Legitimizing Potential “Bad News”: How Companies Disclose on Their Tension Experiences in Their Sustainability Reports

Abstract

The practice of corporate sustainability is beset with compromise; it involves inevitable tensions across competing social, environmental, and economic objectives, across a wide range of divergent stakeholders and across time. The purpose of this study is to determine whether, and why, companies are reporting on tensions decisions in their sustainability reports. This study relies on a group of the largest companies in Canada and analyzes sustainability reports and interviews with sustainability managers. The study finds that 92% of all reporting companies in the sample had encountered sustainability tensions but had failed to disclose these discussions explicitly in their reports. Evidence of these accounts are nevertheless present in the implicit (or latent) content of the reports, surrounded by “legitimizing talk”—affirmations of the companies’ commitment to, and demonstration of sustainability principles. These findings highlight the negative light in which many companies perceive tensions (as “bad news”) and the potential legitimacy threat that their disclosure poses.

Keywords

disclosure sustainability tension legitimacy impression management legitimation

Introduction

Companies are increasingly expected to embrace sustainability as a basic competency by assessing their nonfinancial impacts and managing their performance in this area. One formal method of disclosing nonfinancial performance is the use of sustainability reports (Argento et al., 2018). These reports typically include disclosures on the company’s sustainability performance over the specified reporting period as well as information on its overarching sustainability values, vision, and overall management approach.

A key component of this management approach involves the decision-making processes that companies face in formulating and implementing their sustainability agendas. These decisions often include balancing between competing elements. The literature on corporate sustainability has demonstrated that its practice is beset with such tensions¹ (e.g., van der Byl & Slawinski, 2015). This practice involves balancing competing social, environmental, and economic objectives across a wide range of divergent stakeholders, and across differing time horizons (van der Byl & Slawinski, 2015). The way in which companies respond to these tensions ultimately shape their overall approach to sustainability. These responses therefore constitute a significant and material aspect of a company’s sustainability practice that ought to be disclosed in sustainability reports. However, there is a dearth of research that explores whether (and why) companies are disclosing on the tensions that underlie their sustainability practice. In a study of web-based sustainability reporting by European companies, Herzig and Godemann (2010) concluded that tensions (in their study described as trade-offs) “between sustainability dimensions has so far been a largely neglected area of research in the field of [corporate sustainability], in general, and communication, in particular” (p. 1078).

This study explores how companies communicate their tension experiences in their reports (if at all) and the reason behind why they choose to do so (or not). A combination of both inductive and deductive coding approaches is utilized. This involves a qualitative content analysis of a sample of corporate sustainability reports and interviews with sustainability managers, both from a group of business leader firms. Accordingly, this study seeks to understand how these experiences are framed in the reports—and what this says about the way in which companies are using reports. As such, the objective of this study is to investigate sustainability tension-related disclosures in company reports. It is guided by two research questions:

Research Question 1: Do companies communicate their experiences with sustainability tensions in their sustainability reports (and comparable disclosures)?

Research Question 2: What motivates companies to do so (or not)?

This study makes several contributions to the literature on sustainability tensions and sustainability reporting. The overwhelming majority of companies in the sample had indeed experienced tensions in the practice of sustainability—despite not having disclosed on these experiences (and decision-making processes) explicitly in their reports. Evidence of these accounts are nevertheless apparent in the implicit (or latent) content of the reports, in the form of discussions of compromise outcomes and of tension antecedents (plurality, change, and scarcity). Furthermore, this study finds that these (latent) descriptions of sustainability tensions are also surrounded by “legitimizing talk”—affirmations of the companies’ commitment to, and demonstration of, sustainability principles. When viewed through the lens of legitimacy theory, this “talk” may be understood as a company’s effort to maintain its social license in the eyes of its report readers. These findings highlight the negative light in which many companies perceive sustainability tensions (as “bad news”) and the potential legitimacy threat that their disclosure in reports poses. This study underscores the need for companies to disclose both performance outcomes and the decision-making process (in particular, the tension-related decisions) that undergirds this performance, in order to achieve the level of accountability that the act of reporting purportedly accomplishes.

Theoretical Foundation

“Substantive” Sustainability Reporting and Legitimacy

Although sustainability reporting is a growing trend among companies globally (KPMG, 2017), studies have shown that many of the reports being produced are inconsistent in their scope, format, and content (Pucheta-Martínez & Gallego-Álvarez, 2020). One reason behind this heterogeneity is that (unlike financial reporting) sustainability reporting remains a voluntary activity in most jurisdictions, and it has not yet reached a necessary level of “standardization and enforcement” (Christofi et al., 2012, p. 158). Even though a growing number of voluntary reporting frameworks are available, there is not yet a global, standardized, mandatory framework in place that informs the reporting process (KPMG, 2017).

As a result, sustainability reports vary widely in their titles and formats. These range from comprehensive “stand-alone” sustainability reports (or narrower versions that focus on a smaller range of environmental or social issues), online sustainability-related webpages, sections within (or addendums to) the annual financial report, and integrated annual reports. Sustainability reports also vary widely in terms of their content: This is determined primarily by what a company voluntarily chooses to disclose and how it chooses to do so. For example, the choice of disclosure tools and performance measures have been shown to vary widely (e.g., Roca & Searcy, 2012).

Ideally, the process of reporting creates a “concrete opportunity for the company to identify strengths and weaknesses across the whole corporate responsibility spectrum” (Perrini, 2006, p. 74) and is a first step toward taking action (GRI, 2016). In addition to this (ideal) accounting and transparency role, sustainability reports offer a way for the company to engage with its stakeholders, who may then “‘[hold] the organization to account’ based on the information disclosed” (Barkemeyer et al., 2014, p. 245). In this way, sustainability disclosures may be viewed as “legitimating accounts,” or rhetorical practices, that may be used by companies to strategically “protect, affirm, or appeal for legitimacy” (Sheridan & Mote 2018, p. 362). This perspective on sustainability reporting is grounded in a range of overlapping theoretical perspectives, primarily legitimacy, signaling, and stakeholder theories. These theories collectively posit that all companies, as part of their operations, enter into a “social contract” with their stakeholders; this “contract” is based on a mutual acknowledgement of the interrelationships between the firm and its stakeholders (Sulkowski et al., 2017). This contract forms the basis of the company’s legitimacy in the eyes of its stakeholders, endowing it with a “social license to operate” (what Deegan, 2002, p. 290, refers to as a “social contract”) that the company depends on for its success. Thus, in an effort to preserve their legitimacy, companies ought to continually and consistently “demonstrate congruence between their social and environmental activities and performance with the expectations of society” (Barkemeyer et al., 2014, p. 245). This pursuit of legitimacy tends to be “largely a retrospective process” (Ashforth & Gibbs, 1990, p. 180), with companies justifying their actions, performance, or goals after the fact.

“Symbolic” Sustainability Reporting and Impression Management

Not all approaches to sustainability reporting achieve the ideal of accounting and accountability. The social and environmental accounting literature has demonstrated that many companies report on sustainability from an instrumental perspective (e.g., Hahn & Lulfs, 2014). This “symbolic” approach (as opposed to “substantive”) involves the strategic disclosure (or omission) of sustainability accounts in order to purposefully paint an overtly positive picture of the company’s actual performance (Ashforth & Gibbs, 1990, p. 178). Bebbington and Larrinaga (2014) refer to such instrumental disclosures as “narratives decoupled from underlying organizational realities, intended (at best) to construct a plurality of discourses about sustainable development and among which it is impossible to adjudicate” (p. 396). These disclosures tend to be “self-laudatory” in nature and “non-integrated” (or disparate) in approach (Montecchia et al., 2016, p. 49). The objective of these instrumental approaches to reporting is the “quest for legitimacy” in and of itself (Michelon et al., 2016, p. 4)—that is, “to show that the company is legitimate” (Hooghiemstra, 2000, p. 58). Seeking legitimacy in this (instrumental and symbolic) way constitutes a form of “opportunistic . . . impressions management” (Cormier & Magnan, 2015, p. 431). Impression management (and its underlying theory) can be defined as being the “process in which managers select the information to release and present it in a way that distorts readers’ perceptions of corporate achievements” (Michelon et al., 2016, p. 11; Morales-Raya et al., 2019). Such symbolic approaches to reporting offer neither accounting nor accountability. Furthermore, the extant research has demonstrated that the proliferation of reporting standards has done little to prevent this instrumental (and in some cases, purposefully deceptive) reporting. Although the standardization of reporting via these standards ought to “have supported a shift toward accountability rather than sustainability reports being an exercise in legitimacy or impression management” by influencing “companies’ willingness or ability to create balanced and realistic representations of their sustainability performance” Barkemeyer et al. (2014, p. 242) find no evidence of this.

Reporting on Company Experiences With Sustainability Tensions

Given the large extent to which companies report on their sustainability performance in such instrumental (and indeed, camouflaging) ways, Bebbington and Larrinaga (2014) reached the unfortunate conclusion that “we seem unable to observe in practice, or realize in academic experimentation, robust accounts of organizational (un)sustainability” (p. 396). One important aspect of the ideal of “substantive” reporting would include disclosures on the ways in which companies manage sustainability tensions. According to the management literature, all companies experience organizational tensions between conflicting objectives, in various organizational domains, including, but not limited to, sustainability (Hahn et al., 2014; Smith & Lewis, 2011). These tensions cause companies to face trade-off decisions between competing sustainability objectives, across competing stakeholders and across competing time horizons. According to Smith and Lewis (2011), these tensions are experienced as either being latent (“dormant, unperceived, or ignored,” p. 390) or salient (consciously experienced) in nature. What brings tensions to the fore (i.e., what “render[s] latent tensions salient to organizational actors”; Smith & Lewis 2011, p. 388) are the company’s environmental conditions of “plurality, change, and scarcity” (Smith & Lewis 2011, p. 390). In this context, plurality refers to “a multiplicity of views in contexts of diffuse power” that the company must consider in decision making, while scarcity refers to “resource limitations, whether temporal, financial, or human resources” that the company is under when making these decisions (Smith & Lewis 2011, p. 390). Under these three conditions, companies experience tensions that would, it follows, generate some form of compromise outcome.

Currently, very little research exists on how companies disclose their sustainability tension-related decisions to their stakeholders in their sustainability reports. As one of the few studies in this area, a study of online sustainability disclosures of European companies, Herzig and Godemann (2010) found that, although the large majority of companies defined sustainability in terms of the “individual environmental and social aspects of their business” (p. 1072), any “possible conflicts and trade-offs between the three sustainability dimensions [were] virtually, not mentioned” in the online disclosures themselves (p. 1072). Instead, the study found that companies largely made “only a general reference to all three dimensions being considered and harmonized” (Herzig & Godemann, 2010, p. 1073).

An omission of tension-related discussions is problematic for two reasons. First, in failing to disclose a key aspect of their sustainability practice (i.e., the tension-related decision-making processes and their compromise outcomes), companies have developed reports that lack substantial transparency and thus, accountability, to their stakeholders. Second, and more importantly, through these reports, these companies have painted an incomplete picture of how they perceive sustainability. According to Herzig and Godemann (2010) the companies in their study experienced the practice of sustainability as being inherently fraught with tensions and conflicts. What these companies chose to project to their stakeholders, however, was precisely the opposite. The study reports portrayed the companies’ experience of sustainability as being one of harmony and innate integration, rather than a process of continual conflict and prioritization. This speaks to the instrumental and legitimizing role that sustainability reports play in the field of corporate communications (Cho et al., 2010; Cho & Patten, 2007).

This study illustrates that the disclosure of tension-related experiences in corporate sustainability reports is a significant aspect of substantive sustainability reporting. Tension-related disclosures lay bare the critical prioritization decisions that companies face when attempting to balance between the multiple competing dimensions of the sustainability paradigm. However, what remains unexplored is whether companies are disclosing these tension-related experiences—and what motivates this disclosure (or omission). Accordingly, the two research questions that guide this research are as follows:

Research Question 1: Do companies communicate their experiences with sustainability tensions in their sustainability reports (and comparable disclosures)?

Research Question 2: What motivates companies to do so (or not)?

Method

To answer the research questions, we conducted a content analysis of corporate sustainability reports (and comparable disclosures) and interviews with sustainability managers (from the same companies as the reports). Sustainability reports provide the official authorized version of a company’s sustainability policies and performance outcomes (Crowther, 2012). This data collection mode was chosen because it reflects “what corporations themselves [have to] say” (Bondy et al., 2004, p. 451) publicly to their stakeholders about their experiences with sustainability, including tensions. Given that these accounts are outward facing in nature, these reports were supplemented by interviews with sustainability managers and executives at the same group of study companies. Interviews with the company personnel responsible for the formulation and implementation of sustainability strategies offers insight into the decisions made “behind the scenes” in the practice of sustainability and in the development of a sustainability report (see Angus-Leppan et al., 2010). These verbal, firsthand accounts provide an internal view on how tensions are managed within the companies and, crucially, whether (and why) this tension management process is then described in the reports. By comparing internal and external accounts of company experiences with tensions, this study highlights the legitimizing role that reports play and sheds light on the legitimacy-seeking bias inherent in them.

Sampling and Data Collection

This study relied on a group of the 100 largest companies in Canada (by revenue), as ranked by a leading Canadian newspaper. This purposive sampling strategy was chosen as it is likely to generate a diverse set of companies covering a wide range of industry sectors. Such a set of companies would more likely contain a wide diversity of reporting approaches, as well as a wide diversity of sustainability performers (from laggards to leaders). As a result, such a sample would likely contain a wide diversity of tension experiences and disclosure approaches. The 100 study companies belonged to 14 different industry sectors. Of these, the largest proportion of companies belonged to the finance and insurance (17%), retail (17%), information (17%), manufacturing (17%), and extraction sectors (16%). Although this sample included companies within and outside Canada, 85 of the 100 companies in the sample were headquartered in Canada. Of the remaining 15 companies, 11 were based in the United States, and another 4 were based outside North America. The companies’ latest sustainability reports (and comparable disclosures) were collected from the company websites between 2013 and 2014. The total volume of sustainability disclosures analyzed across the entire sample of companies came to 5,872 pages, or approximately 70 pages per report.

The study companies varied widely in their approaches to sustainability reporting. A portion of these companies (15%) did not issue any disclosures at all. In the remaining 85% of companies in the study sample, the reporting approaches varied widely in the different types of disclosures (e.g., sustainability reports, integrated reports, and sustainability webpages).

All 100 companies in the study sample were invited to participate and be interviewed in this study. Of these, a total of 19 companies agreed to take part. These interviews took place between June 2016 and October 2017. The identities of the personnel interviewed and their companies (e.g., industry sector) were held confidential throughout the study and in the final results. To fully ensure this confidentiality, a number of participants also requested that their interview responses not be matched with their individual report data and analysis. This request speaks to the negative perception that many companies appear to have of sustainability tensions and of the possible adverse reactions that they believe they might face when speaking about them. As a result, the 19 interviewed companies are referred to in the results presented here as Companies A to S. The interviews with these companies consisted of a series of semistructured questions around how the managers’ companies perceived tensions, whether they had encountered them in the practice of sustainability and whether these experiences were communicated to stakeholders in the reports. The interviews ranged in length from 30 to 45 minutes and were conducted over the phone, recorded, and then transcribed for analysis.

Content Analysis of Sustainability Reports and Interviews

The company reports and interviews were then analyzed by content analysis to look for descriptions of the companies’ experiences with sustainability tensions. Both the reports and the interviews were analyzed separately (i.e., not matched together by company), using both inductive and deductive coding. First, deductive coding was used to look for specific references to sustainability tensions present in reports, based on a set of key tension-related themes extracted from the extant literature on sustainability tensions (e.g., Hahn et al., 2014). We chose this coding approach to determine whether and to what extent companies described their experiences with tensions in their reports (Research Question 1). On the other hand, we chose to use an inductive coding approach to explain why companies choose to report on these tensions or not (Research Question 2). For the reports, this involved inductively analyzing the report text immediately preceding and following the references to tensions. For the interviews, this involved analyzing the entirety of the interview text by inductive analysis. Both deductive and inductive coding approaches involved an open coding process that iterated back and forth between the texts themselves (reports and interviews) and the literature on legitimacy in sustainability accounting. Following common practice, we relied on a single sentence as the basic coding unit for both the reports and the interviews. Given the analyses of the interviews and of the reports were focused on answering different questions (i.e., whether vs. why), the content analysis method was applied differently between the two sets of documents.

First, the interviews were analyzed inductively and entirely by open coding. This method was chosen because the phenomenon of interest (tension experiences) featured in the manifest content of the texts analyzed, given that the interview questions directly probed this issue with the participants. As such, the purpose of the open coding was then to identify whether the companies interviewed had encountered tensions (yes or no) and described their tension experiences in their reports (yes or no) as well as why they had (or had not) done so. The first round of analysis of these documents yielded a list of preliminary codes, which were then refined and abstracted further (i.e., grouped into categories) in subsequent rounds. The entire procedure ultimately yielded 12 distinct codes, across two overarching categories.

The reports, on the other hand, were deductively analyzed using a predesigned coding sheet, based on tension themes described in the literature on sustainability tensions (reviewed in the “Theoretical Foundation” section). A coding sheet was necessary because, unlike the interviews, and in line with the findings of Herzig and Godemann (2010), none of the reports in the sample had described the issue of sustainability tensions in their manifest content. This was established by means of a text search for the terms trade-off and tension, across all the study reports.² This finding comes as no surprise, however, given the negative connotation that these terms appear to carry and the impression management role that reports tend to play. However, although discussions of tensions were not found in the manifest content, they were nevertheless found in the latent content of the reports. This took the form of descriptions of the conditions that cause companies to experience tensions (based on the tension literature), or of evidence of compromise that the study companies made among competing objectives. An example of the former would be a report mention of a limited budget allocated for sustainability programs that forced companies to choose between implementing an eco-efficiency initiative or making a community donation. On the other hand, an example of some of the compromises that companies made in response to these tensions would be a report that states that the company has chosen not to report on certain business indicators (mandated by a reporting standard) over privacy concerns and thus compromising transparency over competitiveness. The specific tension-related codes that were deduced from the literature and that made up the coding sheet are discussed in more detail in the “Results” section. This coding sheet was first pilot tested on four company reports (randomly selected from the set of 85 company reports included in this study) before being applied to the coding of the remaining 81 reports in order to refine the codes included in the sheet.

In addition to identifying references to tensions within the reports, the coding sheet also served to identify relevant sections of the report text to be analyzed by inductive coding. The coding units of the text immediately preceding and following the sections of text that contained tension-related codes were then analyzed by inductive coding to establish why companies disclosed (or not) on their experiences with sustainability tensions. The inductive codes that emerged from the analysis of these sections of the report are described in the “Results” section.

Results

Content Analysis of Company Interviews

In their interviews, all 19 companies described having experienced tensions in the practice of sustainability. These ranged, for example, from tensions related to setting sustainability targets to choosing which company to invest in. When asked whether these tension experiences were described in their sustainability reports, the companies distinguished between tensions related to which sustainability impacts were material (i.e., the process of a materiality assessment) and all other (nonmateriality-related) types of sustainability tensions. Of the 19 companies interviewed, 9 companies (47% of the 19) limited their tension discussions in their reports solely to the materiality process. Furthermore, none of the companies interviewed described the other nonmateriality-related decisions related to tensions in their reports. This omission aligns with the finding that explicit discussions of tension decision making were absent in sustainability reports.

Reasons Against Disclosing Tensions

The interviewed companies explained this omission using a variety of reasons (listed in Table 1 under the heading “Reasons against including tension disclosures”). Six of the 19 companies interviewed (or 32%) argued that tensions are strategic-level decisions that have no relevance to stakeholders (i.e., immaterial) and are thus left out of the report. Another 16% (3) of the companies interviewed omitted discussions of tensions in their reports due to the potential legitimacy threat that these discussions may pose. These companies believed that a discussion of tensions may harm the company’s reputation (11%) or its relationships with its stakeholders (5%). Unsurprisingly, all three of the companies that had omitted describing tensions due to legitimacy concerns considered tension experiences synonymous with “bad news” (Company B, interview), “underperform[ing] on sustainability” (Company E, interview), “what didn’t work” (Company M, interview), and business mistakes (“where you spend your money stupidly over the year . . . where you made a mistake,” Company B, interview). This “tension discussions as legitimacy threat” argument is in line with the literature on the legitimizing role that reports play in the eyes of company stakeholders. Another six companies (or 32% of the 19) argued that the level of transparency required to discuss tensions does not align with current approaches to reporting. Four of these companies (or 21% of the 19) referred to sustainability reporting as a form of storytelling—an impression management exercise that was limited to “good news” only. These companies equated tensions with “bad news” and thus omitted them from their reports. One other company declared that tension disclosures were immaterial to stakeholders (in the report) on the basis that they are not required under any of the existing reporting standards. Another company explained that it believed tension discussions in reports to be immaterial, not due to the nature of the discussions themselves but due to the lack of stakeholder demand for this level of transparency.

Table 1.

Categories and Underlying Codes Related to Tension Disclosures in Sustainability Reports That Emerged From the Inductive Analysis of the Interview Data Alongside Illustrative Quotes and Relative Frequency (Percent of Companies in the 19-Company Interview Sample Whose Interviews Contained the Particular Code).

Categories	Codes	%	Illustrative quote
Reasons against including tension-related disclosures	Due to limited messaging space	5	“I think [our communications team] has a culture of ‘you can only have so many messages out there about a company in one week, and if you minimize, or if you take away from that number the number of times you can positively talk about your company, then it is a detriment.’” (Company B, interview)
	Immaterial under standardized reporting process	5	“[On why tension discussions are not included in the report], because we are using industry-standard process so it’s not necessarily that the process is as important as the outcome in our view.” (Company H, interview)
	Immaterial—tensions are internal business decisions	32	“We would look at that [tension discussion] internally and assess it internally but we wouldn’t really talk about it publicly.” (Company M)
	Immaterial—due to lack of stakeholder demand	5	“I wouldn’t say [tension discussions] should be withheld . . . when there’s stakeholder feedback [requesting a discussion of tensions] . . . we’ll respond.” (Company O)
	Immaterial—reporting is storytelling	21	“I mean likeability for a brand is based on all kinds of stuff. . . . There’s so much other stuff going on, why do we need to add [tension discussions] to the mix. . . . And how could we tell a bad story in a good light?” (Company B)
	Negatively affects reputation	11	“Our [reporting] culture is only to talk about how good we are and so we don’t put negative stories out there [related to tensions], and we don’t do that because it could negatively impact our reputation.” (Company B)
	Negatively affects stakeholder relationships	5	“We wouldn’t have mentioned the trade-off . . . it’s not something that we would put in a report. It’s not something that we would say well you know we didn’t get any credit for [sustainability initiative that demonstrated a tension] and our customers didn’t really support it for us . . . because then . . . it would seem like we were assigning blame . . . to our customers which we would never want to do.” (Company M)
Reasons for including tension disclosures	Standards organizations encourage balance	5	“Reporting groups and standards are saying that balance actually helps your reputation because it shows the more human side of a corporation, but the internal culture at our company is not that . . . and in our marketing stuff we will not do that.” (Company B)
	Motivated by employee expectations	5	“[On what motivated the company to include a discussion of the tension process in their report] For [our] employees. . . . Because there are employees that work a lot to have some social engagement or environment . . . and it’s important to recognize that” (Company F)
	Gives stakeholders confidence	5	“What everyone wants to hear about . . . [is] how we manage these issues on behalf of . . . stakeholders that have a vested interested in how we operate. . . . We need to provide the confidence to people that we have these issues under control, they’re well managed.” (Company D)
	Enhances transparency and builds trust	21	“[On why company would consider reporting on tension discussions] To keep a balanced report, to be transparent, to build trust with our stakeholders, to have some level of accountability.” (Company I)
	Reporting as a comprehensive reference document	5	“[Our sustainability report is] pretty thick, and we’ve tried to make it readable . . . but at the end of the day I’m trying to create a comprehensive reference document so that nobody can legitimately say . . . you’re not being transparent about this important indicator.” (Company G)

Reasons for Disclosing Tensions

As shown in Table 1, in spite of largely not (overtly) disclosing on tensions discussions, some companies (32% of the 19 interviewed) paradoxically described the reasons why communicating these discussions may be important to stakeholders, despite largely not having done so in their reports. Three of these reasons for disclosing on tensions were based on a normative approach (i.e., one “governed by a moral purpose,” Sulkowski et al., 2017, p. 224) to sustainability reporting. The first of these three reasons is that these tension discussions enhance company transparency and authenticity and thus help build stakeholder trust (21% of the 19 companies interviewed). The second reason is based on the notion that tension discussions (in the context of a report) give stakeholders confidence in the company’s ability to effectively manage its sustainability impacts (5%, or 1 company). The third reason for disclosing on tension discussions is based on the notion that reporting is a substantive accountability exercise whose purpose is to generate a “comprehensive reference document” (Company G, interview) on the company’s sustainability performance, values, and objectives. This normative perspective on reporting stands as an interesting counterpoint to the notion of “reporting as story-telling” described earlier. It is also interesting to note that only one company professed the normative perspective on reporting (5% of the 19 interviewed companies), while 4 companies (21%) described the “reporting as storytelling” approach. Another company described how it was motivated to disclose on a singular aspect of its tension discussions (namely, its materiality process), in order to fulfill employee expectations for this level of transparency. Another company stated that reporting standards organizations encourage companies to include a “balance” of strong and poor sustainability performance. This company equated these tension discussions with “bad news,” and as a result, understood the concept of reporting balance as tied to that of tension disclosures. This notion of reporting balance speaks to the reporting principle adopted by the Global Reporting Initiative (GRI) for defining the quality of sustainability reports. According to the GRI’s most recent (voluntary) standards, a company’s sustainability report ought to “reflect positive and negative aspects of the reporting organization’s performance to enable a reasoned assessment of overall performance” (GRI, 2016, p. 13). This principle applies not just to performance results but also to “favorable and unfavorable” performance “topics” more broadly, which may arguably include discussions of challenging tension experiences (GRI, 2016, p. 13). By reporting in line with this principle, a company will be able to provide the report readers with a holistic and “unbiased picture of the organization’s performance” (GRI, 2016, p. 13).

It is nevertheless interesting to note that, in spite of all these arguments in support of tension disclosures, none of the companies stated that they had disclosed their tension experiences outside of describing their materiality assessments.

Content Analysis of Sustainability Reports

As described in the “Methods” section, a word search query of all the company reports (and comparable disclosures) for the terms “trade-off” and “tension” revealed that these terms were not used in any of the reports analyzed. This confirms the findings of Herzig and Godemann (2010), who demonstrated that any discussion of tensions between aspects of profitability and responsibility were absent from the explicit (manifest) content of the sustainability reports analyzed in their study. This speaks to the negative connotation of the term tension and the potential legitimacy threat that including such a term in the report may present as a result. In spite of this, implicit references to tensions did nevertheless appear in the latent content of the reports.

Latent Descriptions of Tension Experiences

Smith and Lewis (2011) were the first to point out that conditions of environmental change, resource constraint, and a multiplicity of objectives or stakeholders turn latent sustainability tensions salient. Based on this, disclosures of “plurality, change, and scarcity” would, consequently, indicate a salient tension that the company has experienced. These disclosures correspond to indirect (i.e., latent) descriptions of tensions.

These themes of “plurality, change, and scarcity,” as well as of the outcomes of tensions (the compromises themselves), were evident in the four company reports included in the development of the coding sheet. These themes, as a result, formed the basis of the six “tension codes” in the coding sheet. These “tension” codes helped pinpoint and uncover the latent tension points described in the reports. These codes are described in Table 2, along with their frequency (in terms of the percentage of companies that contained these codes in the 85-reporting-company sample), as well as illustrative quotes from the company reports. As shown in Table 2, these tension codes were (1) negative sustainability impacts, (2) materiality, (3) changing priorities, (4) stakeholder demand, (5) constraint, and (6) competing objectives. These six codes corresponded to the three themes of “plurality, change, and scarcity,” as well as evidence of tension outcomes. Each of these six codes indicates an underlying tension point in the report text, which further indicates a tension decision that the company must have faced. Only 7 out of the 85 (or 8%) company reports did not contain any of the six tension codes. The remaining 92% of all reporting companies in the sample included reference to at least one tension code, indicating that the overwhelming majority of companies in the sample had encountered tensions in the practice of sustainability—despite not having disclosed on these experiences (and decision-making processes) explicitly in their reports. The six tension codes were found throughout the reports, all the way from the introductory material at the front end of the report (including chief executive officer letters and performance summaries) to the performance indices in the backend.

Table 2.

Categories and Underlying Codes Related to Tension Disclosures in Sustainability Reports That Made up the Coding Sheet That Was Used to Deductively Code the Reports, Alongside Illustrative Quotes and Examples and Relative Frequency (Percentage of Companies in the Sample of 85 Reporting Companies, Whose Reports Contained the Particular Code).

Category	Codes	%	Illustrative quote
Outcome	Negative sustainability impacts	80	“The Company is investing more than $1 billion to establish a highly efficient supply chain on a North American basis. While this will result in a net job reduction, it will increase long-term security for thousands of skilled jobs and provide a platform for sustainable growth.” (Company 91, report)
Outcome	Materiality	61	“We have chosen to largely focus our [report] discussion on 10 issues that key stakeholders have found to be most material to our business. These issues were identified through a materiality assessment . . . and began with the identification of potentially material issues.” (Company 31, report)
Change	Changing priorities	29	“Although [sustainability] is critical to our long-term success, challenging market conditions required us to take steps to improve our competitive position and balance the anticipated near-term production requirements of our facilities. This resulted in an announced reduction to our workforce (1,045 people).” (Company 46, report)
	Stakeholder demand	33	“[Actions to prevent spills] are of particular importance given increasing stakeholder concern regarding the safe transportation of oil and natural gas liquids.” (Company 38, report)
Scarcity	Constraint	56	“[On switching to renewable energy] It’s no an easy feat, because in many cases a store’s electric meter is in a landlord’s name, not [company’s]. And many states and countries don’t offer the ability to directly purchase renewable energy.” (Company 19, report)
Plurality	Competing objectives	47	“As our business activity increases, the number of employees increases, as does their associated office area. This business increase results in increased GHG emissions, as shown on the chart above. Conversely, when business activity decreases, the company’s GHG emissions decrease.” (Company 94, report)

The most common code that emerged from the report analysis was “negative sustainability impacts”; 80% of all reports in the 85-report sample contained at least one reference to this code. This frequency is unsurprising given that one of the primary functions of a sustainability report is to demonstrate transparency regarding corporate sustainability impacts (Hahn & Kuhnen, 2013). This code refers to any descriptions of company externalities—that is, any mentions of harmful social, environmental, economic, or otherwise affects that the company generates as a result of its business activities and discloses on in its report. These are impacts that have physically occurred in the course of the reporting period (i.e., not abstract, hypothetical impacts that the company may encounter at a point in the future). When seen through the lens of the literature on sustainability tensions, it is evident that these “externalities” are in fact the compromise outcomes of the commonly encountered tension between sustainability performance (and objectives) versus traditionally “business-only” performance and objectives. When companies express some form of this code in their report—that is, disclose on a harmful consequence of their operations—these companies, in effect, demonstrate that they have prioritized their business objectives (to a certain extent) over sustainability objectives.

The second most commonly occurring code (found in 61% of the 85 reporting companies) also referred to another type of tension outcome. This code (“materiality”) referred specifically to the particular sustainability issues or impact areas that were prioritized by the company, from across its wide spectrum of possible impacts. As described in Haffar and Searcy (2017), the choice of material issues is rooted in the choice of salient (and prioritized) stakeholders. This is reflected in the materiality assessment process itself, which involves input from the company’s key stakeholders. In this way, materiality decisions are a form of tension decisions, based on choosing the most material issues and the most salient stakeholders.

One of the three factors described by Smith and Lewis (2011) that causes companies to experience tensions is “plurality.” In the realm of corporate sustainability, this corresponds to a range of sustainability objectives, across a range of affected stakeholders. This plurality exposes the inherent tension experienced in trying to achieve all objectives simultaneously, leading to a tension among competing objectives. This tension code was present in 47% of the reports analyzed.

Another factor that Smith and Lewis (2011) described as key to making latent tensions salient was “change.” In the reports, this theme took the form of either environmental changes (e.g., changes to regulations) or organizational-level changes (e.g., company restructuring or downsizing). A total of 29% of the 85 reporting companies in this study contained this code in their reports. These environmental or organizational changes necessitate a reordering of priorities and thus present the company with new tension decisions. Some of these changes were also prompted by stakeholder demand for a particular line of action. These instances were coded under a separate code (“stakeholder demand”) and were found in 33% of the reporting companies studied. In this case, companies face new (and often vocal) expectations from salient stakeholders, which, in turn, necessitates a reorganization of priorities to meet this new demand and results in the company facing yet another set of tension decisions.

The final tension code was found in 56% of the reports. This code dealt with one of the foremost factors that elicit a tension, namely, “constraint.” The literature on sustainability tensions has described how constraints in resources, time, personnel, and even reporting space cause companies to experience tensions (Epstein et al., 2015). In total, the entire sample of reports analyzed contained 1,452 of individual occurrences of the six tension codes. This equated to approximately one tension code to every four report pages, or an approximate average of 17 tension codes per company report.

Legitimizing Tension Experiences

These tension codes, however, were not found in isolation. These codes were used in the context of other nontension codes that explained how the company responded to the tension represented by the tension codes. These codes emerged from the inductive coding of the text immediately preceding and following the report sections coded with any of the tension codes described in Section Latent Descriptions of Tension Experiences. These codes revealed that the companies studied responded to tensions (presented in their reports) in one of two ways, namely (1) by highlighting their commitment to the company’s core (sustainability) values or (2) by describing taking concrete action on the tension. These two ways corresponded to two categories of codes: “company values” and “company action.” The former category (values) contained the codes “compliance,” “responsibility,” and “systems thinking,” while the latter (action) contained the codes “company policy,” “target setting,” “innovation,” and “collaboration.” Of the 1,452 occurrences of tension codes throughout the set of reports analyzed, 55% occurred alongside (either directly before or directly after) a nontension (i.e., “company values” and “company action”) code.

Company values codes served to affirm the companies’ commitment to universal principles of sustainability. This corresponds to the legitimizing tactic described by Ashforth and Gibbs (1990) as “espousing socially acceptable goals” (p. 180). For example, when a company reported an episode of noncompliance (e.g., a spill that resulted in a pollution fine or an ethical violation that was exposed and resulted in a lawsuit), this noncompliance (or “negative sustainability impact”) is often followed with a commitment to future compliance.

Companies also associated their tension codes with references to the wider system they operate, often in the form of the wider systems-level benefit they may bring (at the expense of the noncompliance or other negative impacts). As an example, Company 96 states,

The firm’s past challenges in the ethics arena have provided a platform from which to create a world-class ethics and compliance program. As you will read in this part of the report, we implemented a host of remedial measures . . . which have served to greatly reinforce our compliance procedures. (Company 96, report)

In this case, the company’s negative sustainability impact (ethics violation) is countered with a promise toward future compliance. This promise is further demonstrated via the reference to a “company policy” (an example of a company action code), in the form of a “world-class ethics and compliance program.”

The companies also referred to the concept of collaboration alongside their tension codes. As an example, Company 49 states,

There is a growing demand by communities for the industry to do more to manage impacts. . . . We continually engage and collaborate with communities and Indigenous Peoples . . . to identify opportunities to minimize impacts and to maximize shared value in a way that contributes to their long-term well-being. (Company 49, report)

Here, the company faced “changing priorities” (tension) in terms of the “growing demand by communities.” This tension code is presented alongside the promise of stakeholder “collaboration,” as a means of neutralizing the legitimacy threat posed by this disclosure.

The companies in the report sample also couched their tension codes in the sustainability principle of “systems thinking.” This refers to a conceptualization of the firm as part of a broader interdependent system that encompasses the firm’s social, economic, and ecological environment (see, e.g., Bebbington & Larrinaga, 2014). This is demonstrated in the following example from Company 39:

A mine brings jobs, economic growth and long-term prosperity. It can also disrupt livelihoods, strain public services and require some people to move their homes. The impact of change must be sensitively managed, with everyone working together to find the best solutions. (Company 39, report)

This example illustrates how the company surrounded the tension code (negative impact—“disrupt livelihoods, strain public services and require some people to move their homes”) with references to the wider systems-level benefit that the company offers (“brings jobs, economic growth and long-term prosperity”), effectively cushioning this “bad news” (as described by the interview participants).

Companies in the sample also presented their tension codes alongside an acknowledgement of their responsibility for their stakeholders’ well-being (vis-a–vis company operations). As an example of this, Company 19 describes,

It takes an enormous amount of energy to design, assemble, ship, and use hundreds of millions of products all over the world. A portion of that energy comes from burning fossil fuels, which creates carbon emissions. Those emissions make up our carbon foot-print—our share of the climate change problem. (Company 19, report)

In this way, this company discloses on its negative sustainability impact before acknowledging its responsibility to counter the global “climate change problem.”

The companies also referred to the theme of innovation as a means of overcoming the potential legitimacy threat posed by a tension situation (and code). As an example, Company 7 describes its tension (constraint of being unable to recycle paper products) alongside a form of incremental innovation (newly implemented system of using biodegradable bags): “While paper towels can’t be recycled the way other paper products can, they’re ideal for composting. Washrooms throughout the building now have biodegradable bags that can be composted along with towels” (Company 7, report). Other companies referred to this innovation code from a more transformative perspective. In this case, Company 31 overcomes a technological constraint (tension code) through eco-innovation:

In our pursuit of technologies to replace petroleum, we do not want to become dependent upon yet another material for which supplies or access is limited. Accordingly, our strategy is to design the use of these materials out of our products when possible, something we have been able to achieve in the new motors used in our [innovation name] technology. (Company 31, report)

Finally, companies also described tension codes alongside mentions of target setting—a concrete demonstration of company action to remedy any sustainability compromises. As an example, Company 46 states,

This year we made great strides toward realizing our goal of no harm to our people. . . . In 2013, we set an ambitious target to be one of the safest resource companies in the world within five years. (Company 46, report).

Here, the negative impact of “harm to our people [from our own operations]” is countered with the safety target, as a concrete demonstration of the company’s commitment to employee health and safety. This aligns with the type of legitimization strategy previously reported by Hahn and Lulfs (2014) in their study of sustainability reports, which they termed “corrective action,” whereby the company describes a negative aspect of performance (“bad news”) followed by a description of “ideas, intent, or measures for how to tackle or avoid the negative aspect in the future” (p. 411). In doing so, the company implicitly takes responsibility for this negative performance and offers a specific and concrete strategy for “corrective action” going forward (Hahn & Lulfs, 2014, p. 412).

Discussion

The findings indicate that the overwhelming majority of the companies faced tension decisions in the practice of sustainability. Of the 85 companies that issued sustainability reports, 92% disclosed on either the compromise outcomes of sustainability tensions or the contextual factors that bring about (or make salient) tension situations. In the interviews, all 19 of the companies interviewed described facing tensions in the practice of sustainability. In all these cases, these tension decisions necessitated the balancing and weighing of competing demands from groups of stakeholders. Although these tension decisions influenced the companies’ practice of sustainability (e.g., by prioritizing one program over another or attending to one stakeholder group more than another), these discussions were wholly absent from the company reports in manifest form—a clear and significant form of the types of “accounting absence” studied in the social and environmental accounting literature (Unerman & Zappettini, 2014, p. 174). The outcomes of these discussions (i.e., the compromises or prioritizations) as well as their antecedents (i.e., the conditions of “plurality, change, and scarcity”; Smith & Lewis, 2011, p. 390) were nonetheless present in the reports. This evidence demonstrates that the (reporting) companies had in fact experienced tensions but had failed to describe them overtly in their reports.

A key tension situation that many companies implicitly described in both the report and the interview samples dealt with the issue of materiality. Within our two samples, 61% of the (85) companies that issued reports and 47% of the (19) companies interviewed described having encountered this tension in the process of developing a sustainability report. Based on our conceptualization (and coding) of tensions in the reports, these discussions were deemed to be implicit (or latent) in nature given that the companies did not explicitly describe these situations as a “trade-off” or “tension” per se. In the interviews, on the other hand, the companies described these materiality-related tensions more explicitly, often using the words trade-off or tension.³ Such omissions of explicit discussions of sustainability tensions in the reports (including those related to materiality as well as other types of sustainability tensions) were intentional on the part of the study companies, based on the information revealed in the interviews with company representatives. These interviewees confirmed that they had purposefully chosen not to communicate these “tension conversations” in their sustainability reports for a variety of reasons, including, primarily, the legitimacy threat that such “bad news” disclosures pose.

Thus, in response to Research Question 1, companies in the study sample did not communicate their tension experiences in their reports overtly and purposefully. Evidence of these companies’ tension experiences was nevertheless present (implicitly) in the latent content of the reports. This was further confirmed by the interviews; all interview participants declared having experienced sustainability tensions in the practice of sustainability at their individual companies, even though these experiences were omitted (explicitly) from the reports.

The interviews also provided valuable insight into the reasons behind this strategic omission and allowed us to compare the internal and external (public facing) perspectives on sustainability tensions. In response to Research Question 2, this study demonstrated that the three key motivations that drove companies not to disclose on their tension decision-making processes were that tension discussions were seen as an exclusively internal process that carries no relevance to stakeholders, that tension discussions correspond to a level of transparency that does not align with current approaches to reporting and, finally, that tension discussions in reports present a potential threat to the legitimacy of the organization in the eyes of its stakeholders. This “legitimacy threat” theme was also visible in the reports. In these accounts, implicit mentions of tension experiences (i.e., tension codes) were couched in legitimizing references to the companies’ commitment to the principles of sustainability (and social responsibility) and companies’ demonstrations of having taken action in support of these principles.

This finding underscores the potential legitimacy threat that tension disclosures appear to pose, as well as the largely instrumental and strategic impression management role that sustainability reporting appears to play, in the eyes of many of the study companies. The perspective of “tensions as bad news” (and legitimacy threat) is in line with the impression management perspective of sustainability reporting. This literature views sustainability reporting as a strategic form of communication that can be used to project a positive image of the company in the eyes of its stakeholders. In this case, the positive image projected may be that the company does not “compromise” on sustainability (and thus does not experience tensions), or that it pursues a “win-win” sustainability ideal (that negates the notion of tensions).

Ultimately, these findings also highlight an important point, namely that companies are not currently incentivized to report at a level of transparency that would include disclosures, providing a more realistic balance of both good and bad news. Several companies interviewed described how tension discussions require a lot more reporting space to describe fully and contextualize. This additional level of transparency would either come at the expense of “positive storytelling” (under limited messaging and reporting space) or simply add to the (already wide) breadth of reports—a challenge several of the interviewed companies struggle with today. Indeed, this is demonstrated by the huge size of some of the reports analyzed (e.g., lengths of upward of 500 pages). Moreover, recent empirical evidence has called into question the long-held assumption that sustainability reporting is a value-add process (i.e., valued by investors and shareholders; Cho et al., 2015).

The findings reveal that although companies are aware of the need to abide by the principle of reporting balance in their disclosures, they nevertheless fail to do so in practice. Only one of the 19 companies in the sample referred to the reporting principle of balance when describing their tension experiences. This lack of adherence to (and reported internal conflict over) reporting balance is due in large part to the fact that many reporting standards (including the GRI) are voluntary and nonbinding in nature. Furthermore, the GRI offers little specific guidance on how to actively apply this principle in practice. Here, report assurers may help fill this gap, by helping verify the credibility (including the balance) of company reports. In spite of this, recent studies have nevertheless challenged the meaningfulness of current verification practices and the role of assurance to monitor report quality (including issues of reporting balance). For example, in their longitudinal study of the assurance statements included in 337 GRI-based sustainability reports, Boiral and Heras-Saizarbitoria (2020) found that “independent and rigorous verification processes can lead to hyperreal statements . . . disconnected from real sustainability issues and reporting requirements” (p. 12). Rather than challenging the companies’ sustainability rhetoric, these statements largely served to “enhance the appearance of rigor and reliability of company disclosures” (p. 12) and failed to adequately (and transparently) assess report quality and balance. More work is needed in this area to explore how the verification process can more effectively challenge symbolic reporting practices and motivate companies to include more balanced discussions of sustainability challenges (including tension experiences) and poor performance.

Conclusion

The purpose of this study was to explore whether, and how, the largest companies in Canada were disclosing on their experiences with sustainability-related tension decisions. This is important because tension decisions are integral to the practice of sustainability. Sustainability tensions are not only central to the way sustainability is defined but also in how it is achieved; tension decisions determine, for example, which corporate sustainability programs to undertake, which targets to set (and over which time horizon), and what to report on, if at all (Haffar & Searcy, 2017).

This study demonstrated that tensions are inherent to the practice of sustainability and play a significant role in shaping company priorities and action on sustainability issues. In spite of their importance, companies are reluctant to disclose on how these decisions are made or, indeed, whether they are even faced at all. As a result, these discussions are largely left out of company disclosures (particularly in tension areas outside of materiality analyses). This omission is driven principally by the intent to protect the legitimacy of the firm from the potential threat of “bad news” (what tensions are considered synonymous with). Moreover, tension discussions require a level of transparency that companies are currently not incentivized to reach.

As with all studies, this study suffered from some limitations. The data sources chosen in this study were limited to what the “speakers” disclose—whether this disclosure comes from the companies themselves (“speaking” through their reports) or from the individual practitioners (speaking through the interviews). These source materials may be skewed by two different types of source bias (or what Krippendorff [2004] terms “textual contamination,” p. 31). On the one hand, the reports may be beset with green-washed information, or purposefully positive news on the company’s sustainability initiatives or performance (Seele & Gatti, 2017). This type of source bias speaks to the promotional role of company-controlled communication and the persuasive power of positive sustainability contributions. On the other hand, the interview responses may also be similarly influenced by “social desirability bias” (Angus-Leppan et al., 2010, p. 242). In this study, these source bias threats were overcome by keeping the identities of the interviewed companies and individuals confidential and, furthermore, by the use of two separate yet complementary data sources (official reports and interviews), which serves as a form of triangulation. Another limitation of this was that the majority (85%) of the study companies are headquartered in Canada, which limits the generalizability of the findings to other cultural contexts. Given that previous literature (e.g., Adnan et al., 2018; Thorne et al., 2017) has demonstrated that the quality and content of (voluntary) sustainability reports differ across different national contexts, more work is needed to explore whether and how these cross-national variations also extend to how companies disclose sustainability tensions in particular. For example, according to Thorne et al. (2017), Canadian companies typically experience relatively “stronger stakeholder pressure . . . to be good corporate citizens,” as compared with companies based in the United States and as a result demonstrate “higher levels of social and environmental activities” (p. 88). Further work may include, for example, an explicit cross-country comparison of tension-reporting practices between Canadian versus U.S. companies that aims to explore how this heightened pressure may translate into specific tension disclosure (and legitimation) strategies in a Canadian versus a United States context.

More research is also needed to explore how companies may be better incentivized to be more transparent around their tension decision making and how companies can effectively achieve this in their reports. Extending this even further, another interesting avenue of research would be exploring ways in which companies may be encouraged to engage stakeholders around these discussions (just as with materiality assessments) and allow for stakeholder input and feedback into these decisions. More work is also needed to explore whether and how mandatory reporting standards can help incentivize companies to more include balanced discussions of both good and bad news (including discussions of challenging sustainability tension experiences) and the role that other nonfirm actors (e.g., governments, civil societies, and investors) have in pushing for and enforcing such standards.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work was supported by the Social Sciences and Humanities Research Council.

Notes

Author Biographies

Merriam Haffar is a postdoctoral fellow at the Erb Institute at the University of Michigan, and a Vanier SSHRC scholar. She completed her PhD at Ryerson University’s Environmental Applied Science and Management Program. Her research interests include corporate sustainability tensions, context-based corporate sustainability reporting, and organizational resilience. Before joining her PhD program, Merriam worked in the environmental testing industry for several years as an assistant branch manager and lead analyst.

Cory Searcy is a professor at Ryerson University, and associate dean, Programs at the Yeates School of Graduate Studies. He is also cross-appointed to the Environmental Applied Science and Management Program. His research interests include corporate sustainability indicators, sustainability reporting, and sustainable supply chain management. His research has been published in several leading academic journals, including the Journal of Cleaner Production, the Journal of Business Ethics, and the International Journal of Production Economics.

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