Sustainability Reporting by New Zealand’s Local Governments

Radiah Othman, Massey University, New Zealand

Nirmala Nath, Massey University, New Zealand
Fawzi Laswad, Massey University, New Zealand

This study examines New Zealand (NZ) local government’s sustainability disclosure during the five years prior
to changes in the legislative environment through the introduction of the Environmental Reporting Bill. Local
councils appeared to persistently increase their social and environmental disclosure practices in view of the
forthcoming Bill. This is consistent with the underpinnings of legitimacy theory in that pending legislation may
introduce restrictive policies and rules in the future that are not consistent with current reporting practices.
The highest reporting categories were public agency and the environment, which indicates councils’ drive to
maintain legitimacy. Further, the results show that local government environmental reporting focused on non-
monetary, and to a lesser extent monetary, information. In the absence of mandatory guidelines, the results
also indicate that NZ local councils have voluntarily reported sustainability information consistent with GRI
indicators.

T
his study examines the trend and orientation relevant information such as environmental expendi-
of voluntary sustainability1 reporting by local ture and the impacts of products and services.
government2 in New Zealand (NZ) for the five Numerous studies have examined the sustainability
years (2009–2013) prior to the introduction of the issues confronted by Australian public sector organi-
Environmental Reporting Bill (hereinafter the ‘Bill’).3 sations (PSOs) (Gibson and Guthrie 1995; Burritt and
The Bill, which was introduced in the NZ Parlia- Welch 1997; Adams and McNicholas 2007; Herawaty
ment in March 2014, aims to create a national en- and Hoque 2007; Guthrie and Farneti 2008; Farneti
vironmental reporting system and is intended to ren- and Guthrie 2009), whereas fewer studies have focused
der NZ’s environment sustainable.4 It is consistent with on NZ PSOs (Tregidga and Milne 2006). Several
the country’s ‘sense of national identity epitomised by studies have examined sustainability reporting by local
the term “clean and green”’ (Frame and Taylor 2005: government in Australia (Ryan et al. 2002; Herbohn and
275). Furthermore, both the introduction of the Bill Griffiths 2005; Jones et al. 2005; Guthrie and Farneti
and the reform to the Resource Management Act 1991 2008; Farneti and Guthrie 2009; Sciulli 2009; Williams
are aimed at explicitly regulating local government’s et al. 2011; Goswami and Lodhia 2014), establishing its
responsibilities for monitoring and reporting on the significance. Despite its importance, there is, however,
environment. very little research focusing on sustainability issues
The Bill aims to improve the consistency of envi- in NZ local government (Bellringer et al. 2011: 126).
ronmental monitoring statistics at a local level and Bellringer et al. (2011) is the only study that has ex-
creates a statutory obligation in NZ for regular envi- amined sustainability reporting by local government in
ronmental reporting (MFE 2015). The Bill is focused NZ. They established that an important reason for poor
on NZ natural resources, such as air, freshwater, land, sustainability reporting in NZ is its focus on internal
marine, atmosphere and climate domains. Its proposed rather than external stakeholders (Bellringer et al. 2011).
environmental reports must describe the state of the NZ local councils do not follow a specific framework
domain, the pressures that may be causing, or have the for social and environmental reporting and therefore
potential to cause, changes to the state of the domain, disclosures are not comparable across councils. The use
and any environmental impacts. These requirements
differ from those of the GRI guidelines, which measure
holistic impact on the environment taking a global
Correspondence: Radiah Othman, School of Accountancy,
focus. For instance, the GRI environmental indicators Massey Business School, Massey University, Private Bag 11222,
cover performance related to inputs (e.g., water) Palmerston North 4442, New Zealand. Tel: +64 6 951 692 ext
and outputs (e.g., waste), performance related to 83926; email: [email protected]
biodiversity, environmental compliance, and other Accepted for publication 12 July 2016.

Australian Accounting Review No. 82 Vol. 27 Issue 3 2017 doi: 10.1111/auar.12153 315
Sustainability Reporting by New Zealand’s Local Governments R. Othman, N. Nath & F. Laswad

of terminologies and content and the extent of reporting government has the potential to adopt a more effective
also vary across councils. The local councils currently role in propelling the local community towards sustain-
disclose social and environmental information in vari- ability (Potts 2004; Ball et al. 2006: 260). Local coun-
ous documents including annual reports, report cards, cils have a capacity and a responsibility to influence and
regional reports, state of the environment reports, an- change the behaviour of their constituents in accordance
nual data reports, environmental and technical reports. with policy decisions (Carnegie and West 2010: 111). Ball
This study assesses social and environmental informa- (2004) noted that the flux created by ongoing ‘moderni-
tion reported by local councils in the various public sation’ and developments via legislation have created
documents. All this information is referred to here as space for researchers to develop a discourse about the
sustainability reporting. Further, the study examines the nature of local government’s response to the demands of
trend and orientation of sustainability reporting by NZ sustainability.
local governments by identifying the gaps between local The G3 Guidelines were launched in 2006 and feature
government practice and the Global Reporting Initiative sustainability disclosures that organisations can adopt
(GRI) guidelines. flexibly and incrementally, enabling them to be trans-
parent about their performance in key sustainability
areas. In 2011, the GRI released the G3.1 Guidelines.
Sustainability Disclosure Practices: This updated version adds content to the G3, provid-
The Perspective of Local Government ing expanded guidance on the guidelines’ impact on
the local community, human rights and gender equality.
The previous literature has called for more research ex- To encourage sustainability reporting by PSOs, the GRI
amining sustainability issues in the public sector (Ball has developed a Sector Supplement for Public Agencies
et al. 2007; Ball and Grubnic 2007; Guthrie and Farneti (SSPA) (GRI 2005) to promote, inter alia, transparency
2008; Adams et al. 2014). This sector has a range of stake- and accountability, to meet disclosure expectations, and
holders, including employers, providers and consumers to make information available to facilitate both dialogue
of services (GRI 2005). The sector is central to the de- and effective engagement with stakeholders. The SSPA
livery of sustainable development, because every aspect adds another set of core indicators. The GRI suggests
of the sector shapes how people live (Birney et al. 2010: that the applicable Sector Supplements should be used
3). Approximately 40% of all global economic activities in addition to, not in place of, the Guidelines.
take place within the public sector (Ball and Grubnic In the absence of specific guidelines for NZ local gov-
2007: 243).5 The public sector exists primarily for social ernments, we used the GRI Guidelines for data collection
and environmental purposes (Ball and Grubnic 2007; and analysis consistent with other recent studies (e.g.,
Guthrie and Farneti 2008; Adams et al. 2014), and there- Ball et al. 2006; Epstein 2008; Goswami and Lodhia 2014;
fore PSOs have been urged to revisit their concept of Guthrie and Farneti 2008; Farneti and Guthrie 2009).
sustainability (Ball et al. 2007). In Australia, Goswami and Lodhia (2014) concluded
The lack of research in this area has somewhat dis- that none of the four councils studied were following
tanced PSOs from criticism (Dickinson et al. 2005). any standardised sustainability reporting guidelines such
However, such research is much needed, because it can as the GRI; however, they also reported on some sus-
enhance the understanding of the nature of sustain- tainability issues that can be identified and compared
ability accounting and the accountability of organisa- with the GRI 3.1 and GRI SSPA performance indica-
tions responsible for social welfare and justice (Ball and tors. Guthrie and Farneti (2008) and Farneti and Guthrie
Grubnic 2007: 257). As suggested by Barrett (2004), ‘in- (2009) examined the pattern of sustainability reporting
formation is the lifeblood of accountability’. The recent in a sample of seven Australian PSOs that were using
accountability debates and increasing demand for bet- a standardised set of indicators: those contained within
ter services in the NZ public sector have made ‘public the GRI G3 (GRI 2006) and the GRI SSPA (GRI 2005).
relations’ an imperative. Thus, the private sector’s incli- The introduction of the Bill and thus the amendments
nation towards ‘greenwashing’ (Hubbard 2009: 3) in its of the Resource Management Act 1991 can be considered
reporting and disclosure of information, also applies to a threat to local councils’ legitimate and normal oper-
the public sector, which therefore must be scrutinised. ation and their reporting on sustainability issues. From
By having a mechanism for making social and envi- a legitimacy perspective, we are motivated to examine
ronmental information available to the public, PSOs’ the responses of the local councils via their disclosures
commitment to reporting will not only increase the by examining the extent and reporting five years prior
visibility of social and environmental related perfor- to the introduction of the Bill, following Guthrie and
mance, but will also drive performance improvements Farneti (2008). Prior studies such as Deegan et al. (2000)
(Adams et al. 2014). and O’Donovan (2002) indicated that organisations ap-
Local government is much closer to the community pear to change their disclosure policies around the time
than is central government and in that respect, local of certain events that are perceived as unfavourable.

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Therefore, the lower the perception of legitimacy threat, confronted by expectations related to ‘organisational ac-
the less likely it is that the organisation will bother to countability’ (Logsdon and Lewellyn 2000), particularly
provide social and environmental disclosure. in the public sector. Gray et al. (1996) hypothesised that
A review by Williams et al. (2011) of the prior re- management disclosure decisions are linked to a broad
search suggested that sustainability reporting in the lo- range of interconnected political, social and economic
cal government sector is in the initial stages of devel- influences and that legitimacy theory and stakeholder
opment, which is reflected in the lack of consistency in theories are more specific theories developed within a
the type and extent of sustainability reporting. Another political economy framework.
motivation for this study is to understand NZ local gov- Legitimacy is a generalised perception or assump-
ernment voluntary social and environmental reporting tion that an entity’s actions are desirable, proper or
(SER). Further, this study examines SER prior to signif- appropriate within a socially constructed system of
icant changes in the legislative environment that would norms, values, beliefs and definitions (Suchman 1995:
have a future impact on SER. NZ is known for its clean 574). Legitimacy theory suggests that when managers
green image. With this image in mind, the key research consider a resource to be critical to a company’s survival,
question of the study is how do local councils respond they will use strategies to ensure the continued supply
to a legitimacy threat? What are the trends and orien- of that resource. In contrast, agencies in the public
tation towards sustainability reporting among NZ local sector are more politically visible and attract a high
government bodies? degree of attention from external stakeholders; thus,
The contribution of this paper lies in its aim to high- to achieve organisational legitimacy, they will require
light evidence of local councils’ responses prior to in- a more positive response (Frost and Seamer 2002)
troduction of the new Bill, which is perceived as a le- in an often politically charged environment (Collier
gitimacy threat. As suggested by Hybels (1995: 244), and Woods 2011: 111). Accordingly, both stakeholder
‘ . . . rather than engage in the further development of theory and legitimacy theory portray an organisation as
entirely abstract constructions of the legitimation pro- dependent on society for the resources that are critical
cess, researchers should investigate the flow of resources to its survival (Garcı́a-Sánchez et al. 2013: 61). Gray
from organisational constituencies as well as the pattern et al. (1996) argued that legitimacy theory is a variant of
and content of communications’. The study provides in- stakeholder theory, which adds conflict and dissension
sights on the extent and trends of local councils’ SER to the picture and can be employed to explain more
disclosures. Most importantly, the study compares cur- specific information about corporate social practices.
rent SER with international benchmarking. This research The introduction of the Bill reaffirms Ball et al.’s (2007:
contributes to the literature and fills the current research 39) prediction that public sector organisations (includ-
gap on NZ local government SER. ing local councils) are pressured to revisit their concept
of sustainability. As such, the passing of the new Bill by
central government is perceived as fulfilling such a role.
Theoretical Framework Local councils are much closer to their communities and
have the potential to lead their communities towards a
Numerous theories, such as institutional, stakeholder sustainable future (Ball et al. 2006). In return, the coun-
and legitimacy, have been used by researchers to explain cils depend on central government for resources in terms
voluntary sustainability reporting by organisations. In of support and funding. For example, for the year ended
response to the introduction of a new regulation, institu- June 2013 the total operating income for NZ local gov-
tional theory explains social reporting and diffusion as an ernment was NZ$9 billion (Statistics New Zealand 2016).
isomorphic process (Meyer and Rowan 1977; DiMaggio Hybels (1995: 244) claimed that legislation and regula-
and Powell 1983). The isomorphic process is triggered by tion are also part of the resources controlled by the state
normative processes (induced by public sector reforms), (central government), which could bring a positive or
mimetic isomorphism (the reputable image of trans- negative impact to local councils. The amendments of
parency and openness to the citizenry), and coercive the 1991 Resource Management Act make it explicit that
mechanisms (enforcement of the new regulations and central government has the power to regulate local coun-
the need for organisations to re-gain or maintain legiti- cils for monitoring and reporting of the environment;
macy) (Ball et al. 2007; Mussari and Monfardini 2010). it indicates that this will have a negative impact or at
Institutional theory approaches tend to depart from least bring changes in local councils’ current operations,
the idea that managers purposely initiate organisational systems and procedures.
activities to achieve carefully considered outcomes and Tilling (2004) proposed four organisational modes of
focus instead on the influential effects of social pressures legitimacy: establishing legitimacy; maintaining legiti-
(Bebbington et al. 2009: 589). To overcome this limi- macy; extending legitimacy; and defending legitimacy.
tation, this research uses legitimacy theory to ground His main premise is that within organisational legiti-
the findings. Furthermore, managers are increasingly macy theory the firm may be viewed as being in one of a


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Table 1 Study sample of NZ regional councils – population Research Method

size

Population size† % of NZ population Sample

Local Council (2014) (2014)
Auckland 1,415,550 33.4 Local government in NZ is composed of two levels: ter-
Bay of Plenty 267,741 6.3 ritorial councils (city councils that are largely urban
Canterbury 539,436 12.7 and district councils) and regional councils. There are
Manawatu-Wanganui 222,672 5.2
11 regional councils in NZ. They are responsible for
Otago 202,467 4.8
Waikato 403,638 9.5 managing the environment (freshwater, land, coastal
Wellington 471,315 11.1 waters, rivers, regional transport and emergency man-
Total 3,522,819 83.0 agement). This study sample is composed of the seven
(64%) largest councils with regional responsibilities in-
† 2013 NZ Census. corporating approximately 83% of NZ’s population. It
is expected that regional councils with large populations
number of modes depending on how it perceives (im- would have greater accountability and pressures to pro-
plicitly) its legitimacy. This is consistent with Suchman’s vide SER. Large populations tend to demand more ser-
(1995) categories of gaining legitimacy, maintaining le- vices; thus, public administration is forced to address a
gitimacy or repairing legitimacy. Tilling (2004: 7) ex- wider variety of stakeholders who require, among other
plained that within defensive legitimacy, there should be aspects, both the undertaking of social responsibility
evidence of an ongoing series of events, indicative of a practices and more information regarding sustainability
systemic issue or a single event with permanent conse- (Garcı́a-Sánchez et al. 2013). Within the NZ context,
quences that cannot be effectively managed, and where Bellringer et al. (2011) reported that sustainability
an organisation is likely to lose legitimacy over a period reporting was undertaken to demonstrate leadership,
of time (the ‘loss’ mode). This chronic situation can be public accountability and financial responsibility to the
difficult to manage, and leads to declining legitimacy, but population they served. Table 1 provides a list of councils
may be managed and slowed over a long period of time, in the sample and their populations.
or significant change could lead to re-establishment of
legitimacy. The introduction of a regulation is within
the ‘loss’ mode where there are likely to be periods when Dependent variable: Disclosure index
the organisation will increase its voluntary social and
environmental disclosure in an effort to meet specific To assess whether current sustainability reporting (pre-
threats (such as to postpone or defeat proposed reg- Bill announcement) is consistent with the GRI guide-
ulations). However, with each new restriction, average lines, we analysed the content of the local government’s
total disclosure can be expected to decrease. According reports against the GRI3.1 and GRI SSPA following
to O’Donovan (2002), the lower the perceived legitimacy Guthrie and Farneti (2008). GRI SSPA was obtained
of the organisation, the less likely it is to bother providing directly from the GRI office. Table 2 below shows the
social and environmental disclosure. number of ‘core’ and ‘additional’ elements pursuant to
We posit that within the public sector, organisations both GRI guidelines. Core indicators are the indicators
are likely to increase their voluntary social and environ- identified in the GRI guidelines that are of interest to
mental disclosures in an effort to respond to specific most stakeholders and are assumed to be material unless
threats, for example, by postponing or defeating pro- deemed otherwise based on applying the GRI reporting
posed regulations. Suchman (1995) contended that an principles. Additional indicators either represent emerg-
organisation’s choice of legitimation tactics and public ing practices or address topics that may be material to
disclosures will differ depending on whether it is trying some organisations but are not generally relevant for a
to gain, maintain or repair legitimacy. The main purpose majority of organisations.
of this paper is to use and apply legitimacy theory by in- Total possible observations for all seven councils were
vestigating possible links between the Bill as a potential sampled for each category (the maximum a local coun-
legitimacy threatening issue, the choice of legitimation cil can score is 86 if it discloses all core and additional
tactics resulting in report disclosures, and whether the elements in any particular year, or 430 for all five
purpose of the choice of tactics is to gain, maintain or years), for 2838 observations possible overall. Follow-
repair legitimacy. Following O’Donovan (2002), the ap- ing Guthrie and Farneti (2008), we further classified the
proach taken is deliberately more functionalist than crit- content codes into aspects and elements. Aspects are
ical. According to O’Donovan, this attempt focuses more general types of information that are related to a spe-
in an exploratory way, to discover ways in which micro cific indicator category (e.g., energy use, child labour,
components of legitimacy theory can be identified and customers). Every aspect has its own specific indicators
how they affect disclosure decisions. (elements). Differentiation is important to enable the

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Table 2 GRI 3.1 and GRI SSPA categories and elements terminologies. The scoring process started with each
Elements
coder assessing one report from each council for evi-
dence of GRI indicators. Once the individual scores had
Categories Core Additional Total been ascertained, the results were compared and dis-
1 Environment (EN) 17 13 30 cussed. Where discrepancies existed, those sections of
2 Human Rights (HR) 9 2 11 the reports were re-analysed and the differences resolved.
3 Labour Practice and Decent 10 5 15 These processes were repeated again with three council
Work (LP) reports and this time the interpretation of scoring cate-
4 Product Responsibility (PR) 4 5 9
5 Society (SO) 8 2 10
gories was found to be reasonably consistent across two
6 Public Agencies (PA) 11 0 11 coders. The research assistant then continued with the
Total 59 27 86 scoring of all reports. Any problems encountered were
resolved with the principal researcher.
(GR1 2011; GRI SSPA 2005). A disclosure index (DI) was then calculated to measure
each local council’s relative level of disclosure. The DI is
the total number of items reported by the local council
documentation of sustainability disclosures by analysing divided by the total number of relevant disclosure items
available annual and stand-alone reports to verify that in accordance with the GRI guidelines. Based on Cooke
the GRI guidelines were followed. Thus, the study records (1989) and Herawaty and Hoque (2007), the total disclo-
the incidence – not the quality – of disclosures. sure (TD) score is mathematically expressed as follows:
We performed a content analysis to determine the
nature, extent and patterns of disclosure in the 145 an- 
n

nual and other reports published by local councils from TD = di

i=1
2009–2013. Content analysis has been previously used
in sustainability reporting research (Krippendorff 2004; where TD is total disclosure for a local council; d=1 if
Guthrie et al. 2008; Guthrie and Farneti 2008) and is ‘a the item i (ith relevant item) is disclosed; and d=0, if the
methodology with which the researcher seeks to deter- item I (ith relevant item) is not disclosed.
mine the clear content of written or published communi- DI is equal to TD/n
cation by systematic, objective and quantitative analysis’ n = the number of items required by GRI3.1 and GRI
(Gibson and Guthrie 1995: 117). SSPA
We used a scoring process that awarded local councils
with one point for disclosing an item and zero for not dis-
closing an item. This scoring approach is consistent with Results and Discussion
Cooke (1989, 1992), Meek et al. (1995), Inchausti (1997),
Depoers (2000) and Herawaty and Hoque (2007). The Local government SER and GRI
unweighted scoring is considered an appropriate method
for this study as it does not focus on the information We assessed the quality of information disclosed fol-
needs of any specific group, which would need to be lowing Guthrie and Farneti (2008) and categosrised the
captured by weighted scoring (Cooke 1989; Chau and quality of the information disclosed as declarative, mon-
Gray 2002; Taylor et al. 2012). Further, Jones and Al- etary, or both monetary and non-monetary informa-
abaster (1999) note that weighted scores shift the atten- tion. Declarative information included statements about
tion away from what is and what is not being reported. sustainability-related policies with limited elaboration
However, the unweighted scoring method has some lim- of such policies, for example, ‘We are committed to the
itations, such as not addressing the value of information promotion of gender equality and acknowledge the dif-
by particular user groups and not capturing the quality ferent types of impact that policies, programmes, and
of reporting (Dhaliwal 1980; An et al. 2015). Nonethe- actions have on women and men’. This is regarded as
less, Garegnani et al. (2015: 547) emphasise that there is the lowest quality information. Monetary information
no one dominant scoring approach. refers to disclosure of financial information associated
To enhance the scoring reliability in analysing the with policy statements (e.g., the amount from fines paid
reports, two coders (the principal researcher and the as a consequence of breaching certain policies), and it
research assistant) independently scored each report. has the highest quality of all three types of information –
The research assistant had previous training in scor- policy statements, monetary information (e.g., annual
ing reports in previous research projects and initially amount spent/dedicated for the implementation of the
was briefed by the principal and second researchers. policy) and non-monetary information (e.g., plans for
The process started with several thorough readings improving current policy achievements in future years).
and discussions by both coders to familiarise them Table 3 shows the types of disclosure for the five-year
with the different reports’ contents, layout, breadth and period spanning 2009–2013. The table shows that 3%


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Table 3 Regional councils’ SER by type (2009–2013)

Type

Regional Council Declarative (%) Monetary (%) Non-Monetary (%) Non-Monetary and Monetary (%) Total %
Auckland 3.3 5.3 87.4 4.0 100
Bay of Plenty 0.6 17.4 77.8 4.2 100
Canterbury 3.2 3.2 88.1 5.5 100
Manawatu-Wanganui 0.7 7.6 85.4 6.3 100
Otago 4.1 11.8 77.6 6.5 100
Waikato 6.4 6.4 80.9 6.3 100
Wellington 0.0 7.4 85.8 6.8 100
Average 2.7 8.1 83.5 5.7 100

of sustainability reporting disclosures were declarative councils reported 74% of the GRI-required information,
in nature, 8% were monetary, 84% were non-monetary followed by the Environment (52%) and Labour Prac-
and 6% were both monetary and non-monetary. This tices and Decent Work (35%) categories. The Product
indicates that local government in NZ emphasises non- Responsibility and Society categories were both reported
monetary over monetary information in reporting sus- at 30%. These two categories fit comfortably within the
tainability matters. It is logical to think that local councils NZ public sector context and its clean and green image
would wish to restrict the public’s knowledge of this while revealing ‘legitimacy is an operational resource
information as long as they could do so without threat- and important to pursuit of their goals’ (Suchman 1995:
ening their legitimacy in the eyes of the public (main- 575–6).
taining legitimacy) and still demonstrate accountability The least reported category was Human Rights, with
(Logsdon and Lewellyn 2000; Ball and Grubnic 2007). less than 10% of the required information. We believe
O’Donovan (2002), on the other hand, claimed that such that this strategy is consistent with the choice to fo-
incidents display an avoidance approach. While the per- cus on maintaining legitimacy (Suchman 1995) and
ception of not making disclosures is attractive, it implies the avoidance approach (O’Donovan 2002). Morhardt
a management style of secrecy, a ‘do nothing’ approach, (2009: 152–3) offered possible explanations for the lack
or an attempt to buy some time while maintaining legiti- of compliance in this category. First, there is the issue
macy (Tilling 2004). Overall, these results on the reduced of cost. We believe that the cost of repairing legitimacy
use of monetary values are consistent with Guthrie and might be considered as too significant compared to the
Farneti (2008) and the literature in general. For instance, cost of avoiding or not reporting on human rights issues.
Jones et al. (2005) reported that few councils in Australia Morhardt advocates uncertainty and the ‘self-damning’
confined their disclosures to general statements of policy. nature of the data as the primary reasons for lack of com-
Further analysis showed that the Canterbury Regional pliance. An organisation may not know which specific
Council scored the highest in terms of non-monetary operations are implicated with forced labour or a lack
disclosure at 88% (average 84%) and the Bay of Plenty of freedom of association. For obvious reasons, manage-
Regional Council had monetary disclosures of 17% (av- ment may not want to publicise something that could
erage 8.1%). The Wellington Council led the scoreboard be inherently uncertain and unpleasant in order to pro-
by disclosing both monetary and non-monetary disclo- tect its legitimacy; this is also consistent with Tilling’s
sures at 7% (average 5.7%). The persistent and extant (2004) claims of defensive legitimacy. It is obvious that
non-monetary disclosures by the regional councils are the self-damning nature of some of the data, such as re-
an act of legitimation (O’Donovan 2002) and expose porting the number of incidents of discrimination and
the councils’ proactive stance in promoting social violations of indigenous people’s rights, is unpalatable
values. and risks damaging legitimacy in the eyes of stakehold-
Table 4 shows the extent of reporting of GRI indicators ers. This is a particularly influential factor in NZ, as
by local councils. Overall, 1161 observations related to New Zealanders consider their country as a leader in
key sustainability information were identified from the human rights (McGregor et al. 2015).6
seven largest local councils’ annual reports, along with Further, from a practical aspect, Morhardt (2009)
other reports published on their websites. Thus, dur- advocated that much of the data requested by the GRI is
ing the 2009–2013 period, those local councils reported both difficult to collect and not seen as valuable by the
41% of the 2838 sustainability reports (environment, reporting organisations. These findings are very similar
social and public agencies) required by the GRI guide- to previous studies by Guthrie and Farneti (2008) and
lines. Of all of the categories, the highest amount of Morhardt (2009). In Australia, Guthrie and Farneti
reporting was in the Public Agencies category, in which established that the two highest disclosures were in the

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Table 4 GRI Guidelines and SER by regional councils (2009–2013)

Auckland Bay of Plenty Canterbury Manawatu-Wanganui Waikato Wellington Otago Total
Environment GRI required 90 150 150 150 150 150 150 990
Reported 63 66 97 53 81 70 80 510
GRI % reported 0.70 0.44 0.65 0.35 0.54 0.47 0.53 0.52
Social (Human GRI required 33 55 55 55 55 55 55 363
Rights) Reported 6 0 5 0 5 0 5 21
GRI % reported 0.18 0 0.09 0 0.09 0 0.09 0.06
Social (Labour GRI required 45 75 75 75 75 75 75 495
Practices and Reported 28 17 45 25 21 21 16 173
Decent Work) GRI % reported 0.62 0.23 0.6 0.33 0.28 0.28 0.21 0.35
Social (Product GRI required 27 45 45 45 45 45 45 297
Responsibility) Reported 14 11 15 10 10 15 14 89
GRI % reported 0.52 0.24 0.33 0.22 0.22 0.33 0.31 0.3
Social (Society) GRI required 30 50 50 50 50 50 50 330
Reported 11 10 16 16 15 16 15 99
GRI % reported 0.37 0.2 0.32 0.32 0.3 0.32 0.3 0.3
Public Agencies GRI required 33 55 55 55 55 55 55 363
Reported 28 40 40 40 41 40 40 269
GRI % reported 0.85 0.73 0.73 0.73 0.74 0.73 0.73 0.74
Total reported and 150 144 218 144 173 162 170 1,161
percentage
Overall % reported 13 12.4 18.8 12.4 14.9 13.9 14.9 81.1

Labour Practice and Public Agencies categories, and category, and on Customer Privacy, Marketing Infor-
the lowest two were in the Human Rights and Society mation and Compliance in the Product Responsibility
categories. category. It was also the only Council that reported on
Table 4 shows that the Canterbury Regional Council Labour Management Relations in the Labour Practices
scored the highest with 218 disclosures, which is nearly and Decent Work category and on Public Policy in the
one-fifth of the total observations. In the Environment Society category. The evidence strongly suggests that the
category, the Council’s highest scores, which were Auckland Unitary Council engages in the practice of ex-
above average, were in the Biodiversity, Emission, tending its legitimacy (Tilling 2004) in comparison to
Effluent and Waste, Transport and Overall categories. other Councils via extensive disclosures on all fronts.
In the Labour Practices and Decent Work category, the This, therefore, raises the question: will the new Bill
Council received its highest scores, which were also have an impact on this Council, and if so, what will
above average, in Employment, Occupational Health it be?
and Safety, Training and Education. In the Product Overall, the Bay of Plenty and Manawatu-Wanganui
Responsibility category, the Council received its highest Regional Councils had the lowest scores, with 12.9% of
scores in Customer Health and Safety and Society. the information disclosed. The Bay of Plenty Regional
These results evidence selective reporting, which is Council did not disclose anything in the Human Rights
conducive to the nature of economic operations and category and scored the lowest in the Society category
funding. Therefore, it can be reasonably claimed that compared to the other local councils. The Manawatu-
these disclosures evidence an engagement with external Wanganui Regional Council also scored the lowest in
legitimacy (Tilling 2004) and in pursuit of the individual the Environment, Product Responsibility, and Public
local government’s goals (Suchman 1995). Agencies categories. The Council did not report anything
It is not surprising to note that the Auckland Unitary in the Human Rights category, but scored the highest in
Council – the largest council and one with comparatively Employment compared to other councils in the Labour
more resources to invest – had the highest scores in all Practices and Decent Work categories. These findings
categories: Environment (70%), Human Rights (18%), illustrate that in seeking to legitimise their practices,
Labour Practices and Decent Work (62%), Product Re- the Councils are selective in what is disclosed; they es-
sponsibility (52%), Society (37%) and Public Agencies tablish the legitimacy of only selected practices (Tilling
(85%). Although the Council scored the lowest in Wa- 2004).
ter and Biodiversity in the Environment category, it was The Waikato Regional Council scored lowest in
the only Council that reported on Freedom of Associa- the Product Responsibility category. The Wellington
tion and Collective Bargaining, Forced and Compulsory Regional Council did not report anything in the Human
Labour and Indigenous Rights in the Human Rights Rights category and scored the lowest in the Public


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Sustainability Reporting by New Zealand’s Local Governments R. Othman, N. Nath & F. Laswad

100%
90%
80%
70% Public Agencies
60% Society

50% Product Responsibility

40% Labour Management

Human Rights
30%
Environment
20%
10%
0%
AUC CRC WRC WKR BOP MWC ORC

Figure 1 Total GRI score and type of disclosure (2009–2013)

Agencies category. The Otago Regional Council scored sector organisations (Dowling and Pfeffer 1975: 122).
high in the Environment, Product Responsibility and While some social and environmental information can
Society categories but scored among the lowest in the be identified and compared with the GRI guidelines
Labour Practices and Decent Work and Public Agencies (Goswami and Lodhia 2014), Table 4 shows that the local
categories. councils need improvement in certain sub-categories in
the Human Rights, Product Responsibility and Society
categories.
Orientation and Trends in Local To analyse the trend of reporting over the five-year
Government Sustainability Reporting period, the total possible observations and an index
were calculated and compared as shown in Table 5. In
Table 4 and Figure 1 show that local government in NZ is Australia, Ryan et al. (2002) showed that, on average, the
oriented towards environmental information consistent quality of reporting disclosures by the Queensland local
with NZ’s national identity as a ‘clean and green’ coun- government increased between 1997 and 1999. Our
try (Frame and Taylor 2005), with the exception of the results show that over the five-year period, there was a
Wellington Regional Council, which emphasised disclo- consistent, increasing trend of sustainability reporting
sures related to Labour Management Practices. Sciulli for GRI’s elements, from 32% (2009) to 44% (2013). A
(2009) has compared the disclosures provided by the similar trend can also be observed for all categories. This
GRI with the annual reports of Australia’s six coastal consistent increasing trend prior to the introduction
councils. The findings suggest that these councils’ ori- of the Bill seems to infer defensive legitimacy activities
entations, consistent with their locations, moved to- (Tilling 2005: 6) or an indirect attempt to forestall
wards high disclosures on water and biodiversity cat- regulatory activities by the state (Neu et al. 1998:
egories and low disclosures in other categories, such 265). According to Neu, by mitigating these potential
as compliance. However, further analysis on location problems, managers have a degree of autonomy in
did not support Sciulli’s (2009) findings. Furthermore, deciding how and where business will be conducted.
recent studies by Williams et al. (2011) reported a The introduction of the Bill is within the ‘loss’ mode
concentration in disclosures of social information for ob- of defensive legitimacy (Tilling 2004: 6), where during
taining community-based funding, government grants this five-year period, the local councils increased their
and/or contracts needed to survive, and without a basis voluntary social and environmental disclosure in view
in the organisation’s location, thus contradicting Sciulli’s of the forthcoming Bill. These results also show a
findings. positive signal that at least the seven largest NZ local
Table 4 indicates that most local councils have dis- councils are now reporting items as required by the
closed high levels of information (73% to 85%) about GRI guidelines. Global Reporting Initiative Focal Point
Public Agencies. At a macro level, these local councils Australia (2012) has reported that some government
seem to have established a congruence between the so- departments and agencies in Australia, the United
cial values associated with or implied by their activities Kingdom, Sweden, Germany and the United States al-
and the norms of acceptable behaviour in the larger so- ready report their sustainability performance using GRI
cial system, that is, legitimising their existence as public guidelines.

322 Australian Accounting Review 

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R. Othman, N. Nath & F. Laswad Sustainability Reporting by New Zealand’s Local Governments

Table 5 SER by element (2009–2013)

Number and % Reported by all Councils

GRI Elements 2009 2010 2011 2012 2013

1 Environment 30 84 88 107 113 118
40% 42% 51% 54% 56%
2 Human Rights 11 3 3 4 7 4
4% 4% 5% 9% 5%
3 Labour Practice and Decent Work 15 26 28 37 38 44
25% 27% 35% 36% 42%
4 Product Responsibility 9 15 15 18 22 19
24% 24% 29% 35% 30%
5 Society 10 17 17 20 22 23
24% 24% 29% 31% 33%
6 Public Agencies 11 48 48 58 57 58
62% 62% 75% 74% 75%
Total 86 193 199 244 259 266
32% 33% 40% 43% 44%

Is Sustainability Reporting rights and corruption can be seen as not threatening

(Pre-Bill Announcement) Consistent councils’ legitimacy and thus they are less likely to bother
with the GRI Framework? to provide disclosures on these issues (O’Donovan 2002).
Nevertheless, the magnitude of the potential damage
Guthrie and Farneti (2008: 364) have stated that the to their reputation, coupled with an awareness of the
distinction between core- and sector-specific indica- potential negative effects of the issues becoming public
tors is useful for understanding the level of disclosure. knowledge, merit councils’ consideration.
They found that an average of 35% and 25% of the
core and additional elements, respectively, were used. Conclusion
Table 6 shows that the local councils used 808 of a pos-
sible 1947 core (C) elements (41.5%) and 353 of a pos-
During the study period it was not known which report-
sible 891 additional (A) elements (39.6%). Analysis of
ing framework the central government would require
the Public Agencies category reveals that all councils re-
in the new Bill and, therefore, the study used the GRI
ported the second core element, which is Administrative
guidelines as the reporting framework.
Efficiency. However, they disclosed between seven and
The results of this study are consistent with legitimacy
nine of 11 elements for new disclosure elements and new
theory and show that local councils did appear to persis-
social indicators for public agencies that were required
tently increase their social and environmental disclosure
for disclosure (see Table 2). We concur with Guthrie
policies five years prior to the introduction of the Bill. In
and Farneti (2008) that, although this indicates that the
doing so they proactively sought legitimacy to counter
public agency indicators are generally relevant to the sec-
the threat posed by the Bill (Ashford and Gibbs 1990).
tor, not all indicators are equally relevant. For instance,
This is consistent with Tilling’s (2005: 7) notion of de-
PA11, PA13, and PA14 were not disclosed as frequently as
fending legitimacy, which is an effort to postpone or
other indicators. This suggests that procurement policy
defeat proposed regulations. According to Deegan et al.
and practices were not embedded in NZ local councils’
(2000: 127) voluntary disclosures are a useful device to
sustainability reporting.
reduce the effects of unfavourable events.
There were certain indicators that were not reported
The results show that local councils’ SER focused more
by all councils, as listed in Table 7. The core element of the
on non-monetary information, which suggests that
Human Rights category on investment and procurement
monetary information is more difficult to report. The
practices represented the least reported element. This el-
local councils’ highest reporting categories are Public
ement requires detailed information on agreements and
Agencies and Environment. The reporting trend by the
contracts, human rights screening and training on hu-
local councils signifies their choice of maintaining le-
man rights. The next category is the Society category,
gitimacy in the NZ public sector. The lowest reporting
which includes none of the corruption elements dis-
category is Human Rights. This indicates that although
closed by any of the local councils. Table 7 shows the
this category is important globally it is not considered
areas in which local councils need to show improvement
important by NZ local councils.
when reporting their sustainability issues. The current
Even though the prior literature suggests that the
lack of public awareness about issues such as human
GRI guidelines are not widely used by local government


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324
Australian Accounting Review
Table 6 GRI core (C) and additional (A) elements (2009–2013)
Environment Human Rights Labour Practice Product Society Public Agencies Total
Grand
Council C A C A C A C A C A C C A total
Sustainability Reporting by New Zealand’s Local Governments

Auckland 40 23 5 1 18 10 6 8 10 1 28 107 43 150

Bay of Plenty 39 27 0 0 10 7 5 6 10 0 40 104 40 144
Canterbury 56 41 5 0 29 16 5 10 16 0 40 151 67 218
Manawatu-Wanganui 29 24 0 0 10 15 5 5 16 0 40 100 44 144
Otago 48 32 4 1 6 10 5 9 15 0 40 118 52 170
Waikato 50 31 5 0 10 11 5 5 15 0 41 126 47 173
Wellington 35 35 0 0 6 15 5 10 16 0 40 102 60 162
Total 297 213 19 2 89 84 36 53 98 1 269 808 353 1161
% of GRI required 15% 24% 1% 0.2% 5% 9% 2% 6% 5% 0.1% 14% 41.5% 39.6% 81.1%

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2017 CPA Australia
R. Othman, N. Nath & F. Laswad
R. Othman, N. Nath & F. Laswad Sustainability Reporting by New Zealand’s Local Governments

Table 7 GRI indicators not reported by all regional councils

Category Aspect Core/Additional GRI code Description
Environment Biodiversity Additional EN15 Number of IUCN Red List and national conservation list species
with habitats in areas affected by operations, according to
the level of extinction risk.
Products and services Core EN27 Percentage of products sold and their packaging materials that
are reclaimed by category.
Human Rights Investment and Core HR1 Percentage and total number of significant investment
Procurement agreements and contracts that include clauses incorporating
Practices human rights concerns or that have undergone human rights
screening.
Core HR2 Percentage of significant suppliers, contractors, and other
business partners that have undergone human rights
screening and actions that have been taken.
Core HR3 Total hours of employee training on policies and procedures
concerning aspects of human rights that are relevant to
operations, including the percentage of employees trained.
Child Labour Core HR6 Operations and significant suppliers identified as having a
significant risk for incidents of child labour and measures
taken to contribute to the effective abolition of child labour.
Security Practices Core HR8 Percentage of security personnel trained in the organisation’s
policies or procedures concerning aspects of human rights
that are relevant to operations.
Assessment Core HR10 Percentage and total number of operations that have been
subject to human rights reviews and/or impact assessments.
Remediation Core HR11 Number of grievances related to human rights filed, addressed
and resolved through formal grievance mechanisms.
Labour Practices Equal Remuneration Core LA14 Ratio of basic salary and remuneration of women to men by
and Decent for Women and employee category according to significant locations of
Work Men operation.
Product Product and Service Core PR3 Type of product and service information required by procedures
Responsibility Labelling and the percentage of significant products and services that
are subject to such information requirements.
Society Corruption Core SO2 Percentage and total number of business units analysed for
risks related to corruption.
Core SO3 Percentage of employees trained in an organisation’s
anti-corruption policies and procedures.
Core SO4 Actions taken in response to incidents of corruption.
Public Policy Core SO5 Public policy positions and participation in public policy
development and lobbying.
Anti-competitive Additional SO7 Total number of legal actions for anti-competitive behaviour,
Behaviour anti-trust, and monopoly practices and their outcomes.

(Guthrie and Farneti 2008; Sciulli 2009; Williams et al. when the users’ preferences are unknown (Meek et al.
2011; Goswami and Lodhia 2014), our results show that 1995) and the focus is on what is and what is not being
NZ local councils’ reporting on social and environmen- reported (Jones and Alabaster 1999). Earlier studies
tal information was consistent with GRI indicators. This also show that there are no significant differences in the
reflects an absence of any other SER framework. results derived from the use of both scoring methods
This study examined the five-year period prior to the (see, Beattie et al. 2004; Freedman and Jaggi 2011).
possible changes in the SER legislative environment. Fu-
ture studies should examine the longitudinal impact post
introduction of the new Environmental Act on the state Notes
of local government SER.
1 ‘Sustainability reporting’ as used in this paper refers to social and
This research is not without limitations. The un- environmental issues currently reported by local councils in var-
weighted scoring method could be viewed as not ious formats and media. At the time this research was conducted
measuring disclosure quality (Liao et al. 2013), the the Environmental Reporting Bill was not yet introduced and
information needs of diverse users (Singhi and Desai discussion papers were not clear on whether social issues would
1971), the type of measurement (Botosan 1997; Liao be included. We examined both issues in this paper.
2 The local government is the system of locally elected members
et al. 2013; An et al. 2015), and the extent of disclosure who represent and make decisions on behalf of their communi-
(Cho et al. 2015). However, despite these limitations the ties, and a local authority is an administrative body in a local gov-
unweighted scoring used in this study is considered best ernment that operates based on an electoral mandate provided


C 2017 CPA Australia Australian Accounting Review 325
Sustainability Reporting by New Zealand’s Local Governments R. Othman, N. Nath & F. Laswad

by the local citizens to whom they are accountable. Currently, the Beattie, V., McInnes, W. and Fearnley, S. 2004, ‘A Method-
local government sector consists of 78 councils. ology for Analysing and Evaluating Narratives in Annual Re-
3 The Bill had its first reading and was referred to a select commit- ports: A Comprehensive Descriptive Profile and Metrics for
tee for public consultation in March 2014. It returned from the Disclosure Quality Attributes’, Accounting Forum, 2 (3): 205–
committee for a second reading in May 2015. During the Bill’s
36.
first reading in Parliament (5 March 2014), the Minister for the
Environment admitted that ‘environmental reporting on a na- Bebbington, J., Higgins, C. and Frame, B. 2009, ‘Initiat-
tional scale has been patchy and inconsistent’ and ‘New Zealand ing Sustainable Development Reporting: Evidence From New
is one of only a few OECD countries not to currently require Zealand’, Accounting, Auditing & Accountability Journal, 22 (4):
independent reporting on the state of the environment.’ The
588–625.
Bill was passed by parliament and received the royal assent on
28 September 2015. Bellringer, A., Ball, A. and Craig, R. 2011, ‘Reasons for Sustain-
4 In 2003, the New Zealand Government published its policy on ability Reporting by New Zealand Local Governments’, Sus-
sustainable development and in 2006 the (then) Prime Minister
tainability Accounting, Management and Policy Journal, 2 (1):
reiterated New Zealand’s goal of becoming the first truly sustain-
126–38.
able country (Clark 2006).
5 New Zealand’s public sector is a major part of its economy and is Birney, A., Clarkson, H., Madden, P., Porritt, J. and Tuxworth,
the nation’s largest employer. Core Crown expenses are 35% of B. 2010, Stepping Up: A Framework for Public Sector Leadership
GDP (The Treasury 2011).
on Sustainability, Forum for the Future, London.
6 Research on human rights has particular salience for New Zealan-
ders because of the role that NZ played in the 1945 United Na- Botosan, C.A. 1997, ‘Disclosure Level and the Cost of Equity
tions Conference on International Organisation in San Francisco Capital’, The Accounting Review, 72 (3): 323–50.
and the 1948 development and adoption of the Universal Dec-
laration of Human Rights (UDHR). New Zealand’s role in the Burritt, R.L. and Welch, S. 1997, ‘Annual Reports of Australian
development of the UDHR marked the start of the nation’s self- Commonwealth Authorities: An Analysis of their Environmen-
perception as a human rights leader. tal Disclosures’, Abacus, 23 (1): 69–87.
Carnegie, G.D. and West, B. 2010, ‘A Conceptual Anal-
ysis of Price Setting in Australian Local Government’,
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328 Australian Accounting Review 

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