Multidimensional comprehensive corporate sustainability performance evaluation model: Evidence from an emerging market banking sector

Accepted Manuscript Multidimensional comprehensive corporate sustainability performance evaluation model: Evidence from an emerging market banking sector Guler Aras, Nuray Tezcan, Ozlem Kutlu furtuna PII:

S0959-6526(18)30197-5

DOI:

10.1016/j.jclepro.2018.01.175

Reference:

JCLP 11855

To appear in:

Journal of Cleaner Production

Received Date: 25 January 2017 Revised Date:

19 January 2018

Accepted Date: 21 January 2018

Please cite this article as: Aras G, Tezcan N, Kutlu furtuna O, Multidimensional comprehensive corporate sustainability performance evaluation model: Evidence from an emerging market banking sector, Journal of Cleaner Production (2018), doi: 10.1016/j.jclepro.2018.01.175. This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.

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Multidimensional Comprehensive Corporate Sustainability Performance Evaluation Model: Evidence from an Emerging Market Banking Sector ABSTRACT

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Financial institutions’ roles in sustainable development have been a hot topic in the literature. Nonetheless, related studies are still emerging and are rare for emerging markets. The purpose of this paper is to investigate multidimensional corporate sustainability practices and establish a corporate sustainability performance evaluation model for Turkish banks. According to the multiple dimensions of economic, environmental, and social governance and financial corporate sustainability, the Content Analysis and TOPSIS methods are utilized on the 12 sustainability reports published by four Turkish deposit banks from 2012 and 2014. The TOPSIS method has been employed for the comprehensive assessment by using the entropy weights of Turkish Banking Sector sustainability practices in order to overcome subjectivity. One of the significant contributions of this study is the combined use of the results of content analysis, entropy weights and TOPSIS. The performance scores for the dimensional base reveals that each bank has different performance scores in each year. Additionally, rather than having the highest score in one or more dimensions, improving performance in all dimensions provides a substantial contribution to the bank’s overall score and ranking. Keywords: sustainability performance, content analysis, Entropy, TOPSIS method, emerging market, Turkish Banking Sector

1. Introduction

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Financial system sustainability has been a focus of sustainable development in recent years. Since sustainable development has gained greater importance in the organizational context, firms have started to adapt the sustainability indicators of economic, social and environmental factors to their organizations to create more value for stakeholders (Lo and Sheu, 2007; Lourenco et al. 2012; Kaspereit and Lopetta 2016).

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The Triple Bottom Line (TBL) performance report of economic, social and environmental performance as a dimension of corporate sustainability was first used by John Elkington (1997). The TBL concept refers to economic prosperity, environmental quality and social progress as indicators of corporate sustainability. In recent years, corporate governance discussions have shifted progressively toward contemporary social and environmental issues. Environmental, social and governance (ESG) performance has emerged as a significant dimension for developing sustainable strategies that affect overall firm performance (Eccles and Serafeim, 2013). However, these approaches may not be sufficient to properly measure corporations’ sustainability performance. Sustainability is so comprehensive and important that it cannot be reduced to three basic dimensions. The current literature states that although the interaction of the governance dimension with the environmental and social dimensions has received less attention, its importance is growing (Husted and Sousa-Filho, 2017). Aras and Crowther (2008) first highlighted that, apart from the environmental, social and governance influences, finance (defined in terms of an adequate return for the level of acknowledged risk) must be considered as one of the main dimensions of sustainability. In addition to the traditional sustainability components, these components allow businesses to maintain healthy and continuous performances over a long period of time and provide benefits to all

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ACCEPTED MANUSCRIPT stakeholders. Hence, apart from the economic, environmental and social dimensions of corporate sustainability, a good governance structure and financial factors should be integrated to properly evaluate firms’ sustainability. Based on all these explanations above, Figure 1 illustrates a multidimensional comprehensive corporate sustainable disclosure model that has five dimensions (see Aras et al., 2017). [Please, insert Figure 1 about here]

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Among the theories pertaining to the sustainability framework, the dominant ones are the agency, stakeholder, and legitimacy theories. Legitimacy theory explains the behavior of firms in developing voluntary environmental and social disclosures to be accepted by society (Suchman, 1995), and stakeholder theory, originated by Freeman (1984), indicates that establishing strong relationships with multi stakeholders enables the achievement of the objectives. Furthermore, Fama and Jensen (1983) state that agency costs appear due to the conflicting interests of managers and shareholders, and through sustainability reporting firms could reduce information asymmetry and mitigate agency problems. Morioka and Carvalho (2016) conduct a systematic literature review aimed at a conceptual framework for integrating sustainability performance into business and reveal that the related literature suggests a close relationship between sustainability reporting and performance. Furthermore, Ng and Nathwani (2012) indicate that the Global Reporting Initiative (GRI) sustainability reporting guidelines can serve as an input for elaborating an adequate sustainability performance measurement system for internal decision making.

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The concept of sustainability is important for all businesses, especially for financial institutions that play a key role in the steady growth of the economy. The stability of the financial system affects the whole economy. Banks are at the forefront of financial institutions that have a significant impact on sustainable development by directing savings from the financial system to investments.

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A more proactive engagement in sustainable activities has led to increasing efforts to achieve sustainable finance (Soppe, 2009; Peiyuan and Yongda, 2010) and sustainable banking (Jeucken, 2001; Imeson and Sim, 2013). Until the 1970s, Turkey perceived sustainability only as economic sustainability and sustainable growth. In recent years, the Equator Principles have gained more attention in the Turkish banking sector. The Equator Principles are a risk management framework that has been accepted all over the world and has been influential in shaping sustainability activities in the Turkish Banking Sector developed in line with international principles (Equator Principles III Report, 2013). In Turkey, the ING Bank that operates in both the Netherlands and Turkey adopts these principles. The GRI framework developed guidelines for reporting the economic, environmental and social aspects of corporate sustainability. As of the end of 2016, 96 organizations in Turkey had established a total of 248 sustainability reports, with 191 of those organized in the GRI framework. Moreover, revealing their multidimensional sustainability dimensions enables banks to prepare integrated reports (Atkins and Maroun, 2015). This proposed model may serve as a part of the integrated reporting in following studies. Integrated reporting aims to stimulate integrated thinking while encouraging corporate managers to integrate sustainability issues within the firm's vision, strategy and risk management (Eccles and Saltzman, 2011). This type of thinking and reporting improves sustainability performance (Maas et al., 2016). One of the banks in the sample also collaborated in the International Integrated Reporting Council’s (IIRC) pilot program from Turkey.

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ACCEPTED MANUSCRIPT Banks have been becoming proactively engaged in sustainable activities. However, there has been a notable lack of research in the Turkish Baking Sector into developing sustainability indicators and evaluating sustainability performance. Given the importance of banking sector in sustainable development and the need for further investigation, this study aims to investigate multidimensional corporate sustainability practices and establish a corporate sustainability performance evaluation model for Turkish banks.

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Accordingly, the remainder of the study proceeds as follows. After the literature review, methodological part has been introduced. The following section is dedicated to research design followed by the results of the analyses. Discussion part, concluding remarks and implications of the study have been revealed in the last sections.

2. Literature Review

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Firms have started to report their sustainability performances by transforming sustainability into a way of doing business. It includes many aspects, such as the natural resources that they use, the environmental impact of their operations, the corporate governance mechanisms and labor rights (Aras and Sarioglu, 2015). In that context, in the 1990s, corporate sustainability reporting started to increasingly be used by firms to measure, disclose and account for the firms’ economic, environmental and social attributes.

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There are several sector-specific studies that provide insights into corporate sustainability practices through several performance measurement techniques. Some of these include the Brazilian retailing sector (Delai and Takahashi, 2009), the supply chain performance of Turkish grocery retailers (Erol et al., 2011), Taiwanese high-tech firms (Hsu et al., 2015) and highway transportation (Li et al., 2014). Additionally, Maubane et al. (2014) investigate the sustainability reporting patterns of 74 firms listed on the Johannesburg Securities Exchange. Content analysis results reveal that the mining and materials sector have had more environmental and the societal reporting and less governance reporting than in other sectors.

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To analyze the sustainability disclosures of firms, content analysis is frequently used. Hussain et al. (2016) study a huge dataset of 100 US firms with 152 sustainability reports from 2007 to 2011. The paper specifically focuses on whether there is a link between corporate governance mechanisms and sustainability disclosures. Internal corporate governance mechanisms, as measured by board diversity and board meeting frequency, are found to increase the firms’ social dimension of sustainability. Another content analysis utilized study belongs to Roca and Searcy (2012). They investigate the indicators disclosed in 94 Canadian firms with a total of 584 indicators from 2008 and 2011 and find that the use of GRI indicators slightly differed between sectors. Reliable and objective corporate sustainability measurement is a hard task to accomplish. Previous studies have used several techniques. Multi-Criteria Decision Making Techniques (MCDM) is one of the most prominent. Delai and Takahashi (2009) study the practices of eight Brazilian retailers by using TOPSIS and reveal a higher focus on social issues. The retail sector has a significant role in these kinds of practices. Erol et al. (2011) use the multicriteria framework based on fuzzy entropy and fuzzy multi-attribute utility to assess and compare the sustainability performances of Turkish grocery retailers from 2003 to 2007. 2007 ranked first in environmental, social and economic sustainability. Moreover, Hsu et al. (2015) examine listed Taiwanese high-tech firms to explore and rank their 2011 sustainable operating

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performances using the Grey relational analysis and modified TOPSIS method. Using both methods enables the assessment of the sustainability performance of the five best and five worst firms. Idayu and Lazim (2012) apply fuzzy TOPSIS based on subjective and objective weights approaches to selected Malaysian firms. They use a numerical example of ecological protection determinant selection for the proposed model. Furthermore, Govindan et al. (2013) investigate sustainable supply chain initiatives and examine the problem of identifying an effective model based on the TBL approach for supplier selection operations by using the fuzzy TOPSIS method.

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Financial institutions’ (specifically banks’) role in sustainable development have been a hot topic in the literature. Few studies have explored the sustainability disclosure practices and evaluation of the banking sector in emerging markets. Saraiva and Serrasquerio (2007) investigate the corporate sustainability in the Portuguese financial institutions and state that awareness still lags when compared to other European and non-European countries. Ozcelik and Ozturk (2014) use Grey Relational Analysis on some financial ratios related to Turkish Banks. They evaluate the 2011 sustainability reports of these banks and find limited performance effects. Saxena and Kohli (2012) study the Indian banking sector’s sustainability efforts with respect to corporate social responsibility attributes and reveal weak support for a link between corporate social responsibility and financial performance. Sohbani et al. (2012) investigate the disclosure practices of corporate sustainability in the annual reports and corporate websites of 29 Islamic and conventional banking firms in Bangladesh. According to the content analysis results, Islamic banks have been found to disclose more sustainability information than conventional banks with respect to economic, environmental and social disclosures.

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A recent study by Weber (2016) analyzes the sustainability performances of Chinese banks by assessing the data from annual financial and non-financial reports from 2009 and 2013. Saxena and Kohli (2012) study the Indian banking sector’s sustainability efforts with respect to corporate social responsibility and reveal a weak link between corporate social responsibility and financial performance. Sohbani et al. (2012) investigate the disclosure practices of corporate sustainability in the annual reports and corporate websites of 29 Islamic and conventional banking firms in Bangladesh. According to the content analysis results, Islamic banks have been found to disclose more sustainability information than conventional banks with respect to economic, environmental and social disclosures. They reveal that environmental and social performances are considerably more effective than economic performance is. Rebai et al. (2016) generate a sustainability performance index on three commercial French Banks with a performance evaluation model based on a multi-attribute utility approach. They determine that the most important attributes and sub-attributes for assessing the performance considering each stakeholder in terms of shareholders, managers, employers, customers, civil society and regulators. They provide the bank performance over time according to each stakeholder under the governance quality and the dimensions of economic, environmental and social sustainability. One of the significant contributions of this work is the combined use of results of content analysis, entropy weight and TOPSIS. In this study, the content analysis results depend on several criteria. However, several evaluation criteria may conflict and make assessing the overall performance more difficult. The MCDM method is the best method for ranking methodology, evaluating the sustainable performance of different banks and comparing banks. Entropy has been applied to determine the weights of each index in the multidimensional evaluation model. After determining the weights, the result of the

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ACCEPTED MANUSCRIPT comprehensive evaluation model can be obtained through the TOPSIS method. Finally, this multidimensional focus gives a comprehensive evaluation of Turkish Banks’ corporate sustainability performances. 3. Methods

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This study includes both qualitative and quantitative data analysis techniques considering the Content Analysis and TOPSIS method. For determining the weights that are required by TOPSIS, Entropy method has been employed. 3.1.Data, Sample and Analysis Process

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In this study, according to the multiple dimensions (economic, environmental, social, governance and financial) of corporate sustainability, Content Analysis and TOPSIS methods are utilized on a total of 12 sustainability reports published by four Turkish deposit banks from 2012-2014. As of 2015, these banks constituted 44 % of the total assets and 44.3 % of the total deposits of the entire Turkish banking sector. Some of the specific features of selected banks have to be noted. They are the only Turkish banks that published consistent sustainability reports during the related period. All the banks adopted various portions of the GRI Framework to publish their sustainability reports. One bank was the first Turkish deposit bank that published sustainability reports in accordance with the GRI standards in 2010. Furthermore, another bank is the only Turkish company selected for the Dow Jones Sustainability Emerging Markets Index and the only Turkish company that was included in the CDP Global Leaders Report after being selected for the highest performance band (A). Figure 2 states the analyses process of the study.

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[Please, insert Figure 2 about here]

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In the first stage of the study, sustainability indicators (criteria) are selected based on GRI corporate sustainability framework, ACCA (Association of Chartered Certified Accountants) guidelines, pilot studies and extended version of Sobhani et al. (2012) study comprising with a total of 86 criteria under five dimensions and six sub-dimensions. [Please, insert Table 1 about here]

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In this study, the 12 sustainability reports that were published by the four Turkish deposit banks from 2012-2014 were read by two coders who are academics familiar with sustainability disclosure research. To capture the stability of the data, sustainability reports that were read once by a coder were read a second time after two weeks. No significant difference existed between the two readings. To analyze the reproducibility, the two coders independently applied the same set of dimensions and decision rules to code the sustainability reports. Again, no significant differences were noted between the coders. To achieve accuracy, Hackston’s and Milne’s coding approach (number of sentences) that has been cited by many academic studies was undertaken. In this study, the number of sentences used by Milne and Adler (1999) state that using sentences for coding is far more reliable than any other unit of analysis since reliability decreases when words are used. The qualitative analysis of corporative sustainability reports was conducted using the NVivo Pro 11.0 software. A further coding stage involved the coded sustainability reports from each sustainability criteria (sentences related to 86 criteria containing the five dimensions of economic, environmental, social, governance and financial sustainability) being highlighted using a qualitative data

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ACCEPTED MANUSCRIPT analysis software package that helped track and collate the sustainability reports from all 86 criteria. This methodology is also used as the corporate sustainability indicators’ taxonomy in XBLR reporting in Turkey. Finally, the number of sentences disclosed in the sustainability corporate reports of the banks is the unit of analysis. After determining the number of sentences, numerical values are converted to proportional values in order to ensure comparison of the banks.

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The TOPSIS method does not assume that each criterion has equal importance. Therefore, it requires a set of weights from the decision-maker. The direct assessment of weights has some disadvantages when the total number of criteria is large. Moreover, this kind of weighting process can be unstable, suboptimal and arbitrary (Zeleny, 1974:169). In addition, the dimensions of sustainability have many criteria, and it can be difficult to satisfy them simultaneously because they conflict with each other. From this point, the entropy method is used to evaluate the weights of the criteria. In this way, the relative importance of each criterion is objectively determined. Moreover, to use same weights for the analysis period, the 27 sustainability reports published in the Turkish banking sector from 2009-2015 are considered. Thus, it is possible to ensure an objective comparison for all banks. By using all the reports, weights that represent the whole banking sector are obtained, and discrepancies between the reports are removed. This method has been applied in three stages. First, the relative importance of each criteria in each main and sub-dimension has been calculated. Second, the relative importance of each sub-dimension in each main dimension and the relative importance of main five dimensions have been calculated to use as weights in the TOPSIS method. At the last stage, the TOPSIS method is employed to measure sustainability performance of the banks from 2012-2014.

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3.2.Content Analysis

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Content analysis is a scientific tool and is also a research technique for making replicable and valid inferences from texts to the contexts of their use. It provides new insights, increases a researcher understanding of particular phenomena, or informs practical actions (Krippendorff, 2013:24). Weber, also defines content analysis as “a set of procedures to make valid inferences from text” (Weber, 1990). That analysis is frequently used to determine the number of disclosures in the sustainability reports published by different sectors. Some academicians measure the amount of disclosures by the number of pages while others use the number of words (Ng, 1985) or the number of sentences (Hackson and Milne 1996). In this study, the number of sentences is used. As Milne and Adler (1999) state, using sentences the basis of coding is far more reliable than any other unit of analysis since reliability decreases when words are used. Maubane et al. (2014) use eighty-three indicators to reveal the sustainability reporting patterns of companies listed on the Johannesburg Securities Exchange through content analysis methodology. Jones et al. (2010) use content analysis on 300 firms’ annual reports to investigate and analyze corporate approaches to sustainability in the US engineering and construction industry. 3.3.Entropy Method

Entropy was introduced by Shannon and Weaver (1949) with the theory of communication and it has been widely used in information theory in the course of time. Entropy can be

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ACCEPTED MANUSCRIPT defined as measure of observational variety or of actual diversity. It does not any assume about the nature of the frequency or probability distribution and therefore it is accepted as nonparametric measure of variety (Krippendorff, 1986:17). According to the method, the decision matrix for a set of alternatives contains a certain amount of information. Thus, entropy can be used as a tool in any criteria evaluation. Entropy is particularly useful to investigate contrasts between sets of ideas (Hwang and Yoon, 1981: 52).

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In the literature, Erol et al. (2011), Idayu and Lazim (2012), Li et al. (2014), and Hsu et al. (2015) also utilize both Entropy and TOPSIS Methodology to measure corporate sustainability performance. The entropy method is used to objectively evaluate the weights of the criteria. The direct assessment of weights has some disadvantages when the total number of possible criteria is very large, as in our study.

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3.4. TOPSIS

4. Empirical Findings 4.1. Content Analysis

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MCDM methods are commonly used to evaluate the performance of firms. This method makes preference decisions (e.g., evaluation, prioritization, and selection) over the available alternatives that are the characterized by multiple, usually conflicting attributes. TOPSIS is one of these methods and it preferred since it is easily calculated and interpreted. The TOPSIS method was developed by Hwang and Yoon (1981). It is based on the idea that the chosen alternative should have the shortest distance from the ideal solution and the longest distance from the least ideal solution. The TOPSIS method does not assume that each criterion has equal importance. Therefore, it requires a set of weights from the decision-maker (Hwang and Yoon, 1981). In addition, it produces a performance score that lies between 0 and 1. Thus, alternatives can be ranked from the best to the worst using these scores.

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With respect to sustainability disclosure efforts in corporate sustainability reports, the total number of sentences disclosed by the four banks is 6.567, 6.393 and 6.832 for the years 2012, 2013, and 2014, respectively. When the numbers of disclosures are examined in each year, it has been found that banks exhibit almost the same pattern with respect to the amount of disclosures. For that matter, the results of the content analysis are only given for the year 2014, since it contains the most up-to-date information. According to Figure 3, the social sustainability dimension has the most disclosed sentences among the five sustainability dimensions, while the economic dimension has the least. Governance is the second dimension in terms of the number of disclosure. As seen from the figure, Bank A has the most social, governance and financial disclosures among all of the banks included in this study. In addition, Bank B has the most environmental disclosures, and Bank C has the most economic disclosures. [Please, insert Figure 3 about here]

Table 2 presents the percentage of disclosures in the 12 sustainability reports based on the 5 sustainability dimensions and a total of 86 criteria. The results of the main dimensions for all banks in each year slightly differ.

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ACCEPTED MANUSCRIPT [Please, insert Table 2 about here]

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According to results shown in Table 2, all banks have the most disclosed sentences in the social dimension while the fewest disclosed sentences are in the economic dimension. The overall results exhibit that 54.27 %, 50.13 % and 53.56 % of disclosures are related to the social dimension and only 2.73 %, 2.72 % and 2.36 % of disclosures are related to the economic dimension. Thus, among all sustainability dimensions, all banks prefer to disclose more on social dimensions and less on economic dimensions. Khan et al. (2011) use a similar methodology and reveal that the social dimensions of sustainability are high for 12 major commercial banks listed on the Dhaka Stock Exchange in the 2008/2009 annual reports. 4.2. Entropy Method

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The main indicators of corporate sustainability have been determined using the relative importance (weight) obtained from the entropy method. The Appendix presents the list of all indicators with their relative importance and sources of indicators. According to the results, it has been seen that the “development and impact of infrastructure investments, contribution to national economy and impacts on global economy” have the most relative importance in the economic dimension while “energy saving policies, energy consumption and tree plantation programme (loan related)” have the most relative importance in the environmental dimension. On the other hand, “rural development programmes, emphasis on the morality of the employees, freedom of association for collective bargaining, relations with suppliers” have the most relative importance for each sub-dimension of the social sustainability dimension. In addition, “Corporate award and recognition” and “Comparative financial growth with previous years” have the most relative importance in the governance and financial sustainability dimensions, respectively.

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Table 3 states the weights of sub-dimensions and main dimensions. The table shows that “energy consumptions and savings” has more relative importance than the “natural environment” in the environmental dimension and “human rights” has the most relative importance in the social dimension. Based on the results of the entropy method, the economic dimension has the most relative importance (41.52 %), even though it contains a fewer number of disclosures. On the other hand, governance and social sustainability dimensions have similar weights that are the lowest weights (8.63 % and 8.14 %) among all dimensions.

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[Please, insert Table 3 about here]

4.3. TOPSIS Method

For obtaining corporate performance scores, the TOPSIS method is employed as a two-stage, dimensional base to assess overall corporate sustainability performance. Table 4 reveals the sustainability performance scores based on five dimensions. [Please, insert Table 4 about here]

According to the performance scores based on the dimensional base, each bank has different performance scores in each year. At the beginning of the research period in 2012, the economic dimension of Bank B, the environment dimension of Bank C, the social dimension

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ACCEPTED MANUSCRIPT of Bank D, the governance dimension of Bank D and the finance dimension of Bank B have the highest respective performance scores. For 2013, the economic dimension of Bank B, the environment dimension of Bank D, the social dimension of Bank B, the governance dimension of Bank D and the finance dimension of Bank B have the highest respective performance scores. Lastly, for 2014, the economic dimension of Bank C, the environment dimension of Bank D, the social dimension of Bank B, the governance dimension of Bank D and the finance dimension of Bank B have the highest respective performance scores.

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Based on the overall results, it has been found that, Bank B has the highest score (49.51 %, 55.77 %) in the economic dimension in 2012 and 2013 and the highest score (51.29 %, 50.39 %) in the social dimension in 2013 and 2014. Additionally, Bank B has the highest score (55,75%, 50.94 % and 68.44 %) for all three years in the financial dimension of corporate sustainability. Furthermore, Bank D has the highest score (69.98 %, 50.12 % and 67.20 %) in the governance dimension for all three years and has the highest score (46.22 %, 49.05 %) in the environmental dimension in 2013 and 2014. Finally, Bank C has the highest score (58.30 % and 50.34 %) in the economic dimension in 2014 and in the environment dimension in 2012.

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Table 5 presents the information for all banks’ overall sustainability performance scores. To attain overall performance score, the main sustainability dimension weights taken from the entropy method were multiplied by their respective performance score for each bank. Then, the total performance scores were calculated for the related years. [Please, insert Table 5 about here]

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Banks A and D show a similar pattern in terms of sustainability performance scores. Bank A has the lowest score while Bank B is the most stable bank in terms of performance scores for 2012-2014. In 2012, Banks B and C had the same performance scores. Following 2012, Bank B’s performance scores improved whereas Bank C’s performance did not. Bank D’s performance score was as average when compared to the other banks.

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5. Discussion and Implementation

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The measurement and evaluation of corporate sustainability is a field that attracts more worldwide attention and that of emerging markets. Earlier studies reported several dimensions of corporate sustainability disclosure, including the Environmental, Social and Economic dimensions (Elkington 1997; Ranganathan 1998; Fricker 1998); Social, Economic and Finance dimensions (Moneva et al., 2008); Environmental, Social, Economic and Natural Resource dimensions (Keeble et al., 2003) Environmental, Social, Governance (ESG) dimensions (Maubane et al., 2014); ESG and Economic dimensions (Rebai et al., 2016); and ESG and Finance dimensions (Aras and Crowther, 2009). In addition to the economic, environmental and social dimensions of corporate sustainability, a good governance structure and financial factors should be integrated to properly evaluate firms’ sustainability disclosures. The multidimensional framework in this study differs from previous ones. Additionally, in Turkey, companies have begun to give more importance to sustainability applications. They have started understanding the significance of managing their environmental and social risks and financial performance while doing their jobs. This creates better, more qualified data for academic studies. Furthermore, this awareness increases the quantity and quality of future work. In contrast, the need to obtain and process qualified data

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ACCEPTED MANUSCRIPT for the measurement of sustainability performance is not an easy task. A significant methodological approach, an application of measurement and a valuation are required, making every originally produced work even more important.

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Bansal’s study (2005) created a list of twenty-two items for measuring corporate sustainability disclosure in terms of six economic prosperity items, six social equity items and ten environmental integrity items for Canadian firms’ sustainability disclosures. Sobhani et al. (2009 and 2012) identified sustainability disclosure items in terms of fourteen economic disclosure items, twenty-four environmental disclosure items, and eighty-six social sustainability disclosure items for the banking industry. Their study is the first research that explores sustainability issues comparing Islamic and conventional banking. Furthermore, Nobanee and Ellili (2016) utilize content analysis methodology for the analysis of corporate sustainability disclosures of 16 banks listed on both the Dubai financial market and the Abu Dhabi securities market by comparing Islamic and conventional banks in 2003 and 2013. By considering the energy and natural environmental disclosures titles and related subtitles, the disclosure of all banks has been found to be low, and Islamic banks have lower sustainability disclosure practices than conventional banks. Under the intensely competitive environment, banks’ competitiveness must be accomplished to obtain superior corporate sustainability performance. In line with this fact, a valid and multidimensional assessment of banks’ sustainable performances has become a crucial topic. This study fulfils this gap by providing a comprehensive evaluation with a multidimensional focus from an emerging country perspective. Both Entropy weights and the TOPSIS method have been employed to this comprehensive assessment of the Turkish Banking Sector’s sustainability practices in order to overcome the subjectivity. One of the important contributions of this work is the combined use of the results of content analysis, entropy weights and TOPSIS.

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This study reveals that all corporate sustainability reports have been prepared in accordance with the GRI reporting guidelines and include an application of the G4 Sector Disclosures Financial Services sector supplement. However, changes in GRI reporting standards has affected the number of disclosed sentences. Based on this, the Entropy results have changed. When we examined the relative importance of the main dimensions, economic sustainability has the most weight, although it has fewer disclosures. Furthermore, Rebai et al. (2016) classify French banks’ sustainability actions into four groups, including economic sustainability actions, social responsibility actions, environmental sustainability actions and governance quality actions. According to the multi-attribute utility model for generating sustainability index results, all banks suffer from considerably low performance related to environment sustainability but possess relatively good performance with respect to economic sustainability. However, social and governance sustainability dimensions have almost same weight and are the lowest weights, although both have ample disclosures among all dimensions. This result shows that, in spite of the banks’ high and similar disclosures, the large difference in the number of disclosures increased the weights of criteria. Additionally, rather than having the highest score in one or more dimensions, improving the performance across all dimensions provides a substantial contribution to the bank’s overall score and ranking. Moreover, Raut et al. (2017) develop an integrated MCDM model for evaluating the six largest Indian bank’s sustainability practices by employing a multi-stage, fuzzy Balanced Scorecard, fuzzy AHP and fuzzy TOPSIS. That developing country’s study also reveals that environmental issues take a back seat compared to financial stability, customer relationship management and internal business process sustainability issues. This fact could be a reason for less consciousness of environmental issues in the service industry as opposed to other domains such as the manufacturing industry.

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The banking industry is under increasing pressure from both regulatory bodies and investors to improve comprehensive sustainability indicators. Higgins and Coffey (2016) realize that firms are integrating sustainability into their strategic considerations and thereby realizing considerable benefits from sustainability reporting. Amui et al. (2017) conduct a systematic literature review of the dynamic capabilities for sustainability and highlight the gap in the sustainability investigations literature showing that developing countries represent only 21 % of the published articles. Moreover, they note that 60 % of the articles are related to the manufacturing sector and there has been a lack of investigations of the service sector.

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Content analysis reveals that having the highest number of corporate sustainability disclosures does not guarantee a bank’s superior corporate sustainability performance. For instance, although Bank A has the highest number of disclosures in all three dimensions, the overall performance was ranked as third and fourth among banks. The underlying cause of this result is the differences of relative importance of each dimension.

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Based on the TOPSIS method, it has been shown that the sustainability performance of banks can be monitored and compared with each other. The TOPSIS method reveals the performance scores of the four banks with respect to both the corporate sustainability dimensions and overall performance. We note that the overall score of a bank that scores high on a dimensional basis is not always high. For example, Bank B performed well in economic, social and financial dimensions of corporate sustainability and ranked first or second in terms of overall scores. Nevertheless, despite the high score of Bank D in the environment and governance issues, as a result of the low overall score, it was ranked as third or fourth. The underlying cause of this is the differences of relative importance for each dimension. Additionally, rather than having the highest score in one or more dimensions, improving performance in all dimensions provides a substantial contribution to the banks’ overall score and ranking. Bank C has taken the highest score in only two years and two dimensions and scores, but it has a high general score. This demonstrates that a corporate sustainability approach is a holistic approach and has to be comprehensively assessed within a multidimensional framework.

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Hence, that methodological order helps banks track their performance levels in various dimensions and identify opportunities for improvement. In addition, it enables the detection and investigation of the reasons for the low performance of sustainability terms. More specifically, the model may help identify the strengths and weaknesses for each bank, set the best sustainability practices and formulate and implement necessary corrective actions and enforcement measures. This approach may also provide Turkish banks with insight into the level of corporate sustainability disclosures and help regulators develop systematic sustainability disclosure guidelines. Some limitations has to be noted. This study gives evidence that corporate sustainability reporting is mostly unsystematic and lack of comparability between banks and reporting periods in Turkey. This paper is a starting point of deep research regarding topics such as the integrated reporting. An integrated reporting framework provides a holistic view on a firm’s financial and non-financial performance avenues. The results are also limited to large banks which have more resources to invest in sustainability initiatives than smaller banks.

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6. Conclusions

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Financial system specifically banks role are very crucial for initiating the corporate sustainability concerns. Given the importance of banking sector in sustainable development and the need for further investigation, this paper evaluates Turkish Banks’ multidimensional corporate sustainability practices and establishes a corporate sustainability performance evaluation model for banks.

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This study has two novel contributions. Firstly, a multidimensional corporate sustainability model that has the five dimensions of economic, environmental, social, governance and financial disclosures is proposed. Second, in this study, both content analysis and the TOPSIS method are utilized to measure the sustainability performance of banks. In this context, a total of 12 sustainability reports published by four deposit banks were analyzed for 2012-2014.

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By using content analysis, the number of disclosed sentences is determined and then converted to a disclosure ratio. These ratios are weighted using the Entropy method and sustainability performance scores of the banks’ are obtained by the TOPSIS method. According to the performance scores, banks are ranked. The combined use of content analysis, entropy weight and TOPSIS makes a great contribution to the study. The results indicate that, rather than having the highest score in one or more dimensions, improvements across all dimensions provides a substantial contribution to the bank’s overall score and ranking. This demonstrates the fact that the corporate sustainability approach is a holistic approach and has to be comprehensively assessed with a multidimensional framework.

EP

This study is the first to assess the sustainability issues of the Turkish Banking Sector and one of a few in the emerging academic studies. The multidimensional sustainability disclosure framework combines the results of entropy weights and TOPSIS to significantly contribute to the literature in the absence of any research on Turkish banking sustainability.

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Consequently, these results will provide not only new understanding policy for sustainability approach but also innovative performance evaluation system for banks and could be used as an assessment tool for improving the performance of the banking sector in emerging markets. As a result of this more reliable performance evaluation, bank managers may understand if resources are being used effectively. This robust performance evaluation develops future resource allocation. Moreover, the disclosure practices will provide insights into how the Turkish Banking Sector reports on sustainability issues and the types. It is firmly believed that this proposed framework with a slight modification of the evaluation criteria may guide the evaluation models of comprehensive corporate sustainability performances for other financial sectors and help financial system, economy and societies become more sustainable.

Acknowledgement This study was supported by The Scientific and Technological Research Council of Turkey (TUBITAK), under the Project Number: 115K708.

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ACCEPTED MANUSCRIPT

Relative Importance Source of Indicator

Sustainability Indicators

GRI G4-EC1-9

Economic Sustainability Disclosures 0.2528

Development and impact of infrastructure investments

0.4049

GRI G4-EC7

Impacts on local economy

0.1042

GRI G4-EC8

Impacts on global economy

0.2381

GR G4-EN3-7, Sobhani et al.(2012)

Investing in renewable energy Energy consumption Initiatives to reduce energy consumption Awareness building concerning energy consumption Energy use efficiency Reduction of energy consumption

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Energy Consumptions and Savings Disclosures Investing in energy projects

GRI G4-EC8

GRI G4 EN1-30, UNEP-FI, EPFI, Sobhani et al.(2012)

Environmental Sustainability Disclosures Energy saving policies

GRI G4-EC1&EC8

SC

Contribution to national economy

0.2143

GRI,EN14

0.0990

GRI G4-EN31

0.0830

GRI G4-EN6,EN7, EN31

0.1643

GR G4-EN3-4

0.1020

GRI G4-EN6

0.1432

Sobhani et al.(2012)

0.0853

GRI G4-EN7

0.1089

GRI G4-EN6

GRI G4-EN1-2, 8-30, UNEP-FI, EPFI

0.0457

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Natural Environment Disclosures Corporate environmental policies

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Appendix: List of Corporate Sustainability Indicators with Their Relative Importance and Source of Indicators

GRI G4-35-37, EPFI (2013)

0.0271

GRI G4-EN13

Compliance with environmental regulations

0.1089

GRI G4-EN13

Investing in waste recycling / treatment plant

0.0884

GRI G4-EN27

Environmental financing

0.0561

UNEP-FI (2015)

Steps in ensuring pollution free environment

0.1552

GRI G4-EN27

Tree plantation programme

EP

Undertaking environmental protection and beautification programmes

GRI G4-EN27

0.0393

GRI G4-EN19

Environmental cost saving operations

0.0484

GRI G4-EN27

Issues concerning climate change

0.0718

GRI G4-EC2

Total water withdrawal by source

0.0540

GRI G4-EN8

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0.1758

Initiatives to reduce greenhouse gas emissions

Paper consumption & saving

0.0887

GRI G4-EN23

Carbondioxide consumption

0.0406

GRI G4-EN15-17 GRI G4, UNEP-FI, ACCA, Sobhani et al.(2012)

Social Sustainability Disclosures

GRI G4-SO1-11, ACCA, UNEP-FI, Sobhani et al.(2012)

Contribution to Community Disclosures Importance of community development

0.0164

GRI G4-SO1

Contribution of separate body to CSR activities

0.0190

Sobhani et al.(2012)

Supporting and financing SMEs

0.0443

ACCA

Rural development programmes

0.1850

Sobhani et al.(2012)

Credit facilities for women entrepreneurs

0.1419

Sobhani et al.(2012)

Financial assistance for poor women and children

0.0698

Sobhani et al.(2012)

Supporting the participation of disabled individuals in social and economic life

0.1074

Sobhani et al.(2012)

Patronizing general and technical education

0.0349

Sobhani et al.(2012)

Sponsoring sports and cultural functions

0.0462

Sobhani et al.(2012)

18

ACCEPTED MANUSCRIPT Social awareness programmes

0.0872

UNEP-FI (2015)

Anti-corruption measures

0.0814

GRI G4 SO3-5

Supporting and financing art&culture

0.0409

GRI G4-SO1

Supporting and financing entrepreneurs

0.1256

GRI G4-SO1 GRI G4 LA1-16, Sobhani et al.(2012)

Human Resource Development Disclosures 0.0523

GRI G4 LA10

HRD plans and policies

0.0458

GRI G4 LA10

Employee compensation, welfare or donation

0.0582

GRI G4-EC2

Provision for superannuation benefits

0.1066

Sobhani et al.(2012)

Male/female ratio in employment

0.0946

GRI G4-LA1

Executive profile/list of corporate senior officials

0.0909

GRI G4-LA1

Training employees through in-house programmes

0.0890

GRI G4-LA11

Nature of training attended by the employees

0.0352

GRI G4-LA1

Emphasis on the morality of the employees

0.1323

GRI G4-56-58

0.0644

GRI G4-LA1

Appreciating employees for their efforts

0.0630

GRI G4-LA11

Reward and recognition for better performance

0.0730

GRI G4-LA11

Employee profile (information about total number of employees, employee seniority/age/education level)

0.0383

GRI G4-LA12

Internal communications with employees

0.0564

SC

Total number and rates of new employee hires and employee turnover

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GRI G4-LA4

GRI G4 HR1-12,LA1-16

Human Rights Disclosures

Healthy and safe workplace for staff & healthcare facilities & health insurance for the employees

0.0803

GRI G4-LA6

Measures to prevent accidents & Disclosing accident statistics 0.1304

GRI G4-LA6

Provisions for maternity and paternity leaves

GRI G4-LA2

Freedom of association for collective bargaining Disclosure on child labour or free from child labour

Product Responsibility Disclosures

0.1777

0.2774

0.1459

GRI G4-HR5

0.1061

GRI G4-HR1-5

0.0823

GRI G4-HR3

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Human rights policies Women rights & equal opportunity

GRI G4-PR1-9, Sobhani et al.(2012)

Appreciating customers for their support

0.0542

GRI G4-PR5

Customer service and facilities

0.0449

GRI G4-PR3

Information related to new products Different types of products & services

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Importance of HR development

0.0999

GRI G4-PR3

0.0727

GRI G4-PR3

0.0484

Sobhani et al.(2012)

‘Research & development’ for products & services

0.0741

GRI G4-PR2

Development regarding online banking

0.0911

Sobhani et al.(2012)

Arrangement for receiving complaints & Complaints received and resolution information

0.1584

GRI G4-PR8

Relations with suppliers

0.2474

GRI G4-SO9, Sobhani et al.(2012)

Secured and contemporary technological infrastructure

0.1088

GRI G4-PR2

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EP

Information on the ground of the products & services

GRI G4, UNEP-FI, ACCA, Sobhani et al.(2012)

Governance Sustainability Disclosures Organizational profile

0.0415

Executives’ profile

0.1504

GRI G4-3-4 Sobhani et al.(2012)

Corporate sustainability vision/mission/goal/objective

0.0448

ACCA

Corporate perceptions on CSR and sustainability conceptions

0.0990

Sobhani et al.(2012)

Corporate policy and strategy for sustainable development

0.0495

ACCA

Management of economic, social, environmental impacts, risks and opportunities

0.0753

GRI G4-37, UNEP-FI (2015)

Stakeholder engagement/view exchange programmes

0.0601

GRI G4-24-27

Publiceprivate-partnership (PPP) on sustainability issues

0.1110

Sobhani et al.(2012)

Disclosure process of CSR/sustainability performance & Monitoring CSR/sustainability activities

0.0592

ACCA

19

ACCEPTED MANUSCRIPT Corporate governance report

0.0780

ACCA

Corporate award and recognition

0.2311

ACCA GRI G4-7,G4-13, G4-EC1, ACCA, Sobhani et al.(2012)

Financial Sustainability Disclosures 0.1187

GRI G4-7,G4-13, Sobhani et al.(2012)

Dividend policy

0.0639

GRI G4-EC1

Funding collection

0.1088

ACCA

Comparative financial growth with previous years

0.3053

Sobhani et al.(2012)

Interpretation of corporate financial performance Loan Portfolio

0.2222 0.1811

Sobhani et al.(2012) Sobhani et al.(2012)

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SC

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Capital structure

ACCEPTED MANUSCRIPT Table 1 Multidimensions of Corporate Sustainability with the Number of Criteria Main Sustainability Dimensions/Sub-Dimensions

Number of Criteria

Economic Sustainability Disclosure Financial Sustainability Disclosure Environmental Sustainability Disclosure

4 6 21 8

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Energy Consumptions and Savings Natural Environment

Social Sustainability Disclosure

44

Contribution to Community Human Resource Development Human Rights

SC

Product Responsibility

EP

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Governance Sustainability OVERALL

AC C

13

11 86

13 14 7 10

Table 2 Disclosed Sentences as a percentage of all disclosed sentences for the period 2012-2014 Number of Criteria

2012 Bank A

Bank B

Bank C

2013 Bank D

Overall

Bank A

Bank B

Bank C

Bank D

SC

Sustainability Dimensions

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ACCEPTED MANUSCRIPT

Overall

2014 Bank A

Bank B

Bank C

Bank D

Overall

4

2.29

2.10

4.62

2.61

2.73

2.32

2.09

5.28

1.75

2.74

2.29

1.88

3.86

1.45

2.37

Environmental

21

13.77

23.63

18.09

8.01

16.51

13.94

26.60

17.08

15.50

18.61

12.69

25.51

15.53

11.21

16.67

8

35.18

19.70

30.04

40.22

27.95

31.41

24.90

19.32

22.64

30.24

38.52

25.82

26.67

35.25

36.59

13

64.82

80.30

69.96

59.78

72.05

68.59

75.10

80.68

77.36

89.22

61.48

74.18

73.33

64.75

84.12

51.17

48.54

51.18

73.37

54.27

52.19

44.55

46.12

60.82

50.02

52.91

48.35

52.45

64.60

53.56

22.52

41.45

29.34

27.08

31.16

23.22

34.49

27.76

26.59

28.86

32.36

29.16

25.40

26.76

30.55

33.73

25.95

26.05

23.97

29.16

3.25

6.09

3.40

5.77

4.71

4.41

9.62

6.18

7.87

7.10

Energy Consumptions and Savings Natural Environment

Social

44

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Economic

13

23.49

36.35

33.60

43.53

33.45

Human Resource Development

14

31.73

37.30

29.16

25.27

31.23

7

4.91

3.06

1.43

0.47

2.75

10

39.88

23.29

35.82

30.72

32.58

41.87

23.30

41.86

40.38

38.26

38.64

29.95

40.00

41.57

38.71

28.52

22.92

22.14

14.27

23.16

27.48

24.20

25.50

20.66

25.06

28.65

21.64

23.88

20.89

24.29

Governance

11

Financial

6

4.26

2.81

3.97

1.74

3.33

4.07

2.56

6.02

1.27

3.57

3.45

2.61

4.28

1.85

3.12

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

EP

Product Responsibility

AC C

Human Rights

TE D

Contribution to Community

ACCEPTED MANUSCRIPT Table 3 Weights Obtained From Entropy Method for Main and Sub-Dimensions Sub-Dimensions Environmental Energy Consumptions and Savings

0.1953

Social Contribution to Community

0.1437

Human Resource Development

0.1940

Human Rights

0.5145

Product Responsibility

0.1476

Main Sustainability Dimensions 0.4152

SC

Economic

RI PT

Natural Environment

0.8046

Environmental

0.2156

Social

0.0814

Financial

0.0863

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Governance

0.2013

Table 4 Sustainability Performance Scores Based on 5 Dimensions Banks Sustainability Dimensions Environment 0.4003

Social 0.3860

Governance 0.1956

Finance 0.4259

Bank B

0.4257

0.3956

0.3534

0.3720

0.5039 0.3786

0.3861

0.6844 0.5800

Bank C Bank D

0.5830 0.2738

0.4905

0.4688

0.6720

0.3197

2013 Bank A

0.3236

0.4025

0.4327

0.3464

0.4295

0.4127 0.4041

0.5129 0.3493

0.3279

Bank C

0.5577 0.4017

0.3965

0.5094 0.4084

Bank D

0.2597

0.4622

0.4393

0.5012

0.3894

2012 Bank A

0.4233

0.3915

0.3109

0.1824

0.4514

0.3678

0.2938

0.3968

Bank C

0.4951 0.4765

0.3299

0.4462

Bank D

0.3720

0.5034 0.4279

0.5575 0.4307

0.5697

0.6998

0.3740

AC C

Bank B

TE D

Economic 0.3872

EP

2014 Bank A

Bank B

ACCEPTED MANUSCRIPT Table 5 Overall Sustainability Performance Scores and Ranks 2012

Rank

Rank

2014

Rank

Bank A

4

0.3728

3

0.3812

3

Bank B

0.4553

2

0.4932

1

0.4714

2

Bank C

0.4585

1

0.3988

2

0.5032

1

Bank D

0.4289

3

0.3650

4

0.3800

4

AC C

EP

TE D

M AN U

SC

RI PT

2013

0.3921

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ACCEPTED MANUSCRIPT

GRI framework, UNEP Finance Initiative, ACCA guidelines, pilot studies and extended version of Sobhani et.al. (2012)

TE D

Content Analysis

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Fig. 1. Multidimensional Sustainability Model Proposed

Determining Sustainable Indicators

Obtaining Values of Criteria

Determining Weights of Criteria

TOPSIS Method

Measuring Performance of the Banks’

EP

Entropy Method

AC C

Fig. 2. Analysis Process of the Research

ACCEPTED MANUSCRIPT 1200 1000 800 600 400 200

Bank A

Bank B

Bank C

Bank D

AC C

EP

TE D

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SC

Fig. 3. Number of Disclosures Based on Dimensions for the year 2014

RI PT

0