Is the adoption of the GRI 207 a mean to protect reputation and to avoid scandals?

Abstract

The purpose of this thesis is to investigate the relationship between the transparency of sustainability practices and corporate reputation. In particular, the specific aim of the study is to understand if tax transparency is a voluntary choice of companies or if it is used as a mean in order to enhance reputation and avoid scandals. This topic is of recent interest since, due to the Covid-19 pandemic, a lot of governments need tax revenues and are putting their focus on corporate tax planning structures. Furthermore, this topic is acquiring attention also from the private sphere since more and more investors are basing their investment decisions on corporate ESG ratings, which also consider firms’ tax strategy as one of the main determinant variables. In addition to these trends, starting from January 1st, 2021, the new GRI standard ‘GRI 207: Tax’ is effective for reports or other materials published by companies following the principles of the Global Reporting Initiative. In particular, the GRI 207 is a standard which includes guidelines to follow in order to disclose information relating to: o The management approach to tax; o The tax governance and control framework, the reporting mechanisms for concerns of unethical or unlawful behavior in relation to tax, and the assurance process for matters of tax disclosure; o Stakeholder engagement and management of concerns related to tax; o Country-by-country reporting on the tax jurisdictions where the entities operate and are resident for tax purposes. Consequently, in order to analyze this current issue which puts in comparison sustainability and corporate reputation, this thesis will start with a general introduction regarding the sustainability and sustainable development concepts, then it will introduce the common practice of Corporate Social Responsibility (required everyday more and more to companies by stakeholders), and then it will illustrate the main corporate reporting tools and sustainability standards used by organizations. In the second part of the paper, there will be an in-depth analysis of the new GRI 207 standard relating to tax disclosure and transparency and then, in the third part – the one which introduces the real scope of this work – an investigation regarding the relationship between sustainability and reputation. In this phase, a lot of attention will be given to the public exposure of organizations to the public opinion and to medias for their “fiscal behavior” and tax strategy, in relation to the reputational risks connected to that kind of information. Reputation can be considered as an intangible asset to be protected from possible scandals and tax transparency has become a material topic to be included in corporate strategies and to be externally communicated in a clear way towards stakeholders, mainly due to the ever-increasing attention of medias, politicians, non-governmental organizations and others third parties to tax matters and to the achievement of the goals of the global sustainability agenda (since tax revenues are seen as a contribution of organizations to the local economies where they operate in order to allow social developments and investments with the aim of creating long-term value). Lastly, I will conduct an empirical and comparative analysis of about 60 of the Fortune Global 500 companies which adopt the GRI Standards and which pertain to the following industries (classification in accordance to the NACE Rev. 2 Codes): Arts, Entertainment and Recreation, Construction, Financial and Insurance Activities, Information and Communication, Transportation and Storage, Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles. In this way I am going to examine if board characteristics, industrial sectors, geographical locations and reputational-related variables (like the ESG controversies score and the tax fraud score) explain the mechanism of tax disclosure.