Sustainability Reporting and Disclosure in Auto Component Manufacturing Sector in the World and in Canada by Muhammed Ahsanur Rahim A thesis presented to the University Of Waterloo in fulfilment of the thesis requirement for the degree of Master of Environmental Studies in Sustainability Management Waterloo, Ontario, Canada, 2020 © Muhammed Ahsanur Rahim 2020 Author Declaration I hereby declare that I am the sole author of this thesis. This is a true copy of the thesis, including any final revisions, as accepted by my examiners. I understand that my thesis may be made electronically available to the public. ii Abstract The worldwide framework for Sustainable Development Goals (SDGs) focuses on how to integrate sustainability in both the public and commercial sphere. Sustainability in the auto components manufacturing sector is critically important considering the sheer size of the sector worldwide: three trillion USD. In 2018, 35 billion CAD in auto parts were shipped in 2018 to the large manufacturing firms, and a portion to parts resellers, in Canada and abroad. Over 100,000 people were employed in this sector in Canada, thus representing an important economic contributor to the economy. If sustainability can be effectively integrated into this sector, it could be a model for other Canadian sectors looking to retool and thrive in the uncertain world economy being pushed towards developing sustainability. This study focuses on the reward, cost, and potential benefits of integrating sustainability disclosure and reporting. This study sought to identify how the auto components manufacturing sector can integrate certain important targets within the SDG framework. More specifically, targets within SDG 9, “Innovation, Industry and Infrastructure” and SDG 12 “Ensure sustainable consumption and production patterns” were explored. The first part of this study developed an outline of the worldwide auto components sector and the potential impact on sustainability as can be drawn from a sample of companies. The study examined the level of disclosure undertaken by a representative sample of publicly listed companies. The disclosure was also classified based on whether the company followed Global Reporting Initiative standards or not. The study related key financial metrics with the levels of disclosures. The second part of the study sought to use some key conclusions from the quantitative study to develop an understanding of the level of three Canadian companies in the sample – Linamar, Magna and Martinrea. The study used Lozano’s CIVIS model to define the breadth and efficiency of sustainability initiatives. The study pointed to some reasonably verified conclusions. The auto components manufacturing sector has sustainability disclosure mechanisms based on firm size and net income. Undertaking iii sustainability disclosure annually has had no discernable impact on operational expenses. Companies do not seem to have reaped significant cost savings benefits from undertaking systemic sustainability disclosures. There are no discernable differences in investment decisions related to sustainability which might indicate an increasing trend towards outsourcing key production rather invest in companywide modifications other than what would be necessary to respond to market changes. The three Canadian companies studied have not engaged in consistent undertaking of sustainability disclosures. They may even be undertaking redundant measures to develop sustainability. This could mean that tight economic conditions could cause them to reduce or curtail sustainability initiatives. The study conducted contributes to an understanding of the development of sustainability in the auto component manufacturing sector by explaining what factors are very likely to dissuade companies from undertaking detailed disclosure and reporting. The study showed that institutional theory must look at the development of internal flexibility to integrate effective sustainability reporting rewarding more than financial performance. Conversely, stakeholder theory can be expanded to develop an understanding of financing sources that can and are willing to accept returns that go beyond monetary values especially in how reporting is undertaken. Key words: GRI; Sustainability Disclosure; Auto Parts; Impact; Financial Metrics; SDGs iv Acknowledgements My first acknowledgement would be that I live and work on the Haldimand Tract, land that was promised to the Haudenosaunee of the Six Nations of the Grand River, and that this land is within the territory of the Neutral, Anishinaabe and Haudenosaunee peoples. I would also like to honor the ancestors and caretakers of the land I was born and raised which itself has had many sorrows visited on the poor and indigenous unrecognized in our books. I would like to thank my mother, Razia Begum, for her inspiration and forbearance in helping me develop to who I am for the better. I would like to thank Professors Jennifer Lynes Murray and Olaf Weber, as well as other faculty, for their guidance and help without which my journey through this program and the development of research simply would not have been possible. I would like to thank my fellow cohort members for their encouragement and courage in going through this journey together. I would like to thank all other students in the faculty and at the University for the help they have provided in helping me understand many key points. v Table of Contents Author Declaration.................................................................................................................................... ii Abstract .................................................................................................................................................... iii Acknowledgements ................................................................................................................................... v List of Tables: ........................................................................................................................................... xi List of Figures: .........................................................................................................................................xiii Chapter 1 Introduction to study ................................................................................................................... 1 1.1 The 21st Century Supply Chain: Efficiency at the cost of fragility ....................................................... 2 1.2 Evolution of pressures on the supply chain: correlation with developments in information technology ................................................................................................................................................ 3 1.3 Thesis structure ................................................................................................................................... 5 Chapter 2 Background .................................................................................................................................. 7 Pressures resulting from ESG impact awareness .................................................................................. 9 Chapter 3 Review of literature .................................................................................................................... 12 3.1 Stakeholder theory – overview of the evolution of marketing in developing ESG awareness ........ 13 3.1.1 Evolution of stakeholder theory to explain ESG related concerns in the modern organization 13 3.1.2 Marketing a sustainable lifestyle – CSR to creating actual impact or “greenwashing”? ........... 14 3.1.3 Sustainability awareness among stakeholders – differences between business-to-consumer (B2C) and business-to-business (B2B) ................................................................................................. 18 3.2 Institutional theory explaining adaptation of sustainability initiatives as well as the role of standardized reporting ........................................................................................................................... 20 vi 3.2.1 Institutional theory in understanding the development of sustainability ................................. 20 3.2.2 Institutional theory explaining intra-organizational pressures to adopt sustainability ............ 22 3.2.3 Integration of ESG impact as a regular periodic information output ........................................ 25 3.2.4 Institutional Theory perspective on developing a sustainable value chain ............................... 30 3.3 Convergence of stakeholder and institutional theory – yearly reports and websites ...................... 32 3.3.1 Importance of websites and the annual report for sustainable initiatives monitoring............. 32 3.3.2 Key metrics to analyze from annual reports related to sustainability and proposed timeline of data ..................................................................................................................................................... 34 3.4 Research objectives and contributions ............................................................................................. 37 3.4.1 Problem statement .................................................................................................................... 37 3.4.2 Research Question(s) ................................................................................................................. 38 Chapter 4 Methodology .............................................................................................................................