Social reports in Italian local governments: what is not reported

Federica Farneti
Assistant Professor, University of Bologna
Visiting Scholar at The University of Sydney

James Guthrie
Professor, University of Bologna

Benedetta Siboni
Assistant Professor, University of Bologna

DRAFT - PLEASE DO NOT QUOTE WITHOUT PERMISSION

The final version of this paper has been published as

F. Farneti, J. Guthrie, B. Siboni, (2011), Social Accounting and Public

Management, S.P. Osborne and A. Ball, eds., pp. 192-202, Accountability for the
Common Good, Routledge

The authors would like to thank participants at the 7th Australasian Conference on Social and Environmental
Accounting Research, 7 - 9 December 2008, The University of South Australia, for their comments. They would like to
acknowledge the editorial assistance of Fiona Crawford of The University of Sydney and The University of Sydney
where this work was partially developed.

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1. Introduction

The World Commission on Environment and Development (WCED, 1987) has argued for the

importance of ‘sustainable development’. However, to date various studies have focused on

corporate sustainability (Gray and Bebbington, 1993; Elkington, 1997; Bebbington, 2007), rather

than in the public or not-for-profit sectors (Ball and Grubnic, 2007).

This lack of sustainability research is significant because public sector organisations should play a

part in sustainability (Ball and Bebbington, 2008). The public sector accounts for approximately 40

percent of all economic activity in Western economies, and consequently has a “huge operational

impact on the environment, society and economy” (Ball and Grubnic, 2007, p.243). Because of this

impact, the public sector can make a significant contribution to sustainability by adopting ‘green’

policies and activities. Also, as a purchaser of private sector services and products, the public sector

can use this influence to contribute to sustainability (for example, green public procurement, energy

use, recycling rates, etc). With an overarching mission to deliver public policies in the interest of

society generally, the public sector has a responsibility to create policies that support sustainability

(Ball and Grubnic, 2007).

In recognising these responsibilities of the public sector, the European Commission has issued a

variety of policies to encourage central governments and local governments to voluntarily adopt

sustainability strategies1. It is therefore crucial for the public sector to account for its performance in

relation to sustainability (Dumay et al. 2009; Farneti et al., 2009) and to report on these activities,

including social, environmental and economic policies, strategies, actions and results (Ball and

Grubnic, 2007).

1
COM(2001) 264 final; COM(2002) 82 final; COM(2005) 658 final; COM(2005) 37 final) and local governments
(COM(2006) 385 final

2
Internationally, social and sustainability reporting has been widely debated (Adams and

McNicholas, 2007), both within the academic literature, and at a political and practical level. For

instance, Adams and Narayanan (2007, 71) state that “the reporting of sustainability issues by

organisations is an important part of the sustainability agenda”. Within this debate, the accounting

and reporting techniques used are also central to discussions about sustainability (Unerman, et al.,

2007). The various Global Reporting Initiative (GRI) guidelines (GRI, 2006) are of particular

interest because of their attempts to provide an international framework for reporting for all types of

organisations. In Italy, a recent study demonstrated that there is a trend for Italian local

governments to produce social reports, with 14 percent of municipalities and 38 percent of

provinces producing social reports in 2005 (Siboni, 2007).

This study aims to explore the social reporting practices in a selection of ‘better practice’ Italian

local government organisations and, in particular, to observe what has and has not been reported in

comparison to the GRI guidelines. It uses an analytical framework developed in a prior study, in

which the voluntary sustainability practices of a sample of Australian public sector organisations

were examined (Guthrie and Farneti, 2008).

The specific research questions considered are:

1. What has been reported in Italian local government social reports?

2. What has or has not been reported in terms of the GRI guidelines?

This examination of Italian local government organisations establishes that their stand alone social

reports are actually “social reports” in name only. There were relatively few environmental, social,

labour, product or wider societal disclosures when compared to the GRI guidelines.

3
The paper has been structured as follows: section 2 provides a brief insight into the meaning of

legitimacy theory, its use in the sustainability reporting literature and how it is applied to this paper.

Section 3 discusses the research method applied and describes the group of organisations that have

been studied. Section 4 provides the results of the analysis, and the main findings of the study.

Section 5 summarises and provides conclusions, and outlines the limitations of the study.

2. Theoretical perspective of the study

This paper examines social reporting in Italian local governments using legitimacy theory. This

particular theoretical perspective was chosen as it offers an explanation as to how accounting

disclosures are used to influence an organisation’s relationships with different parties. Guthrie and

Parker (1990, 166) state that “disclosures have the capacity to transmit social, political, and

economic meanings for a pluralistic set of report recipients”. They also state that although reporting

can be considered a strategic tool, disclosures cannot be considered neutral. Deegan and Rankin

(1996, 50-51) argue that “in the general absence of specific environmental reporting requirements

companies may elect to present only that information which is favourable to themselves. That is,

they may elect to use environmental disclosures in a self-laudatory manner”.

Legitimacy theory considers the way in which an organisation seeks to ‘legitimise’ its activities and

therefore meet society’s expectations. For this reason, legitimacy theory is based on the notion of

the social contract, which implies that organisations gain their right to operate through seeking and

gaining social approval (Deegan and Unerman, 2006).

Public expectations go further than the expectations of stakeholder groups. A failure to consider the

concerns of society can result in a loss of trust in the organisation. One means by which

organisations can answer community concerns is through social disclosures in their annual report or

other media. In this way, Italian local governments can use the social report as a means to

4
communicate with various stakeholders about management, environmental, labour, policy and

social responsibility matters.

The purpose of this paper is to extend discussion on social reporting practice by focusing on ‘better

practice’ organisations and identifying what is actually reported. Hence, this paper sets out to

explore the presence or otherwise of voluntary disclosures relating to certain management,

environmental, labour, and social responsibility matters within a group of social reports.

3. Research Method

In a previous study, Siboni (2007) investigated Italian provinces and municipalities, by submitting a

questionnaire to determine “which” local governments adopted social reports and “how” social

reporting was carried out in practice. Siboni determined that 120 municipalities and 45 provinces

produced a social report. Her study investigated the stakeholder engagement practices of those

organisations in regard to social reporting. She found that of the 165 LGs, just 17 of them had

developed stakeholder engagement2. This sample of 17 local government’s ‘better practice’ social

reports is analysed in the present study.

The current study uses content analysis to determine the type of disclosure in the stand-alone social

reports produced by this group of 17 local governments. Content analysis was chosen as it is the

“dominant research method for collecting empirical evidence” in social and environmental

reporting (Guthrie and Abeysekera, 2006; 115; Parker, 2005). Content analysis is “a technique for

gathering data, involves codifying qualitative and quantitative information into pre-defined

2
This study goes further than Siboni (2007), by checking the veracity of organisations’ claims of stakeholder
engagement. Specifically, stakeholder engagement practices were established analysing the content of social reports,
including: 1) declaration, within the social reports, of stakeholder engagement developed by the local governments and
the verification of the stated stakeholder engagement in the report by one of the authors; 2) stakeholder evaluation about
the effectiveness of public activity (e.g. customer satisfaction survey); 3) stakeholder evaluation concerning the social
report, in terms of completeness, transparency, clarity, and, on the other hand, the lack of data; 4) stakeholder survey (at
the end of the social report) that explored the embedding of social reporting practices in local governments policies.

5
categories in order to derive patterns in the presentation and reporting of information” and “is a

method of codifying the text of writing into various groups or categories based on a selected

criteria” (Guthrie and Abeysekera, 2006, 120).

There is considerable debate in the literature on the choice of the most appropriate “unit of analysis”

that should be used in content analysis (Gray et al., 1995). For instance, Unerman (2000) indicates

the unit of analysis could take the form of words, pictures, phrases, characters, lines, sentences, and

page proportions devoted to categories of social disclosure. In this study, a pilot test was undertaken

and, because of the nature of the disclosures within the Italian social reports, it was decided to focus

only on the use or otherwise of an individual element. Therefore, the results only indicate if an

element was used or not used. The Guthrie and Farneti framework, developed for a previous study

(2008), was applied. This framework was based on the International GRI guidelines (G3, 2006) and

their public agencies supplement (GRI SSPA, 2005). These guidelines are the most commonly used

within the private and public sectors (Farneti et al., 2009). The framework consists of 81 elements,

grouped into six categories3 (see Guthrie and Farneti, 2008). An index was constructed of total

possible disclosures (i.e. elements = 81 x 17 organisations = 1377 possibilities). Also, type of

disclosure (that is, declarative, monetary, non-monetary and monetary and non-monetary) was

observed. This form of classification is common in the literature (Guthrie et al., 2004). Using the

index, one coder analysed the social reports. A reliability check was undertaken whilst the coding

was at an early stage, which found that no major issues of difference were reported, showing that

the coding was reliable.

3
The disclosure instrument was framed via six categories: (1) Environmental (EN), (2) Social - Human Rights (HR),
(3) Social - Labour Practices and Decent Work Social Performance: Labour Practices & Decent Work (LA), (4) Social -
Product Responsibility (PR), (5) Social - Society (SO); (6) Public Agencies. The content codes were further specified
into aspects n=33, and then into elements n=81 (Guthrie and Farneti, 2008).

6
This study analysed both provincial and municipal Italian local governments. Farneti et al. (2009)

analysed three frameworks (A, B and C), developed by different Italian institutional bodies, to

provide guidelines for social reports for Italian public sector organisations. However, social

reporting is not mandatory for Italian public sector organisations, nor has any indication been given

as to what guidelines should apply. While the coding instrument used was based on the GRI, none

of the Italian organisations in this study referred to the GRI framework, nor consistently to any of

the Italian frameworks in their social reports (Farneti et al., 2009). As indicated above, the key

characteristic for selecting ‘better practice’ Italian local government organisations had been the

inclusion of stakeholder engagement in the stand-alone social reports. The characteristics of the

social reports and the frameworks adopted for each of the organisations are listed in Table 1.

[Insert TABLE 1 HERE].

The next section reports on the results of the analysis developed, as well as the main findings.

4. Results of the analysis

The following analysis examines “what” has been disclosed in the social reports.

Table 2 highlights “what” has been disclosed in terms of categories.

[Insert TABLE 2 HERE]

The first column of Table 2 shows the categories (n=6). The second column gives the sum of the

elements within the GRI coding instrument (n=81). The third column provides the percentage of the

GRI elements disclosed, divided into the six categories. The analysis undertaken shows that of a

possible total of 1377, only 179 disclosures have been reported, which is 13 percent of the possible

elements that could have been reported by the 17 organisations.

7
Furthermore, Table 2 shows that the category of “Public Agencies” accounts for the highest number

of disclosures within the data set analysed, with 52.4 percent, followed by “Labour Practices and

Decent Work” with 18.5 percent and “Environment” only accounting for 7.1 percent of total

possible disclosures. Moreover, of the total elements, only 0.7 percent of disclosure elements were

for “Society”, while “Human Rights” and “Product Responsibility” both had no disclosures. This

highlights that in Italy, the reporting practice commonly referred to as social reporting, does not

include social aspects (based on the GRI categories ‘Human Rights’, “Labour Practices and Decent

Work”, “Product Responsibility” and “Society”), nor does it incorporate environmental elements.

[Insert TABLE 3 HERE]

While there were, among the reported elements as shown in Table 3, specific disclosures relating to

the environment, such as: “initiatives to reduce greenhouse gas emissions and reductions achieved”

(EN18) and “total environmental protection expenditures and investments by type” (EN30), the

other thirteen elements were not used or only used once. Therefore most of the environmental

elements were not used by this group of Italian local governments.

Table 3 illustrates that there was no reporting of Human Rights as per the eight GRI elements. A

review of the elements indicates that most of these are applicable to public agencies. The most

reported labour practices category concerns workers, in particular: “total workforce by employment

type, employment contract, and region” (LA1). Also, the “composition of governance bodies and

breakdown of employees per category according to gender, age group, minority group membership,

and other indicators of diversity” (LA13) was reported.

A significant observation in relation to Table 3 concerns the number of elements which were not

used. As Table 3 shows, out of the 81 elements, 54 were not used at all. Many elements and entire

8
categories such as “Product Responsibility” and “Human Rights” were not used, whereas “Society”

was reported only once.

Concerning what is not reported, it is observed that from the environmental category (based on

thirty possible elements) only nine were actually used. Table 3 indicates that important elements

such as “direct energy consumption by primary energy source” (EN3); or “energy saved due to

conservation and efficiency improvements” (EN5), were not reported at all. This leads to a general

observation that there was little disclosure of environmental matters in the ‘better practice’ social

reports of the local government organisations analysed.

Furthermore, for “Labour Practices” which has fourteen elements, few disclosures were observed.

Of the fourteen elements, eight were reported, but only LA1 “Total workforce by employment type,

employment contract, and region” was used by the organisation.

For the category “Society” only one element was found. All other elements such as nature, scope,

and effectiveness of any programs and practices that assess and manage the impacts of operations

on communities were not reported.

Finally, the category “Public agency” was by far the most commonly reported, not only as a

percentage of total disclosures, but also by the most number of elements taken up. Also the analysis

reveals a focus on reporting on goals (PA6) and financial aspects (PA12) as well as administrative

efficiency (PA15).

A general finding is that, of the social reports examined the organisations used these voluntary

stand-alone reports to primarily report on administrative and managerial matters. What was missing

9
from these social reports was the reporting of environmental, social, labor, product or societal

information.

The analysis of the type of information disclosed, as shown in Table 4, indicates that of the 179

elements recorded, most were ‘non-monetary’ (32.4 percent), followed by ‘monetary and non-

monetary’ (31.8 percent).

[Insert TABLE 4 HERE]

Finally, analysis of the specific category “public agencies” (refer to coding instrument) indicates

that from the total group of eleven elements analysed only eight were actually used in the reports.

This finding is unexpected because the public agencies’ indicators have been developed specifically

for public sector organisations. Also, three elements were the main focus of the social reports

examined. The first is PA6, the reporting of activities undertaken during the year, the second is

PA12, the reporting of allocation of activities, and the last is PA15, administrative efficiency.

Reporting on these aspects is further divided into two types of information: (1) non monetary; and

(2) monetary and non monetary.

5. Conclusion

This study explores social reports in a group of ‘better practice’ Italian local governments,

providing data to identify what has been disclosed and what has not been disclosed. The findings

highlight that in Italy, social reports are still in their infancy and that in practice they do not include

all the elements outlined by the GRI framework. Examination of this group of Italian local

governments indicates that social reports focus on administrative and managerial matters. Similar

findings emerge from a study on Italian university social reports (Del Sordo et al., 2009).

10
Furthermore, the study finds that the disclosure practices analysed do not conform to the expected

content of GRI reports. This may be related to the fact that social reporting in Italy is voluntary and

there is no commonly accepted framework to guide practice.

In addition, only thirteen percent of possible elements from our disclosure instrument were reported

by the 17 ‘better practice’ organisations. This level of disclosure is lower than that found in Guthrie

and Farneti’s (2008) study of Australian public sector ‘better practice’ organisations, which found

that the GRI framework was used but its use was fragmented. The finding that the public agencies

category was the most reported (at 52.4 percent), suggests that in Italy the focus of social reports is

administrative policies and programmes. The finding that the type of information disclosed, in

terms of quality, was either “non-monetary” or both “monetary and non-monetary” contrasts with

findings by Steccolini (2004) and Monfardini (2004), which demonstrated that the social reports

analysed in their research were mainly declarative.

By examining the social reports via legitimacy theory, the study finds that the Italian local

governments have used their social reports as a means to communicate with a variety of stakeholder

in an attempt to legitimise their activities.

Because the disclosure practices of these local governments are not in the main environmental or

social in nature, the term “social report” can be considered a misnomer. Boedker et al. (2008)

argued that in order for social and environmental reports genuinely to be considered extended

performance reports, global guidelines are needed, which could be useful for harmonisation.

11
Table 1: Length and framework followed for social report

Frameworks of social report

Number of pages in the
followed
Organisation social reports
A 84 None (model of social report developed internally)
B 106 None (model of social report developed internally)
C 71 None (model of social report developed internally)
Italian Directive for social report issued by Department of
D 281 Public Affairs
E 173 None (model of social report developed internally)
F 72 None (model of social report developed internally
Italian Directive for social report issued by Department of
G 108 Public Affairs
None, (model of social report developed internally, only
H 101 partially following the Italian Directive)
I 76 None (model of social report developed internally)
L 91 None (model of social report developed internally)
None (model of social report developed by external
M 166 consultancy)
Italian Directive for social report issued by Department of
N 31 Public Affairs
None (model of social report developed internally with the
O 160 help of academic consultant)
P 147 None (model of social report developed internally)
None (model of social report developed internally with the
Q 78 help of academic consultant)
None (model of social report developed internally with the
R 491 help of external consultant)
None (model of social report developed internally with the
S 415 help of academic consultant)

Table 2: Total disclosures by categories

Number of elements in the coding

Category instrument Total used
1. Environmental
30 7.1%
2. Human Rights
9 0.0%
3. Labour Practices and
Decent Work 14 18.5%

4. Product Responsibility 9 0.0%

5. Society 8 0.7%

6. Public Agencies 11 52.4%

Total 81 13.0%

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Table 3: Number of incidents for each element

Elements Total Elements Total

1. Environment 4. Product responsibility
EN6 2 No disclosure
EN7 2 5. Society
EN11 1 SO8 1
EN14 1 6. Public agencies
EN16 1 PA2 11
EN17 1 PA3 10
EN18 12 PA4 9
EN22 1 PA5 9
EN30 15 PA6 17
2. Human rights PA7 9
No disclosure PA12 17
3. Labour practice PA15 16
LA1 14
LA2 5
LA7 1
LA8 3
LA10 7
LA11 1
LA13 11
LA14 2

Table 4: Type of information disclosed

Summary Number Percentage

1 - Declarative 45 25.1%
2 - Monetary 19 10.6%
3 - Non-Monetary 58 32.4%
4 - Monetary & Non-Monetary 57 31.8%
Total 179 Total 100%

13
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