Sustainability Reporting and Disclosure in Auto Component Manufacturing Sector in the World and in Canada

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 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.