Sustainability Reporting Evidence from the Mauritian tourism industry

Sustainability Reporting Evidence from the Mauritian tourism industry Deepa Maunick-Sungkur, Faculty of Law and Management, University of Mauritius, Mauritius. E-mail: d.maunick@uom.ac.mu Anjani Soondur, Faculty of Law and Management, University of Mauritius, Mauritius. E-mail: s.soondur@uom.ac.mu Akhtar Ramjeet, Faculty of Law and Management, University of Mauritius, Mauritius. E-mail: akter18@yahoo.com Abstract Sustainability reporting is a fairly recent trend which has expanded over the past twenty years and which is gaining popularity. Nowadays there is growing concern about the social and environmental impact of organisational activities. In the past, companies have been operating and causing much damage to the environment. Today, the emphasis, almost worldwide, is on sustainable development and Mauritius is no exception. The main aim of this study is to assess the awareness of sustainability reporting within the tourism industry in Mauritius and to analyse to what extent it is being applied by Mauritian hotels. It is also intended to determine the main benefits for adopting sustainability reporting as well as the barriers limiting its application. An analysis of the different users of the sustainability report is also undertaken. The study has been conducted on 50 hotels in Mauritius and data collection was done by an online questionnaire. The findings indicate that the most important benefit was that hotels adopting sustainability reporting were viewed as demonstrating transparency and a sense of commitment to managing its environmental, social and economic impact. The most significant barrier was the focus on the profit motive of hotels. Suppliers were found to be the most important user of sustainability report Moreover, hotels were unanimous that the report should be audited and the approach for sustainability reporting should be detailed legal and regulatory requirements. There has been little prior research on sustainability reporting in Mauritius. Moreover, even the previous studies conducted have concentrated on listed companies, whereas this study focuses on a specific sector; the tourism industry, one of the main pillars of the Mauritian economy. Key Words: sustainability reporting, tourism, corporate social responsibility, sustainability report 1

1. Introduction In Mauritius, tourism is a fast expanding sector which contributes very much in earning foreign exchange. In fact, the island is well known for its exotic sandy beaches, blue lagoons, good climate and the spectacular landscape. The financial and the euro crises have undoubtedly affected the industry and in order to mitigate the adverse effects of these crises, investment is necessary. But if these investments are damaging the environment, is it really worth it? Clearly the answer is no. Today what is required is ethical investment so that there is sustainable development. While there is no internationally agreed definition for sustainability reporting, it is generally understood as being the practice of measuring and disclosing information regarding how the organization uses and affects financial, human and natural resources. Over the years, organizations have realized the importance of reporting on such matters, but the extent to which it is being applied consistently is the question to be answered. To the authors best knowledge, there has been no published article on sustainability reporting in the tourism industry in Mauritius. Previous studies have focused on stock market listed companies. This paper therefore attempts to study the level of sustainability reporting being practiced by hotels given that their operations have a major impact on the environment and society at large. An improvement to the present study can be a comparative study with neighboring Indian Ocean Islands like Seychelles and Comoros, which are equally heavily dependent on their tourism sector. The paper is organised as follows: Section 2 reviews the literature, in Section 3 the research methodology adopted is discussed, Section 4 analyses the data and reports the findings and Section 5 concludes the study. 2. Literature Review The Global Reporting Initiative Sustainability Reporting Guidelines (2010-2011, Version 3.1) defines sustainability reporting in the following terms; Sustainability reporting is the practice of measuring, disclosing and being accountable to internal and external stakeholders for organizational performance towards the goal of sustainable development. A sustainability report provides a balanced and sound representation of the sustainability performance of the reporting entity, including both positive and negative aspects. Sustainability reporting is a broad term that is interchangeably used with reporting that focuses on economic, environmental, and social impacts (e.g., triple bottom line, corporate responsibility reporting, etc.). 2.1 Benefits of sustainability reporting The Global Reporting Initiative Sector Supplement for Public Agencies (GRI SSPA, 2005, p.8) states the following reasons for sustainability reporting: Promote transparency and 2

accountability; Reinforce organisational commitments and demonstrate progress; Serve as a role model for private sector; Improve their internal governance; Highlight the significance of its role as a consumer and employer in various economies; Meet disclosure expectations and make information available to facilitate dialogue and effective engagement with stakeholders. A number of organizations have found that effective and visible sustainability initiatives can help to attract and retain talented and committed employees, in addition to contributing to their ongoing motivation. (Environmental Principles Training Package 2004, p.57) In addition, sustainability reporting demonstrates a company s commitment to managing its environmental, social and economic impacts and, therefore, establishing a sound basis for stakeholder discussion and demonstrating transparency. (KPMG, Sustainability Reporting A Guide 2008, p.12). The reputation of a company depends on the way in which it is perceived by its stakeholders on one or more of the environmental, social and economic dimensions. Sustainability reporting can play a significant role in managing stakeholder opinions by enhancing an organisation s reputation (MacDonald & Peters, 2003), and thus help to protect and improve corporate reputation. (KPMG, Sustainability Reporting A Guide 2008, p.12) Moreover, sustainability reporting may facilitate more accurate and robust management systems and decision-making processes to better manage risks associated with the economy, environment and the society. (KPMG, Sustainability Reporting A Guide 2008, p.13). Several studies investigated the relationship between sustainability disclosures and decision making, found that sustainability reporting really pays off for companies (Hart et al.1996; Moore 2001). Organisations are more likely to engage in sustainability disclosures if they believe that is beneficial in the long run (Graafland 2002). An increasing number of investors include sustainability considerations within their decision making processes. Responding to investor expectations through the publication of sustainability related information provides a mechanism to ensure a company is aligning its communication with this stakeholder group. 2.2 Barriers to sustainability reporting According to many studies, one problem is the possibility that a company s actions might not support its intentions. The entity declares that it is determined to take on the challenges of becoming more socially and ecologically responsible, but the only proof of that is mere pieces of paper or pretty plaques on the organization s wall (Mitchell, Curtis, & Davidson, 2008; Painter-Morland, 2006). If Triple Bottom Line Reporting is added to a company s report process, the additional time could initially negatively affect their bottom line, increasing the task complexity of their operations. (Skouloudis, Evangelinos, & Kourmousis, 2009). The process of measuring to 3

what extent the operations are matching the objectives is time consuming. Moreover, the implementation of new procedures and training required to prepare workers for the new processes can be expensive. One of the most important obstacles is a lack of internal knowledge and information. The lack of governmental support further worsens the problem of internal knowledge related to sustainability disclosures. According to Worthington et al. (2006, p.104), the government is criticized because even though it generally highly encourages businesses to report on the economy, environment and society, it does not give precise advice and support, for e.g. fiscal incentives. Sustainability reporting is treated in a broad way and both, the government and other consulting institutions fail to adapt to the specific needs of a particular business and its goals (Porter & Kramer, 2009, p.78). Furthermore, environmental reporting is basically a voluntary disclosure (Shivaji and Subramaniam, 2008). Due to this, many organisations have not yet adopted sustainability reporting. In fact, according to a report (Maurice Ile Durable 2011, p.12), It is to be noted that to date, no Mauritian company has implemented the GRI reporting framework. No company will adopt sustainability reporting if it is not going to be beneficial for its company. Disclosure of information involves a cost so the benefits of doing so must outweigh the cost (Ness and Mirza, 1991). A study by Turner (2004) conducted in Australia concluded that additional cost and resources is the greatest barrier to sustainability reporting. This argument stems from the fact that firms are profit-motivated. In fact, Friedman (1970) stated that a firm s sole objective is to increase profit. As such the natural environment is not so relevant to management except if influential stakeholders use their power to back it or if the company is embracing a green orientation (Driscoll and Starik, 2004). It should also be noted that there is actually no disclosure technique or proper standardisation of environmental reports and this usually result in different reports from different corporations (Souther,1999). In other words, there is a lack of consistency and comparability. Such lacuna prevents stakeholders to use the information for decision making (O Rourke, 2004). 2.3 Users of sustainability report In the report Sustainable Development Reporting- Striking the Balance, WBCSD, 2002, p.20), the main users of sustainability report are: Employees mostly interested in information about sustainable development in order to judge if the company is a stable employer and a respected corporate citizen. Customers, especially those who have a long-term involvement with or are dependent on a company, have a vested interest in its continuing prosperity. 4

Proceedings of the Fifth Asia-Pacific Conference on Global Business, Economics, Finance Suppliers who may be dependent upon the company if it is a major customer. Sustainable development information can help them determine risks. Lenders are interested in information that will enable them to determine whether their loans and interests will be paid in due time. Sustainable development information can help lenders to determine risk factors associated with the company s business practices. Governments and their agencies require information in order to regulate the activities of companies and to determine policies for competition, taxation, the environment, consumers and social affairs. The public is affected in various ways. Sustainable development reports may assist the public by providing information on recent trends, developments and company activities. 2.4 Sustainability reporting in Mauritius Section 7.1 Integrated Sustainability Reporting of The Report on Corporate Governance For Mauritius (2004, p.40) states that Every company should recognise that it operates within a social and economic environment, and should identify the particular situation, whether environmental or social, relevant to the company s business. It is in the long-term economic interest of a company to conduct itself as a responsible corporate citizen, and to behave in a way which is non-exploitative, non-discriminatory and respectful of human rights. Failure to adopt such policies may well hamper its development and participation in an international context which is increasingly sensitive to sound corporate values, good practice and respect for the environment. Section 7.2 of the same report states that every company should regularly (at least annually) report to its stakeholders on its policies and practices as regards: ethics, environment, health and safety and social issues. 2.5 Overview of the Mauritian tourism sector During the past three decades, Mauritius has moved from a low income economy based mainly on agriculture to a middle-income diversified economy. Much of this economic growth has been possible due to expansion of the luxury tourism sector. The tourism sector is supervised by the Ministry of Tourism and Leisure, the Mauritius Tourism Promotion Authority (MTPA) and the Tourism Authority (TA). Tourist arrivals have been expanding considerably, rising from 103,000 in 1977 to more than 900,000 in 2010. About 67% of tourist arrivals are of European origin, with France supplying nearly half. Asian residents represent 6% of the arrivals. 3. Methodology The main objectives of the study were to: Assess awareness of Mauritian hotels of the concept of sustainability reporting. 5

Proceedings of the Fifth Asia-Pacific Conference on Global Business, Economics, Finance Identify the benefits associated with sustainability reporting. Identify the obstacles faced by firms in sustainability reporting. Identify the users of sustainability report. Assess the extent to which sustainability reporting is practiced by organisations within the tourism sector Recommend whether sustainability reporting should be made compulsory in Mauritius. For the purpose of this research, primary data has been used. Data was collected by way of an online questionnaire which was sent to hotels in Mauritius. According to the report, Mauritius in Figures 2011, there were 109 licensed hotels in Mauritius. Actually the hotels are classified according to their rating. It is difficult to collect data about all the hotels due to time and budget constraint. Therefore a sample is more appropriate. A sample of 50 hotels was thought to be sufficient for this study. Proportionate stratified sampling has been used. This is a sampling strategy used when the population is composed of several subgroups. The number of participants from each subgroup is determined by their number relative to the entire population. Given that hotels in Mauritius are classified according to their rating (for e.g. 5-star, 4-star), this sampling strategy is appropriate. Moreover the sample is representative as each sub group in the sample will be selected according to the number present in the population. Type of hotel Amount in population Table 1 Percentage (%) Amount in sample Listed 9 9/109*100= 8.26 8.26% * 50 4 5-star 19 19/109*100= 17.43 17.43% * 50 9 4-star 9 9/109*100= 8.26 8.26% * 50 4 3-star 19 19/109*100= 17.43 17.43% * 50 9 2-star 16 16/109*100= 14.68 14.68% * 50 7 1-star 27 27/109*100= 24.77 24.77% * 50 11 No rating 13 13/109*100= 11.93 11.93% * 50 6 109 50 4. Results and Discussion This section deals with the analysis of data that has been collected. Analysis has been done using SPSS 17 (Statistical Package for Social Sciences). Analysis consisted of the calculation of frequencies as well as cross tabulations. Moreover, the results are interpreted with regards to the tourism industry in Mauritius. 6

4.1. Benefits of sustainability reporting Table 2 Mean Std. Deviation Attract and retain best-and brightest employee 3.32.475 Demonstrate transparency 1.39.495 Cost savings and revenue generation 1.42.502 Enhance reputation 1.52.508 Achieve continuous improvement 1.87.718 Improve regulatory compliance 1.52.508 Strengthen risk awareness and management 1.61.495 Encourage innovation 1.61.495 Enhance management systems and decision making 3.39.495 Attract long term capital and favourable financing conditions 1.52.508 Maintain license to operate 1.61.495 Competitive positioning and market differentiation 1.65.486 By comparing the mean, it can be concluded that the most important benefits are: 4.1.1 Demonstrating transparency The results obtained are in line with the study of the Global Reporting Initiatives. Indeed by demonstrating transparency to different stakeholders, hotels can show that they are trustworthy and are carrying out their operations in a proper way which will increase client base, retain existing clients and increase investment. 4.1.2 Cost savings and revenue generation. Mauritian hotels are of the view that sustainability disclosures help to reduce cost and increase revenue which is in line with KPMG s study. As profit making organisations, hotels will be naturally keen to adopt a reporting system which will help to increase profitability and investment. 4.2 Barriers which restrict effective sustainability reporting Table 3 Mean Std. Deviation Time consuming 1.97.795 Difficult to execute 1.65.486 Lack of government support 1.45.506 Not mandatory 1.65.486 Cost exceed benefit 2.81.543 Lack of consistency and comparability 1.52.508 Focused on Making profit 1.35.486 Hesitant towards change 1.55.506 As shown from the table, the most important barrier that prevents effective sustainability reporting is the fact that hotels are mostly concerned about profits which is in line with the 7

study carried out by Friedman (1970). As profit making organizations, hotels would not want to implement sustainability reporting to see whether this is beneficial to do or not. This is too risky. They would rather prefer not to implement this new reporting mechanism especially if they are already profitable. 4.3. Users of sustainability report Table 4 Mean Std. Deviation Employees 3.29.461 Customers 1.58.502 Suppliers 1.39.495 Governments and their agencies 1.77.617 The public 1.52.508 NGOs 3.55.506 Investors 1.61.495 Lenders 1.61.667 As can be seen from the table, with the smallest mean, suppliers are the ones who are the most concerned with the sustainability report. If a hotel in operating by respecting the environment, then this implies that it is going to be in operation in the future as well since it is not depleting the resources. This acts as a signal to suppliers in the sense that they can continue relying on the hotel as a potential customer. 4.4 Other issues Regarding awareness of sustainability reporting, it was found that only 19.4% of hotels in the sample are aware of it. This may be due to the fact that the government has not made this concept well known during the past years. This can best be explained by comparing it with awareness of the concept of Corporate Social Responsibility. In fact, the majority of hotels in the sample (80.6%) use the term sustainability reporting and CSR interchangeably. This is in accordance with the study of Ioannou and Serafeim (2011). This can be explained by the fact that in Mauritius there is a mandatory form of CSR in the legislation, as a result of which companies are more aware of this concept. The absence of mandatory legislation concerning sustainability reporting may be the main reason why awareness is so weak about this issue. The variables awareness of sustainability reporting and whether it is used interchangeably with CSR are associated. This can be explained by the fact that the hotels which are aware of the concept of SR are the same hotels which do not use these two terms interchangeably. As regards awareness of sustainability reporting among employees, it can be concluded that there is higher awareness of the concept of sustainability reporting among the board of directors. This is in line with KPMG, Sustainability Reporting A Guide 2008. This can be explained by the fact that the Companies Act 2001 confers a number of duties upon directors. 8

The latter should be aware of all issues that can have an effect of his/her company. It can be noted that as we move from the board of directors down to the operational level, there is a decrease in awareness. It is believed that listed hotels would engage more in sustainability disclosures. It was therefore decided to test to what extent this argument is supported. It was found that only 16.1% of hotels within the sample engage in sustainability reporting. This is partly in accordance with the study of Ioannou and Serafeim (2011) and is indeed a very low percentage. This may be due to the fact that it is not mandatory in Mauritius. Further analysis reveals that the variable whether hotels engage in sustainability reporting is associated with category of hotel. Indeed, the companies which disclose environmental issues are the 4 listed hotels within the sample and a 5-star hotel. Listed hotels engage in sustainability reporting because they are required to be transparent so that they can attract more investment. As for the 5-star hotel, it engages in such a type of reporting mechanism possibly to be as transparent as listed hotels and to compete with them. Regarding the aspects on which reporting is done, the companies which report on environmental issues only report on human and natural aspects (without considering the social, financial and economic aspects). This is in accordance with Ioannou and Serafeim (2011). In fact, in Mauritius, particularly in the tourism industry, managers value human capital and the environment the most. Indeed, employees play a very important role within the industry as they are in direct contact with the tourists. As for the environment, it is gaining increasing importance because of the concept of eco tourism. Therefore, hotels disclose on environment issues to show they are operating without causing much damage to the environment in an attempt to enhance its reputation and attract more customers. In addition, all hotels in the sample were unanimous that sustainability reports need to be audited. When there is external assurance, the report is more credible. This is in accordance with the study of Ioannou and Serafeim (2011). When the reports are audited, this will ensure that the hotels are disclosing both favourable and unfavourable information and will therefore result in increased transparency. 5. Conclusions and Recommendations Since the majority of hotels are of the view that enhancing transparency is the most important benefit of preparing a sustainability report, the Financial Reporting Council (FRC) can recommend that as part of a sustainability report, all hotels should give clear information that will enable stakeholders to get information regarding how transparent the hotel is vis-àvis them. Given that the greatest barrier is that hotels are mostly profit-oriented, the government should try to change this mindset. Possibly, this can be done by giving certain incentives (e.g. 9

tax concessions) to those firms that engage in environmental disclosures. This will encourage other hotels to do this as well in order to benefit from the facilities that the government is providing. Since suppliers are mostly concerned about such a report, it should be prepared in such a way that it is tuned to the needs of the suppliers. For example, information about how unused raw materials are being disposed should be disclosed. In fact, even though there is awareness about sustainability reporting, there is a lack of application of this principle because it is voluntary. The ideal would be to make sustainability reporting compulsory with detailed legal and regulatory requirements. The problem of the use of CSR and sustainability reporting interchangeably will be less pertinent once sustainability reporting is adopted by all firms in the tourism industry. Within the organisation, the directors have greater knowledge about this new system of reporting. What is required is that the directors should regularly conduct workshops in order to familiarise the employees with this new reporting mechanism. Moreover, to make sure that sustainability reporting is well implemented and all stakeholders within the organisation are aware of this, issues related to this should be discussed with sufficient regularity in board meetings. Since all hotels within the sample agree that the report should be audited, the government should make this compulsory. Indeed, if there is external assurance, there will be greater credibility. By analysing the results, it can therefore be concluded that there is a strong case for sustainability reporting. Hence, this should be made compulsory for firms operating in the tourism industry in Mauritius. The approach should be that the government should come up with detailed legal and regulatory requirements. This will ensure that there is a framework for the preparation of the report and also it will be comparable from one entity to another. References ADAMS, C. and LARINNAGA-GONZALEZ, C., (2007). Engaging with organizations in pursuit of improved sustainability accounting and performance, introduction. Accounting, Auditing and Accountability Journal, 20(3), 333-355. DRISCOLL, C. AND STARIK, M. (2004), The primordial stakeholder: Advancing the Conceptual Consideration of Stakeholder Status for the Natural Environment, Journal of Business Ethics 49(1), 55-73. FRIEDMAN, M. (1970), A Friedman Doctrine: The social responsibility of the business is to increase profits, the New York Times Magazine, September 13, 1970. GRAAFLAND, J.J. (2002a). Modelling the Trade-off between profits and principles, De Economist, 2(1), 29-54. IOANNOU,I. AND SERAFEIM, G., 2011. The consequences of Mandatory Corporate Sustainability Reporting. Harvard Business School Research Working Paper, 2(3) KPMG, 2008, Sustainability Reporting A Guide. 10

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