Abstract

As a result of the GFC, many companies, especially financial institutions, are spending a substantial

amount of money on CSR reporting to gain stakeholders’ trust and confidence. The paper aims at

providing banks (Macquarie and Westpac) with a better understanding of the actual costs associated with

CSR reporting, and its perceived relationship with company performance, to help banks make informed

decisions in regard to CSR reporting. The paper is based mainly on primary data collected from an online

survey, as well as academic literature on CSR and company reports. Research discovered that companies

having 1,000-10,000 employees spend around $1,019,779 on CSR reporting, while companies having

10,000- 50,000 employees spend about $777,380 on CSR reporting annually. However, this figure may

change significantly depending on the industry background, company size, location, level of legal

requirements and degree of commitment to CSR, etc. As both Macquarie and Westpac fell into the

10,000-50,000 employee group, with no material additional expenses, they were expected to spend

roughly $777,380 p.a. on CSR reporting. However, as Westpac was much larger in size and more

committed to CSR, Westpac was expected to incur higher costs than Macquarie. Even though the costs of

CSR reporting were high, the research paper found out that there was a strong perception that CSR

reporting had positive influence on company performance among Australian companies.

1

Table of Contents

1. Introduction................................................................................................................................................3

2. Literature Review.......................................................................................................................................3

2.1 CSR......................................................................................................................................................3

2.2 CSR Reports.........................................................................................................................................4

2.3 CSR reporting in the Australian banking industry...............................................................................4

2.5 Impact of CSR on company performance............................................................................................5

3. Methodology..............................................................................................................................................5

3.1 Research ethics.....................................................................................................................................5

3.2 Procedure and time frame....................................................................................................................5

3.3 Analysis plan........................................................................................................................................5

3.4 Validity and reliability.........................................................................................................................5

3.5 Assumptions.........................................................................................................................................5

3.6 Limitations...........................................................................................................................................5

4. Results........................................................................................................................................................5

4.1 Types of CSR reports used..................................................................................................................5

4.2 Hours spent on CSR reporting.............................................................................................................5

4.3 Allocation of human resource on CSR reporting.................................................................................5

4.4 Total Expense.......................................................................................................................................5

4.5 Perceived benefits of CSR reporting....................................................................................................5

5. Discussion..................................................................................................................................................5

5.1 CSR reporting......................................................................................................................................5

5.2 Main costs............................................................................................................................................5

5.3 Relationship between cost and size......................................................................................................5

5.4 Perceived benefits of CSR reporting....................................................................................................5

6. Conclusion.................................................................................................................................................5

7. References..................................................................................................................................................5

8. Appendices.................................................................................................................................................5

2

1. Introduction

Between 2007 and 2010, the world economy experienced what was considered the worst global financial

crisis since the Great Depression in the 1930s. One of the underlying reasons behind the crisis was the

excessive risk taking from financial institutions. As a result, there has been growing interest on the social

responsibility aspect of organizations, especially those in the financial industry. Companies are using

corporate social responsibility (CSR) reports to communicate their commitment to all stakeholders to gain

trust and confidence. Some incur significant costs to have this message delivered. The paper aims at

providing banks with a better understanding of the actual costs associated with CSR reporting, and its

perceived relationship with company performance, to help banks make informed decisions in regards to

CSR reporting.

In particular, this research paper looks at Macquarie and Westpac, who are both global investment

banking and diversified financial service groups located in Australia. Macquarie is located in Sydney and

has 14,657 employees. They rely heavily on marketing to profitable firms to drive around $8,312 million

in revenue, with a net profit of approximately $1,050 million for the financial year ending on 31 st March

2010 (Company360 2011a). Westpac is also cited in Sydney, with 36,533 employees in total. They serve

around 10 million customers through more than 1,400 branches, driving annual revenue of around

$39,219 million, with a net profit of roughly $6,350 million for the financial year ending on 30 September

2010 (Company360 2011b). Both banks are very supportive of CSR, especially Westpac, as it even made

CSR one of its strategic priorities and earned the recognition of being Australia’s most socially

responsible company (Westpac 2010, p. 3).

The purpose of this report is to estimate the cost of CSR reporting incurred by major Australian banks and

discuss the perceived implications CSR has on banking performance. This research is prepared for Telstra

Corporation Limited.

2. Literature Review

2.1 CSR

Even though CSR is a widely recognized concept, there is no universally accepted definition of the term

(Okoye 2009; Wan Saiful 2006). Some definitions describe CSR very generally. For example, according

to McWilliams and Siegel (2001), CSR refers to the voluntary actions taken by firms that benefit society

in a way that is beyond the interest of the firm and the requirements of the laws. Another definition refers

to CSR as: “A commitment to improve community well-being through discretionary business practices

and contribution of corporate resources” (Philip & Nancy 2005, p. 3).

3

On the other hand, some definitions focus on more specific aspects of CSR. According to Hond, Bakker

and Neegaard (2007), CSR has two major aspects: the moral and ethical aspect, and social and

environmental aspect. This research paper focuses more on the social and environment aspect of CSR.

According to the European Commission (2010), CSR refers to the social and environment concerns that

businesses voluntarily integrate in their interactions with their stakeholders.

2.2 CSR Reports

There are a wide range of reports that companies use to report their CSR: triple bottom-line reporting,

People, Planet and Profit reporting, National Greenhouse and Energy Reporting System (NGERS),

Carbon Disclosure Project (CDP), Energy Efficiency Opportunities (EEO), Environment and Resource

Efficiency Plans (EREP), etc. These reports can either be compulsory or voluntary, depending on the

company’s industry background, size, and location, etc. (Doig 2009).

2.3 CSR reporting in the Australian banking industry

According the Australian Bankers’ Association (2006), the Australian banking industry is one of the

leading industries in the area of CSR not only in Australia but also internationally. Many banks have

recognized very early that they have responsibilities towards not only shareholders but also to a broad

range of stakeholders. It is because while the effect Australian banks have on the environment may not be

very significant compared to other industries like mining or construction, their influence on Australian

social aspect is substantial (ABA 2006).

While some components of CSR reporting are compulsory for some industries in Australia, given the

initiatives taken by Australian banks in CSR reporting, they are currently not subject to any mandatory

requirements (ABA 2006). They are, however, under the governance of Corporation Act and ASX Listing

Rules. Under the ASX Listing Rule 3.1, companies are required to disclose any information that can be

reasonably expected to have material effect on the company share price (ASX 2005). According to the

Australian Bankers’ Association (2006), this requirement is likely to cover significant information

regarding to the social and environmental aspects of the company operations.

Thus, as Australian banks fulfill the requirements under the above regulators, they can make their own

decision about which aspect of CSR they want to report on. On the bright side, this empowers Australian

banks with the right and responsibilities to focus on what matters to their stakeholders the most (Sweeney

& Coughlan 2008). On the other hand, this leads to confusion and waste of resources as some of the CSR

reports companies use have some overlap and duplicate areas, which could have been avoided with a

clearer guideline of what companies are expected to report on (Doig 2009).

4

2.4 Cost of preparing CSR Report

There is very limited research done of the actual cost of preparing CSR reports. Given that CSR is a

“context dependent concept” (Wan Saiful 2006, p. 182), it is very hard to determine the actual measures

of CSR. According to Rowan Barber (2010), some main costs related to CSR reporting are: notification

cost, education cost, permission cost, administrative cost, record keeping cost, enforcement cost, and

publication cost.

2.5 Impact of CSR on company performance

Similar to CSR’s definition, there is no universally accepted view on the impact CSR has on the company

performance. Many believe that CSR has positive influence on company performance. In particular, they

argue that companies who are socially responsible are likely to be financially successful (Kanji & Chopra

2010; Mackey, Mackey & Barney 2007). Not only does CSR help improve organizations’ profit, it also

helps improve company reputation (Mattila, Hanks & Kim 2010), market value (Mackey, Mackey &

Barney 2007), employee commitment (Brammer, Millington & Rayton 2007), and customer loyalty

(Maignan & Ferrell 2001), etc. While this impact may not be immediate, it may have significant effect on

the long term. On the other hand, some believe that engaging in CSR is very costly (Scholtens 2009); and

that there is no correlation or negative correlation between CSR and company performance (McWilliams

& Siegel 2001; Surroca, Tribó & Waddock 2010).

In the Australian banking industry, a recent research done by the Australian Centre of Corporate Social

Responsibility (Black et al. 2011a) has found that the financial sector has one of the highest CSR budget

compared to other industries, and spending on environment management is expected to increase

significantly in 2010/2011 (Black et al. 2011b). While Australian banks are spending a substantial amount

on CSR, Pomering and Dolnicar (2009) found that Australian consumers have low awareness of banks’

engagement in CSR, and suggested firms to better communicate their CSR effort to consumers to gain

consumers’ support and loyalty.

Overall, there have been many studies done on the CSR topic about its importance and its effects on

organizations. However, research on the actual cost of doing CSR is very limited. The paper aims at

finding out the costs of CSR reporting and their links to company performance. In particular, it aims at

answering the research questions: what are the actual costs of CSR reporting in the Australian banking

industry and what are the perceived effects of CSR reporting on banks’ performance?

5

3. Methodology

The purpose of this paper is to identify answers for the questions: what are the actual costs related to CSR

reporting that Macquarie and Westpac incur, and what are the perceived implications of these costs on the

company performance? This research paper uses the positivist paradigm with linear-recursive reasoning

structure. According to Hallebone and Priest (2009, p. 186), the positivist paradigm is the research

paradigm that “epistemologically accesses an external, observable social reality via the human senses. Its

scientific method is structured, enabling replication, with aims of producing generalizations”. The logic of

inquiry used in the research paper is a combination of induction and deduction (Hallebone and Priest

2009, p.183). In particular, using the data collected, it generalized the characteristics of companies

according to their company size, and applied those general characteristics to it Macquarie and Westpac to

predict their characteristics.

The paper is based mainly on primary data collected from an online survey, as well as academic literature

on CSR and company reports. To collect primary data, a questionnaire was built. The questionnaire

consisted of 11 questions inquiring about both quantitative and qualitative aspects of CSR. Quantitative

data covered areas such as company size, total hours invested in preparing CSR reports by staff level,

staff level salary, and additional expenses incurred in preparing CSR reports. On the other hand,

qualitative data covered areas such as industry background, name of major CSR reports, and extra

financial benefits received in preparing CSR reports. The questionnaire is included in Appendix 3.

3.1 Research ethics

This research paper was completed in an ethical manner. Consent for primary data generation was

acquired by the report client from Telstra Corporation. The paper reports research data and literary

information in a valid manner.

3.2 Procedure and time frame

The questionnaire was constructed on Saturday December 4th 2010, and was available online from

December 4th 2010 to January 5th 2011. All responses were collected to analyze on January 6th 2011.

3.3 Analysis plan

There were 24 responses to the online questionnaire sent to a population of 50 members of the Australian

Sustainable Business Group. Out of the 24 responses collected, this paper analyzes the result from 20

responses only. It is because the research paper focuses on ASX200 while 4 of the responses came from

small size companies, which are not likely to be in the ASX200.

6

The remaining 20 responses were divided into two groups depending on their size: 1,000-10,000 fulltime

equivalent employees and 10,000-50,000 fulltime equivalent employees. Data analyzed was divided into

quantitative and qualitative data. In terms of quantitative data, actual costs of preparing CSR reports were

calculated by adding salary expense and other expenses. As these expenses vary across companies, an

average was calculated. In terms of qualitative data, it was analyzed mainly by using mode method,

and/or by calculating the percentage of the repeated responses compared to the total responses.

3.4 Validity and reliability

The questionnaire was the result of several discussions among a group of 15 MBA students under the

supervision of one teacher. The questions were chosen from a range of popular questions under the same

topic, re-worded, typed and sent to Dr. Turlough. Dr. Turlough then re-assessed the content and the

validity of the questions, adjusted it and sent it to the Australian Sustainable Business Group in Sydney

and Melbourne. The participants were senior managers from large organizations, who were very

interested in finding out the results of the survey. The survey response rate was 48%.

3.5 Assumptions

A number of assumptions were made in analyzing the primary data collected. First, it was assumed that

all respondents answered the survey truthfully and their answers reflected what actually happened in the

companies. Secondly, it was assumed that the sample collected represented the population of the ASX200

companies. In addition, a number of assumptions were made to calculate the actual costs of CSR

reporting. These assumptions will be mentioned at the appropriate section.

3.6 Limitations

There were a number of limitations that hindered the efficiency and effectiveness of the data analysis as

well as the usefulness of the result. Firstly, there was a major change in the direction of the research

paper, which shifted the focus from secondary data to primary data. As the process of collecting primary

data was time-consuming, the time available to analyze primary data and prepare the research paper was

shortened. Secondly, although the responses collected came from a wide range of industry backgrounds,

none of them came from the banking industry, which is the industry this research paper focuses on. As a

result, it may not reflect the actual costs incurred by the banking industry. And finally, information about

the actual costs Macquarie and Westpac spent in preparing CSR reports are not readily available. Thus,

the costs were estimated, which may be significantly different from the actual costs.

7

4. Results

After careful analysis of the data collected from the questionnaire, a number of significant findings were established.

4.1 Types of CSR reports used

According to our research, companies used a wide range of reports to communicate their CSR

commitment. While some of these reports may be compulsory, many are voluntary.

NGER

Annual Rep

ort

Board Rep

orting

Legal

Require

ment

Triple

Bottem Lin

eEE

O0%

20%

40%

60%

80% 79% 75% 75% 75%63% 63%

Popular CSR reports

Figure 1: Popular CSR Reports

Figure 1 shows the six most popular CSR reports used by companies in the sample population. The most

widely used environment report was NGER (79%), followed by environment section of annual report,

board reporting, and legal environmental requirements, each with 75%. Triple bottom line and EEO

reports were also very popular among the chose companies with 63% each.

Both Macquarie and Westpac used an annual report as a means of reporting their CSR. In particular,

Macquarie had Sustainability and Risk Management sections within their annual report (Macquarie 2010,

pp. 42-61), while Westpac had a separate Sustainability Report (Westpac 2010). Compared to Macquarie,

Westpac’s report on Sustainability was a lot more comprehensive. In addition, both Macquarie and

Westpac prepared Carbon Disclosure Project (CDP) report (CDP 2010a, 2010b) and National Greenhouse

and Energy Report (NGER) (CDP 2010c; GEDO 2010). In these reports, Macquarie and Westpac

measured and disclosed their greenhouse gas emissions and climate change strategies. Once again, the

information provided by Westpac in the CDP report and NGER was much more comprehensive than

Macquarie’s.

8

4.2 Hours spent on CSR reporting

Our research shows that the number of hours spent on CSR varies according to company size and

company background. The industry spent most time reporting CSR is manufacturing. On average,

manufacturing companies spent 5,400 hours p.a. on CSR. On the other hand, the industry spent the least

time reporting is consulting services with just 80 hours p.a. This huge difference may be the result of

different legal requirement; different effects the company operations have on environment, or different

attitude towards protecting the environment, etc.

4.3 Allocation of human resource on CSR reporting

According to our research, the allocation of human resource on CSR reporting varied slightly between the

1,000-10,000 employee group and the 10,000-50,000 employee group (Appendix 1). However, as the

variation was insignificant, this paper looks at the average allocation of human resource between the two

groups.

6%

26%

53%

15%

Estimated Time Allocation

Directors/Executives

Middle/Senior Managers

Staff/Specialists

Contractors/Vendor/Suppliers

Figure 2: Estimated time allocation on CSR reporting

Figure 2 shows the estimated time allocation on CSR reporting for the entire sample population. As can

be seen, staff/specialists are the most heavily involved in the preparation of CSR report (53%), followed

by Middle/Senior Managers (26%). This indicates that the majority of the preparation for CSR reports is

done by staff and middle/senior managers (79%). Contractors/Vendor/Suppliers are quite involved in the

process of preparing CSR (15%) while Directors/Executives are the least involved in CSR reporting (6%).

9

While the time spent by contractors/vendor/suppliers represented only 15% of the total time spent on CSR

reporting, a significant number of companies were involving them in the CSR reporting process.

According to our research, 83% of companies in the 10,000-50,000 employee group used

contractors/vendor/suppliers in preparing CSR reports; while 77% of companies in the 1,000-10,000

employee group used contractors/vendor/suppliers in preparing CSR reports. This rate was quite high.

One of the reasons that may encourage companies to hire contractors in preparing CSR reports is

company size. As contractors are often specialized in their job, it might be easier and cheaper for the

companies to hire contractors to deal with CSR reporting, with the support from company employees. On

the other hand, companies may involve vendor/suppliers due to the interrelated relationship between the

company and its vendor/suppliers in preparing the CSR report.

4.4 Total Expense

Total expense is the sum of salary expense, overhead costs, professional development, production and

marketing, external consultants, and other expenses.

0

50000

100000

150000

200000

250000

300000

350000

400000Components of Total Expense

1,000-10,000 employee group 10,000-50,000 employee group

Figure 3: Components of total expense

Figure 3 shows the components of total expense for the two groups. Details on the actual cost of each

component are listed in Appendix 2. As can be seen, the distribution of costs was different between two

groups. This shows the diversity in how much companies spent on each category. There was no “rule” on

what to spend or how much to spend. Companies spent on what they found necessary.

10

1,000-10,000 employee group

10,000-50,000 employee group

0

200000

400000

600000

800000

1000000Total Expense

Salary Overhead

Professional Development Production and Marketing

External Consultants Others

Figure 4: Total expense

On the other hand, companies having 10,000-50,000 fulltime equivalent employees spent an average of

$777,380 p.a. on CSR reporting. More than half of this total expense ($400,000) was to external

consultants for services like legal advice, auditing or verification. The second major expense group was

wages expense ($207,630). The remaining expenses went to overhead costs, professional development,

and production and marketing.

As there was very limited information on how much Macquarie and Westpac spent on CSR reporting, the

costs incurred needed to be estimated. As both Macquarie and Westpac fell into the 10,000-50,000

employee group, and on the assumption that they did not incur any material additional expenses, they

were expected to spend roughly $777,380 p.a. on CSR reporting. However, as Westpac was much larger

in size and more committed to CSR, Westpac was expected to incur higher costs than Macquarie.

4.5 Perceived benefits of CSR reporting

From our research, it can be seen that the costs of CSR reporting were not small. However, the majority

of the ASX200 still chose to report CSR due to the perceived extra benefits that they can gain such as

enhanced reputation, open new market opportunities, reduce risk, gain support from stakeholders,

especially from external customers and internal employees.

Figure 4 shows the total expense for

the two groups. According to our

research, companies having 1,000-

10,000 fulltime equivalent employees

spent an average of $1,019,779 p.a. on

CSR reporting. A third of this total

went to wages payment ($312,795)

while the other one-third went to other

expenses like software development

and licensing, support and training, and

travelling, etc. The remaining one-third

was divided among production and

marketing, external consultants,

overhead costs and professional

development.

11

5. Discussion

5.1 CSR reporting

As discussed in the literature review section, the fact that there is no compulsory requirement in the

banking industry may make it a little confusing for companies as they do not know what they should

follow. In addition, as there are many CSR reports with similar reporting criteria available, the situation is

further complicated.

However, it is also true that the lack of compulsory requirements empowers banks with the freedom to

engage in CSR activities to the extent it sees fit. Between Macquarie and Westpac, it is clear that Westpac

invested more on CSR than Macquarie. It may be because Westpac is larger in size, has more customers

and employees, generates more profit, or simply because Westpac is more serious about its impact on

environment and society.

It would be beneficial if the Australian government or related agencies provide guidance (not compulsory

requirement) on CSR reporting. When the guidance is not available, banks should pay attention to which

reports other players in the industry are using, and avoid using reports with similar criteria.

5.2 Main costs

Our findings suggest that there are three major costs associated with CSR reporting: external consultant

expense (legal advice, auditing, verification, etc.), wages expense, and software development and

licensing. The fact that companies involve external consultants heavily in the reporting process may hint

that CSR requirements are very complicated and it is more efficient and cost-effective for companies to

outsource. Yet, substantial employee time is devoted to CSR reporting even when external consultants are

involved. The fact that companies are spending a substantial amount in software development and

licensing indicates that CSR reporting is moving towards a computerized system where the data

collection is more efficient.

5.3 Relationship between cost and size

As can be seen from our results, companies in the 1,000-10,000 employees group spent more money on

CSR reporting than those in 10,000,-50,000 employees group ($1,019,779 vs. $777,380). Generally, it is

reasonable to expect that larger companies spend more money on CSR reporting given the size and

complexity. This indicates that there are other factors with significant influence on the cost of CSR

reporting, other than company size. For example, large companies may be more efficient in CSR

reporting.

12

5.4 Perceived benefits of CSR reporting

While literature review shows mixed views in relation to CSR’s effect on company performance, our

result indicates very strong perception that CSR reporting has positive effect on company performance.

This is probably why Australia is ahead of other countries when it comes to CSR reporting.

According to our survey result, the perceived benefits of CSR range from enhancing reputation to gaining

support from stakeholders, especially external customer and internal employee. However, as discussed in

the literature review section, Australian consumers have little awareness of banks engaging in CSR. The

gap between companies’ perception and consumers’ perception identifies the area banks should work on.

Even though banks spend substantial amount of money on CSR, they may not be very effective in

communicating their CSR process with their stakeholders. Thus, in addition to CSR activities, banks

should pay more attention to the way CSR is reported to stakeholders. If banks can effectively tailor CSR

reporting in a way that gains stakeholders’ support, they will earn competitive advantage. However, banks

should be careful not to appear as simply using CSR as a means of advertising.

6. Conclusion

As a result of the GFC, many companies, especially financial institutions, are spending a substantial

amount of money on CSR reporting to gain stakeholders’ trust and confidence. This research paper aims

at estimating the actual costs of CSR reporting incurred by Macquarie and Westpac, and identifying the

perceived links between CSR reporting and banks’ performance.

The paper is based mainly on primary data collected from an online survey, as well as academic literature

on CSR and company reports. The research discovered that companies used a wide range of CSR reports.

Among the costs associated with CSR reporting, the three main types are external consultant expenses,

wages expense, and software development and licensing. From the data collected, companies having

1,000-10,000 employees spend around $1,019,779 on CSR reporting, while companies having 10,000-

50,000 employees spend about $777,380 on CSR reporting annually. However, this figure may change

significantly depending on the industry background, company size, location, level of legal requirements

and degree of commitment to CSR, etc. As both Macquarie and Westpac fell into the 10,000-50,000

employee group, with no material additional expenses, they were expected to spend roughly $777,380 p.a.

on CSR reporting. However, as Westpac was much larger in size and more committed to CSR, Westpac

was expected to incur higher costs than Macquarie. Even though the costs of CSR reporting were high,

the research paper found out that there was a strong perception that CSR reporting had positive influence

on company performance among Australian companies.

13

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pp. 176-84.

Westpac 2010, Annual Review and Sustainability Report 2010: Sustainability matters.

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8. Appendices

Appendix 1: Estimated time allocation on CSR reporting

Estimated time proportion10,000-50,000

employee group1,000-10,000

employee group AverageDirectors/Executives 6% 5% 6%Middle/Senior Managers 23% 29% 26%Staff/Specialists 59% 49% 53%Contractors/Vendor/Suppliers 12% 17% 15%

100% 100% 100%

Appendix 2: Total Expense

Expenses 10,000-50,000

employee group 1,000-10,000

employee groupSalary Expenses 207,630 312,795Overhead Costs 98,750 25,056Professional Development 18,500 24,429Production and Marketing 52,500 165,000External Consultants 400,000 95,000Other 0 397,500Total 777,380 1,019,779

Appendix 3: Survey Questionnaire

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