

size, geographical location, resource availability and nature of stakeholders to be

involved (Gao and Zhang, 2001; Belal, 2002).

Stakeholder engagement is not often comfortable; sometimes it can raise complex

issues for organisations (Thomson and Bebbington, 2005). The key complexities that

can interrupt stakeholder engagement and dialogue processes include: heterogeneous

stakeholders views and expectations; conicting interests between the organisation

and its stakeholders; difculty in stakeholder identication and prioritisation; and the

impossibility of engagement with certain stakeholders such as the natural

environment and future generations (Thomson and Bebbington, 2005; Unerman, 2007).

Moreover, a majority of organisations interpret stakeholder engagement as a one-sided

process, by not involving stakeholders in their decisions and simply communicating the

decisions, in the belief that this will best serve their needs (Belal, 2002; Foster and Jonker,

2005). This one-way dissemination of information to stakeholders is often regarded as a

relatively weak form of engagement (Burchell and Cook, 2006). The effectiveness of

stakeholder engagement lies in engaging stakeholders in a two-way relationship so that the

decisions are made after considering the conicting interests of the organisation and its

stakeholders (Foster and Jonker, 2005; Burchell and Cook, 2006). The existing stakeholder

engagement practices are not designed to give stakeholders control and delegated power in

decisions on social and environmental issues (Cummings, 2001). Belal (2002) in his study

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found that a majority of organisations do not identify their stakeholders clearly and

systematically in order to engage them in the social and ethical reporting process. He also

found that social and environmental issues are addressed unilaterally on the basis of

feedback from stakeholders without incorporating them in the decision-making process.

Stakeholder engagement models

The quality of the engagement outcome depends on the extent of involvement of

stakeholders. This section of the paper reviews stakeholder engagement frameworks for

assessing and evaluating the extent and quality of stakeholder engagement in sustainability

reporting. The frameworks include: Arnsteins Ladder of Participation, AA1000, the GRI

and The Environment Councils (TECs) stakeholder evaluation and benchmark criterion.

Arnsteins Ladder of Participation and the Environmental Council have been extensively

discussed in prior literature. A study by ACCA on stakeholder engagement reporting

utilised the Environmental Council framework (ACCA, 2007). Moreover, the GRI and

AA1000 are widely accepted practice based standards and these provide useful insights into

stakeholder engagement. Taken together, these frameworks provide a comprehensive

account of the available benchmarks for assessing stakeholder engagement.

Arnsteins (1969) Ladder of Citizen Participation has eight rungs, each explaining a

different form of engagement technique that can be applied to engage with

stakeholders. These rungs are:

(1) manipulation;

(2) therapy;

(3) informing;

(4) consulting;

(5) placation;

(6) partnership;

(7) delegated power; and

(8) citizen power.

The manipulation and therapy rungs are levels of non-participation, aiming at enabling

power holders to educate the participants through public relations (Cummings, 2001).

Informing, consulting and placation are regarded as rst steps to participation. These

are one-way communication processes wherein stakeholders can be heard, however,

decision and veto lies with the power holders (Cummings, 2001). The partnership form of

participation enables participants to negotiate and trade-off with traditional power

holders (Arnstein, 1969). In the delegated power and citizen power rungs stakeholders

possess full managerial power and can make decisions in their own right (Figure 1).

Cummings (2001), in a UK study, found most organisations used the third, fourth

and fth rungs of the ladder to involve stakeholders. Only a few organisations used the

sixth and seventh rungs (partnership and delegated power), to engage with their

stakeholders. Relatively similar ndings were made in Manettis (2011) study of

sustainability reporting. He found that Italian companies have reached the rst ve

rungs of the Ladder of Participation. Only a few companies that were subject to legal

requirements were using delegation of power and citizen control to involve

stakeholders.

60

Citizen control

Degrees of

citizen power

Delegated Power

Disclosures on

stakeholder

engagement

61

Partnership

Placation

Degrees of

tokenism

Consultation

Informing

Therapy

Non-

participation

Manipulation

Figure 1.

Eight rungs on a ladder

of citizen participation

Source: Arnstein (1969, p. 217)

AA1000 is an international accountability standard that focuses on securing the

quality of social and ethical accounting, auditing and reporting. AA1000s stakeholder

engagement guidelines aim at improving accountability and ensuring the quality of

dialogue between an organisation and its stakeholders. The AA1000 stakeholder

engagement assessment criteria are discussed in Table I.

Inclusion of Quality of

component? component

Component of report

Stakeholder commentary on social and ethical performance

Stakeholder commentary on the social and ethical accounting, auditing and

reporting process

Survey of stakeholder views

Evidence of stakeholder participation in the social and ethical accounting,

auditing and reporting process in denition of values


auditing and reporting process in denition of objectives and targets


auditing and reporting process in identication of issues


auditing and reporting process in identication of indicators

Process for stakeholder feedback on report

Source: ISEA (1999, p. 115)

Table I.

AA1000 stakeholder

engagement assessment

criteria

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62

The GRI is the widely used sustainability reporting framework. It emphasises the

importance of engaging stakeholders in the sustainability reporting process. The GRI

guidelines (G3) identify key reporting principles to produce a balanced and reasonable

report on an organisations social, environmental and economic performance. One of

these principles is stakeholder inclusiveness which recognises stakeholder

engagement as an essential element to determine the scope and enhance the quality of

a sustainability report. In order to provide evidence of stakeholder engagement practices

in sustainability reporting, GRIs Public Agencies Sector Supplement (2005) offers

an indicator under the sub-section Governance structure and management systems.

This indicator requires the PSOs to disclose items such as: the basis for identication

and selection of stakeholders with whom to engage; approaches to stakeholder

engagement, including type and frequency; key issues identied through stakeholder

engagement and how organisations used this information. Moreover, G3 highlights four

key areas for disclosing stakeholder engagement initiatives as given below:

GRI stakeholder engagement indicators

4.14 List of stakeholder groups engaged by the organisation. Examples of stakeholder

groups are:

.

.

.

.

.

.

Communities;

Civil society;

Customers;

Shareholders and providers of capital;

Suppliers; and

Employees, other workers, and their trade unions.

4.15 Basis for identication and selection of stakeholders with whom to engage.

This includes the organisations process for dening its stakeholder groups, and for

determining the groups with which to engage and not to engage.

4.16 Approaches to stakeholder engagement, including frequency of engagement by type and

by stakeholder group.

This could include surveys, focus groups, community panels, corporate advisory panels, written

communication, management/union structures, and other vehicles. The organisation should

indicate whether any of the engagement was undertaken specically as part of the report

preparation process.

4.17 Key topics and concerns that have been raised through stakeholder engagement, and

how the organisation has responded to those key topics and concerns, including through its

reporting (GRI, 2006, p. 24).

TEC has developed evaluation and benchmark criteria for stakeholder engagement in

practice and reporting. TEC is a UK based charity, whose main goal is to pioneer the

use of more collaborative and interactive techniques to co-create or inform

decision-making in the sustainability arena (ACCA, 2007). These criteria have been

used by ACCA Australia (2007) to study disclosures on stakeholder engagement in the

Australian Securities Exchange (ASX) Top 50 companies in Australia. The TEC

criteria include the following six sections:

(1)

(2)

(3)

(4)

(5)

(6)

stakeholder identication;

evidence of engagement;

target and metrics;

integration of engagement programmes;

use of engagement results in report development; and

opportunities for feedback.

Disclosures on

stakeholder

engagement

63

ACCA (2007) examined social and environmental reports, web sites and annual reports

of the ASX top 50 corporations. The study revealed that only a few companies were

providing high quality disclosures on stakeholder engagement. Given that reporting

on stakeholder engagement is a voluntary practice, the study stressed that insufcient

stakeholder engagement disclosures do not always imply that stakeholder engagement

is not taking place; rather sometimes efforts remain unnoticed by readers due to the

lack of disclosure on stakeholder mechanisms and results.

4. Research method

Data was collected from the sustainability/State of Environment (SoE)/annual reports of

563 local councils web sites, from six states and one mainland territory in Australia, for

the year 2009-2010. Data collection limitations included inaccessibility/non-availability

of web sites for 16 local councils and non-availability of 2009-2010 reports in 24 local

councils. These local councils were mainly from regional and outback areas. The content

analysis of reports aimed at identication of local councils that were engaging with their

stakeholders in the development of the sustainability reports and, investigation of the

extent of stakeholder engagement in sustainability reporting disclosures. In order to

identify such local councils, a general overview of 523 local councils reports was

undertaken. This general view in the rst instance identied the local councils who were

reporting on their sustainability issues and, subsequently, the local councils that

engaged with their stakeholders in the sustainability reporting process.

Having identied the local councils that were engaging with their stakeholders in the

development of sustainability reports, a further study was undertaken on these local

councils to determine the extent of their disclosures. This study involved the construction of

a stakeholder engagement index (Table II). The index was comprised of seven stakeholder

engagement indicators. This index is comprehensive as it is based on the major

frameworks identied in prior literature as discussed in the preceding section. In providing

the rst available empirical evidence of stakeholder engagement in sustainability reporting

in the public sector, the elements of this framework were considered adequate and complete

but exible enough to enable their expansion in light of different contexts and subsequent

developments in engagement and reporting approaches. The analysis focused on the

inclusion/exclusion of stakeholder engagement indicators in the sustainability reports.

Each of the seven stakeholder engagement indicators are discussed below.

Stakeholder identication

This indicator considers whether or not an organisation denes and identies its

key stakeholders. The indicator also seeks disclosures on stakeholders involved, the

number of groups involved, key attributes of stakeholder groups and the relationship

of each stakeholder group with the local council.

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No. Stakeholder engagement indicators

1.


Sub-components of each indicator

64

2.

3.

4.

5.

6.

7.

Table II.

Stakeholder

engagement index

Denition of stakeholder

Stakeholder list

Key attributes of stakeholder groups

Relationship to the reporting organisation

Basis for stakeholder identication andDifferentiation: key/wider

selectionMethod of identication

Level of interest (perceived) noticed

Media and approaches used for stakeholder Media used for engagement

engagementDegree of stakeholder involvement

Frequency of stakeholder engagement

Key concerns and issues raised throughNature of issues and concerns

stakeholder engagementStakeholder comments/concerns/questions quoted

Concerns and issues addressed

Evidence of stakeholder engagementCase studies on stakeholder engagement

Photographs/pictures

Assurance of stakeholder engagement

Future targets for stakeholder engagement Future target setting

Report on last years targets

Opportunities for feedbackFeedback welcomed

Feedback form provided

Contact details/email/web site

Explanation on use of feedback

Basis for stakeholder identication and selection

This indicator examines disclosures on the process and method of

identication and selection of stakeholders for sustainability reporting. The various

categories of stakeholders are, for example: primary or secondary; key or wider; and

level of interest (perceived) noticed.

Approaches/media used for stakeholder engagement

This indicator seeks disclosures on the range of media/methods being used by local councils

to involve stakeholders such as surveys, community forums, focus groups, advisory panels

and meetings. It also records the frequency and degree of stakeholder engagement.

Key concerns and issues raised through stakeholder engagement

This indicator categorises disclosures on the nature of key concerns and issues raised

through stakeholder engagement; how these concerns and issues were addressed; and

whether or not stakeholder comments, concerns and questions were quoted in

sustainability reports.

Evidence of stakeholder engagement

This indicator identies evidence of stakeholder engagement in the sustainability

reports of the local councils. This evidence can be in the form of case studies describing

the purpose of stakeholder engagement, how stakeholders were engaged, the

number of participants involved and the outcomes of stakeholder engagement.

This indicator includes other evidence such as photographs and assurance of

stakeholder engagement.

Future targets for stakeholder engagement

This indicator evaluates whether or not the local councils set targets for stakeholder

engagement and thereafter measure and report their performance against set targets.

Opportunities for feedback

This indicator is measured by determining whether or not the local council has a

process for stakeholders to provide feedback. It also focuses on different feedback

opportunities provided to stakeholders such as a feedback form, contact details,

encouragement for feedback and an explanation on feedback use.

5. Findings and discussion

Analysis of state-wide disclosures on stakeholder engagement in sustainability reporting

by local councils

This section analyses the disclosures on stakeholder engagement in the development of

sustainability reports in Australian states and territories. The initial nding is that a

very small percentage of local councils currently report on stakeholder engagement in

the sustainability reporting process (Table III). In most cases, engagement with the

stakeholders was found to be in relation to planning, policy formulation,

decision-making and sustainability actions. Local councils in four states provided

information about their initiatives to involve stakeholders only while preparing

sustainability reports. NSW was found to have the highest number local councils

(13.42 percent) that were making these disclosures. Queensland, Victoria and Western

Australia each had one local council reporting on the involvement with stakeholders in

the development of their sustainability reports.

Twenty-three local councils throughout Australia were found to be reporting on

stakeholder engagement for sustainability reporting. All of these local councils

No. of local

councils

reporting on Percentage ofNo. of local

local councilsstakeholdercouncils

reporting on engagement in reporting on

stakeholdersustainability sustainability

engagementreportsissues

149

33

67

28

79

35

11

402

20

1

0

0

1

1

0

23

13.42

3.03

0

0

1.26

2.85

0

5.72

Disclosures on

stakeholder

engagement

65

State

NSW

Queensland

South Australia

Tasmania

Victoria

Western Australia

Northern Territory

Total

No. of local

councils in

Australiaa

152

73

74

29

79

140

16

563

No. of local

council reports

studied in each

state

150

63

68

29

79

122

12

523

Source: aState and territory local government association web sites; Queensland gures from

Department of Local Government, Queensland Government; NSW gures from Division of Local

Government, Department of Premier and Cabinet; Western Australia gures from Department of

Local Government, Government of Western Australia; Northern Territory gures from Department of

Housing, Local Government and Regional Services, Northern Territory Government

Table III.

Local councils reporting

on stakeholder

engagement in

sustainability reporting

PAR

26,1/2

highlighted in their reports the signicance of involving stakeholders during the

development of sustainability reports. Some examples of disclosures by local councils

that underpinned the role of stakeholder engagement in the preparation of a

sustainability report are:

Community involvement is an integral component in the development of SoE reporting [. . .]

In partnership with the local community; Council has developed 31 sustainability indicators

that best represent how the community wants progress toward environmental sustainability

measured.

[. . .] City Council recognises that the SoE is a useful environmental reporting tool that

benets from the input of the other organisations, groups and the general public. Council

therefore encourages community input and consultation for the compilation of the report.

66

Analysis of level of disclosures on stakeholder engagement indicators

After the identication of local councils that are disclosing their initiatives on

stakeholder engagement for sustainability reporting, an extensive analysis of the level

of stakeholder engagement disclosures was conducted in terms of what and how

information was being reported. This analysis was undertaken for 23 local councils

identied in the state-wide analysis of disclosures on stakeholder engagement in

sustainability reporting.

Table IV highlights the percentage of local councils disclosing information against

each stakeholder engagement indicator and its sub-components. This percentage has

been calculated on the basis of the total number of local councils out of 23 local councils

found to be disclosing information on various aspects of stakeholder engagement in

sustainability reporting. The overall disclosure percentage indicates the percentage of

local councils reporting on each of the seven indicators. An overall indicator was

considered to be disclosed when one or more of the sub-components of an indicator

were present in the reports.


The ndings highlight that the majority of local councils were identifying their

stakeholders in their reports. Of the local councils, 82.60 percent explicitly identied

their stakeholders. Therefore, local councils seem to be aware of the audience for their

sustainability reports. However, the reports did not include a denition of stakeholders.

The key stakeholders recognised for sustainability reports include: community,

local environmental groups, community organisations, employees, local businesses,

councillors, suppliers, state and federal government, universities and ratepayers. Our

analysis also provided evidence of a number of graphical presentations, such as

stakeholder mapping being utilised. However, only one council disclosed information

about the relationship of various stakeholder groups to the organisation and the key

attributes of these stakeholder groups.

Basis for stakeholder identication

Of the local councils, 60.86 percent were found to be disclosing information on

stakeholder identication issues related to the basis of stakeholder identication

and selection. Fourteen local councils differentiated between their key

Stakeholder engagement

No. indicators

1


Overall percentage of local

councils disclosing on

indicators

82.60

Percentage of local councils

disclosing on each of the

indicator sub-components

Denition of

stakeholder

Stakeholder list

Key attributes of

stakeholder groups

Relationship to the

reporting organisation

Differentiation: key/

wider

Method of identication

Level of interest

(perceived) noticed

Media used for

engagement

Degree of stakeholder

involvement

Frequency of

stakeholder engagement

Nature of issues and

concerns

Stakeholder comments/

concerns quoted

Concerns and issues

addressed

Case studies on


Photographs/pictures

Assurance of


Future target setting

Report on last years

targets

Feedback welcomed

Feedback form provided

Contact details/email/

web site

Explanation on use of

feedback

4.34

82.60

4.34

4.34

60.86

0

0

91.30

91.30

8.69

78.26

0

65.21

4.34

4.34

0

0

0

13.04

8.69

65.21

8.69

Disclosures on

stakeholder

engagement

67

2

Basis for stakeholder

identication and selection

60.86

3

Media and approaches used

for stakeholder engagement

91.30

4

Key concerns and issues

raised through stakeholder

engagement

78.26

5

Evidence of stakeholder

engagement

4.34

6

7

Future targets for stakeholder

engagement


0

65.21

Table IV.

Detailed analysis of


indicators and its

sub-components

and wider stakeholders. However, not one local council provided any information

about the method of stakeholder identication and selection.

Approaches/media used for stakeholder engagement

The study of approaches/media for stakeholder engagement indicator highlights that a

range of media are being used by a majority of local councils for engaging with

stakeholders. These media included: surveys, workshops, public forum, focus groups,

meetings, face-to-face discussions, bang-the-line online forums and panels,

e-newsletters, local newspapers and direct mail. Some councils were also found to be

PAR

26,1/2

68

using peer review within the council and public exhibition of a draft report to involve

employees and staff in the preparation of the report. In relation to the degree of

stakeholder involvement in sustainability reporting, the majority of local councils were

found to be undertaking consultations with their stakeholders for reporting.

The councils were also found to be involving the community through community

partnerships and community education programmes. However, these approaches were

mainly used to involve the community in planning, policy formulations and

sustainability actions.

Key concerns raised through stakeholder engagement

The ndings highlight that the key concerns raised through stakeholder engagement

are being reported by the majority of local councils. These concerns were usually

related to social and environmental issues and concerns of the community and other

key stakeholders. These issues were well addressed by local councils while reporting

on sustainability issues.

Findings related to the study of this indicator also suggest that stakeholder

engagement was not convenient for all the local councils.

Disclosures of this type indicate the unwillingness of stakeholders to participate in

engagement programmes. In this case the council appears to have made sincere efforts,

rst through sending an invitation to participate in focus group and second, by putting

the document on exhibition for feedback. However, the council failed to obtain

community support in the reporting process in either of these attempts.

Evidence of stakeholder engagement

Only one local council presented evidence of stakeholder engagement in its sustainability

report. This evidence included detailed information on how stakeholders were engaged,

graphic presentation of community surveys and photographs of community engagement.

Future targets for stakeholder engagement

Not one local council disclosed any information on future targets for stakeholder

engagement. Thus, local councils appear to be less directed and motivated by future

stakeholder engagement goals.


The ndings suggest that 65.21 percent of the local councils provided feedback

opportunities to stakeholders in their sustainability reports. Most of these local

councils provided contact details for feedback or enquiry facilities about sustainability

reports.

Only two local councils provided an explanation as to why stakeholders should

respond and how feedback will be used, and encouraged their stakeholders to provide

feedback on the quality of their sustainability reports.

The number of local councils offering a feedback form to their stakeholders was also

found to be very low. Only two local councils provided a feedback form to their

stakeholders in order to get feedback on various issues related to the sustainability

report.

Discussion

From the results of this study it appears that there exists a very low level of disclosures

on stakeholder engagement in the development of sustainability reports. However, we

cannot conclude that stakeholders are not being engaged by these local councils. It is

possible that stakeholder input is being included in the preparation of sustainability

reports; it is however, as ACCA (2007) found, going largely unnoticed by readers due

to lack of disclosures on stakeholder engagement mechanisms and results because of

the voluntary disclosure practice. Local councils should make public the process they

use to gain stakeholder input to provide an account of engagement outcomes.

The study identied 23 Australian local councils that were disclosing their efforts in

relation to stakeholder engagement in the development of sustainability reports. The

shire and regional local councils were found to be more involved with their community

and key stakeholders than the city councils. However, the linguistic approach used in

disclosures was found to be relatively similar in local councils. Such similarity could

exist because of regulatory inuence and use of consultancy services in developing the

reports.

A further examination of disclosures in the identied local councils highlighted the

importance and role of stakeholder engagement in sustainability reporting. Descriptive

stakeholder theory was applied to explain who the key stakeholders for local councils

are and how and to what extent this engagement is taking place. The ndings of the

study suggest that the majority of local councils do recognise their key stakeholders. In

addition to internal stakeholders such as employees, this study highlights the

involvement of external stakeholders such as the community, environmental groups,

ratepayers, universities and local community organisations. Our analysis of council

reports indicates that most of the local councils considered the community as their key

stakeholder for the purpose of sustainability reporting. This could be anticipated due

to councils direct accountability towards residents and ratepayers as mentioned in

these reports. This nding is inconsistent with the key stakeholders recognised by

Farneti and Guthrie (2009) in their study of sustainability reporting in Australian

PSOs. They found that sustainability reporting in PSOs is mainly driven by internal

stakeholders.

Although stakeholder identication and prioritisation has been highly regarded as

an embarking point for the stakeholder engagement process, not one local council

disclosed the specic methods for stakeholder identication. The only information

disclosed in relation to identication was in the form of a distinction made on whether

they are addressing key stakeholder groups or the wider audience.

In reference to Arnsteins Ladder of Participation, the ndings of this research

suggest that the local councils are positioned at the third (informing), fourth (consulting),

and fth (placation) rungs of the ladder (Table V). The stakeholder engagement

approaches included informing techniques such as newsletters, e-newsletters, direct

Rungs of Arnsteins ladder

Informing (third)

Consultation (fourth)

Placation techniques (fth)

Stakeholder engagement techniques used

Newsletters, e-newsletters, direct mails and local newspapers

Surveys, online forums, peer review, workshops and meetings

Focus groups, public forums and face-to-face discussions

Disclosures on

stakeholder

engagement

69

Table V.

The position of 23 local

councils on the basis of

Arnsteins ladder

PAR

26,1/2

70

mails and local newspapers; consultation techniques such as surveys, online forums,

peer review, workshops and meetings; and placation techniques such as focus groups,

public forums and face-to-face discussions. Online forums are emerging as new and

efcient media for stakeholder engagement in local councils.

The majority of the local councils used a consultative approach to identify key

concerns and issues of their stakeholders and gather the feedback on their sustainability

reports. Cummings (2001) in the study of stakeholder engagement in UK organisations

also observed consultations as the commonly used level of engagement along with

informing and partnership. However, this form of engagement could restrict the

implementation of suggestions and recommendations provided by stakeholders because

in such a form of engagement, decision and veto lies with the power holder (Arnstein,

1969). Not one council reported on the frequency of their stakeholder engagement.

Furthermore, engagement strategies and frameworks were found to be guided by

state-wide legal requirements. A low level of use of international frameworks such as

AA1000 and GRI was observed in the reporting practices of these councils. This

diversity in engagement and disclosure practices in local councils could reduce

comparability. This study also nds that disclosures on stakeholder engagement were

high in the local councils where state legislation made it mandatory to involve

stakeholders in the reporting process. Manetti (2011) in his study of the quality of

stakeholder engagement in sustainability reporting also observed the same regulatory

inuence on engagement policies. This implies that the majority of local councils engage

with their stakeholders to comply with the mandatory requirements rather than

recognising them as a key means to attain sustainability goals.

This analysis also highlights complexities and difculties in the engagement

process. A lack of stakeholders interest to engage was the major difculty observed in

this study. This contributes to the list of complexities and difculties identied by

Unerman (2007).

6. Conclusion

Local government is the level of governance closest to the people and therefore it can

play a vital role in educating and responding to sustainability issues of the public

(Sitarz, 1993). This study highlights the stakeholder engagement initiatives of local

councils in relation to sustainability issues and the importance of stakeholder

engagement in the identication of material sustainability issues and the development

of sustainability reports.

The research explored the state and extent of stakeholder engagement in

sustainability reporting in Australian local councils and argued that stakeholder

engagement is a critical component in the development of sustainability reports

(Gao and Zhang, 2001; GRI, 2006; Unerman, 2007; Manetti, 2011). The ndings of this

study suggest that the community is the key stakeholder in the local councils in

relation to sustainability concerns, issues and reporting. Stakeholders are being

engaged using two-way communication tools such as consultation and placation. Our

study also suggests that stakeholder engagement strategies and processes in local

councils are driven more by state regulations than international accountability

frameworks. Hence, there is a need for mandatory regulations nation-wide to

encourage local councils to involve stakeholders in sustainability issues in order to

attain the goal of sustainable development.

This paper applied stakeholder theory to observe the extent of and mechanisms for

stakeholder engagement in the development of sustainability reports. The ndings of

this study provide information about the current stakeholder engagement mechanisms

to practitioners and the engagement opportunities available to stakeholders. Our study

highlights current stakeholder engagement practices in Australian local councils and

extends the limited literature on the role of stakeholder engagement in sustainability

reporting by providing evidence of stakeholder engagement in Australian local councils.

A further in-depth study is required to explore the role of stakeholder engagement in

sustainability reporting and the motivations for stakeholder engagement in

sustainability reporting in PSOs. Such a study through the use of research methods

such as interviews would provide insights into the stakeholder identication and

selection process, the extent to which stakeholders concerns and issues are incorporated

in sustainability reports, and barriers to stakeholder engagement.

There is scope for expansion of the stakeholder engagement index developed in this

paper with changes in council reporting and engagement in the future. The index can

be adopted and extended in other contexts such as other public sector jurisdictions or

even corporations.

Our study is not without limitations. The non-availability of web sites and reports in

certain regional and outback regions suggests that we cannot generalise our ndings to

some of these regions. However, we can draw reasonable conclusions from our sample,

which represents the majority of local councils in Australia (523 out of 563).

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Corresponding author

Sumit K. Lodhia can be contacted at: [email protected]

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