Social and Environmental Auditing Should Be Compulsory For All Businesses
Social and environmental auditing for organizations have become increasingly prevalent since 1980s. By definition, social and environmental auditing refers to the process of measuring, reporting, understanding and improving a business organization’s social and environmental performance. Both social and environmental reporting are subsets of ethical reporting which encompasses information about measures taken by businesses to ensure that they minimize negative effects on the society and environment. The need for social and environmental auditing arises from the consideration that businesses operate as part of the society and that their operations affect the environment in various ways (Fields, 2002: 142-145).
In many countries, there are no laws requiring companies to report on social and environmental initiatives. Therefore, only a small fraction of companies conduct an environmental and social audit of their business operations and report on the same as part of the corporate social responsibility. However, depletion of natural resources, increased environmental pollution and other costs imposed on the society by businesses have raised concerns about the need for social and environmental auditing of businesses. The issue has elicited support and objection from various quarters including the business community, social lobby groups, environmentalist, and governments. To be effective, social and environmental auditing requires a sound legal and institutional framework as well as a supportive regulatory environment. Typically, auditing frameworks are implemented in response to some internal or external regulatory requirements such as the need to embrace highest standards of transparency and accountability (Oppewal, Alexander & Sulliwan, 2006: 264-265).
The primary objective of social and environmental auditing is to assess the extent of the environmental and social impact that an organization can have on the local community. Because organizations rely on the society and the environment for survival, their operations must have some impact on the society and the environment. The second objective is to identify crucial information that can aid decisions for engaging with local social service providers, environmental lobby groups, and community development sponsors. In light of the two objectives, it is imperative that social and environmental auditing is made compulsory for all businesses regardless of the size or nature of their operations.
According to Phillips (2003: 49-52), there are many compelling reasons why social and environmental auditing should be made compulsory. One of these reasons is that auditing provides an objective framework for businesses to demonstrate their commitment to the social and environmental concerns of the communities in which they operate. This includes showing commitment to monitoring and evaluating emerging environmental issues such as global warming. Thus, it is critical that organizations understand and embrace the strategic importance of auditing.
The second reason is that auditing provides a means by which businesses involve stakeholders into strategic planning and ensuring that their perspectives are integrated into the firm’s business strategies. The society is a major stakeholder in any business. Therefore, addressing social concerns should be a top priority for any organization. The same line of reasoning applies to environmental concerns. As Phillips (2003, 49-52) puts it, social and environmental issues should be part of an organization’s every day decision making and long-term strategic planning. Without this consideration, businesses run the risk of incurring prohibitive costs such as loss of customers and litigation for environmental degradation.
According to Khalid (2011, 482-483), shareholders are demanding increased transparency from management and are taking active roles in communicating expectations for social and environmental reporting. Just like the government, shareholders are not only interested in profits but are also calling on companies to increase the quantity and quality of information disclosed by companies including information on measures taken to increase companies accountability to society and environmental initiatives. This means that companies are bound, by virtue of the expectations of shareholders, to invest in social and environmental initiatives.
Opponents of social audit argue that social and environmental auditing can be very costly for businesses. Programs to address social and environmental impact often require heavy investments in terms of equipment, structures and ongoing costs without any clear way to recover those expenses. For instance, the decision to develop an environmental monitoring and reporting system may drive up costs for a small company. Since small companies are sensitive to increases in expenditure, they may not be willing to invest in costly auditing systems. Thus, costs are a major prohibiting factor for effective social and environmental reporting. On the basis of costs, social and environmental auditing should not be made compulsory for businesses (Lantos, 2001: 596-597).
Given the arguments for and against compulsory social and environmental auditing, it is clear that the benefits of auditing outweigh any associated costs. Therefore, businesses should be required to embrace compulsory auditing. Investing in a policy of environmental and social auditing, coupled with genuine action can serve to improve an organization’s reputation. According to Sun (2009: 72-73), making environmental and social auditing compulsory can foster an atmosphere of competitive business operations and industry growth. In other cases, adopting such a measure can work as part of a business organization’s essential brand recognition.
References
Fields, S. 2002. Sustainable Business Makes Dollars and Cents. Environmental Health Perspectives, vol, 110, no. 3: 142–145
Khalid, A. 2011. Ethical Theories of Corporate Governance. International Journal of Governance, vol. 1, no. 2, 484–492.
Lantos, G. P. 2001. The Boundaries of Strategic Corporate Social Responsibility. Journal of Consumer Marketing, vol. 18, no. 7, 595–632.
Oppewal, H., Alexander, A. & Sulliwan, P. 2006. Consumer Perceptions of Corporate Social Responsibility in town shopping centres and their influence on shopping evaluations. Journal of retailing and consumer services, vol. 13, no. 4, 263–270.
Phillips, R 2003. Stakeholder Theory and Organizational Ethics. Boston: Berrett-Koehler Publishers.
Sun, W. 2009. How to Govern Corporations So They Serve the Public Good: A Theory of Corporate Governance Emergence. New York: Edwin Mellen, 2009.
