Keywords

JEL Classification

1 Introduction

Tourism in itself is an epitome of an oxymoron, as on the one hand it requires social and environmental resources to create tourist attraction and interest, and on the other hand it requires  the same resources to provide satisfactory service to tourists coming to the area. Historically, hotels have had a major impact on the tourism industry, which has evolved into an industry of its own. Today, the hotel industry has a significant share in the tourism industry that affects, but is not limited to, both environmental and social resources in the immediate area of the site. Therefore, nowadays hotels are turning to a sustainable economy in a more or less agile way. They focus their efforts and business resources on reducing their impact on the environment (reducing water usage and waste, energy saving, GHG emission tracking, etc.) and improving the quality of life, at least within and immediate surroundings (employees work satisfaction, rights of indigenous people, suppliers effect on the society, supporting local businesses, providing good labor conditions, etc.). Therefore, it is not surprising that the world’s leading hoteliers readily disclose their environmental and social information in sustainability reports (Jones & Comfort, 2019; Jones et al., 2006, 2014; Ortmann et al., 2020). Nevertheless, sustainability reporting comes with its own problems, which are discussed below.

2 Sustainability Reporting

Many companies are turning to sustainability reporting to communicate their sustainable practices to their customers, business partners, and other stakeholders. The hotel industry is no exception. Yet, whether referring to sustainability reporting in general or in terms of a specific industry, there is a certain amount of confusion and uncertainty about what sustainability topics to disclose and how to disclose them. Sustainability reporting has been researched for over half a century. It has evolved through several stages (Fifka, 2012, p. 62), starting with social reports that  presented the impact of corporate activities on health in the 1960s and on energy sources in the 1970s, to environmental protection in the 1980s and environmental reporting dominating 1990s resulting in the emergence of environmental reporting (Bebbington et al., 2014, p. 53, 54; EPA, 1995, p. 5; Ortas & Moneva, 2011, p. 20). Despite all this, it still has not reached the level of quality and accuracy of financial statements and reports. The thinking behind environmental accounting was limited to the historically already established financial reporting and accounting, to which non-financial inputs related to the environment were added (Bartolomeo et al., 2000, p. 33). Since then, the idea of disclosing a company’s impact on the environment and society has attempted to evolve to the level of financial reporting in terms of measurement, accuracy, simplicity of form, and yet complexity of information provided. There is extensive research on sustainability reporting and sustainability accounting that provides important insights on this topic, but there is no consensus on what sustainability accounting actually is and how it is should be structured so that its output is sustainability reporting. Until then, this gap will lead to quite a bit of uncertainty about both the form and content of sustainability reports.

Many papers examine this topic from different angles, increasing the number of papers on sustainability reporting and accounting (Bebbington et al., 2014, p. 57; Hahn & Kühnen, 2013, p. 9; Ortas & Moneva, 2011, p. 24) which adds valuable knowledge but does not provide a comprehensive answer on what and how an industry should produce sustainability reports. There are increasingly many sustainability reporting frameworks with completely different approaches to sustainability issues, among the best known being the GRI Standards (GRI, 2016), SASB Standards (SASB, 2013) and Integrated Reporting (IIRC, 2013). As if to add fuel to the fire, in 2021 European Commission (EC) announced a Proposal for a Directive amending Accounting Directive (2013/34/EU), the Transparency directive (2004/109/EZ), the Statutory Audit Directive (2006/43/EZ), and the Statutory Audit Regulation (No. 537/2014), and announced the development of EU standards for non-financial, i.e., EU sustainability reporting (EC, 2021). In this Proposal, EC has identified most of the challenges, so many researchers have been pointed out that “Some companies from which users want sustainability information do not report all the information, while many that do report sustainability information do not report all the information that is relevant for users. When information is reported, it is often neither sufficiently reliable, nor sufficiently comparable between companies. The information is often difficult for users to find and is rarely available in a machine-readable digital form” (EC, 2021, p. 2). This brings us to the next hurdle of sustainability reporting—its harmonization.

Harmonization in accounting in general is “the extent of concentration around a particular accounting policy choice” where “the degree of harmonization increases as the number of companies selecting the same accounting policy increases” (Herrmann & Thomas, 1995, p. 254). Harmonization in accountancy in itself requires understanding and explaining the reasons for differences in accounting systems, which are even more significant in sustainability reporting and accounting systems, as sustainability reporting requires all seemingly conflicting values: professionalism and statutory control, uniformity and flexibility, conservatism and optimism, and secrecy and transparency (Roberts et al., 2005, p. 185). Harmonization is divided into de facto harmonization (harmonization of accountancy regulations) and de jure harmonization (harmonization of companies’ practices). Various authors have measured the degree of de facto and de jure harmonization using different methods, e.g. with indices (H index, C index, I index), descriptive statistics, nonparametric tests (ordinal data, ANOVA, ponders), parametric statistics (Chi test, Cramer V test, contingency coefficient, linear regression model) and coefficients (Jaccards, Roger-Tanimotov, Lance-Williams; Baker & Barbu, 2007; Bowrin, 2002; Mcleay et al., 1999; Morris & Parker, 1998; Tay & Parker, 1990). Finally, all of these works examined financial harmonization.

Much research on sustainability reporting (Dropulić & Čuler, 2019; Foris et al., 2020; Hladika & Valenta, 2017; Janković & Krivačić, 2014; Markota et al., 2017; Milanes-Montero & Perez-Calderon, 2014; Soria Leyva & Parra Parra, 2021; Vuković et al., 2020; Zrnić et al., 2020) and sustainability harmonization (Afolabi et al., 2022; Fortanier et al., 2011; Jose, 2017) implicitly point to the above conclusion of EC in their guideline Proposal. Nevetheless, we could not find any authors approaching this topic from an already established and well-known paradigm, i.e., financial reporting, and further  looking at this topic through this prism. Most research focuses on de jure harmonization (Aureli et al., 2019; Aureli et al., 2020; Caputo et al., 2020; Jose, 2017; Kinderman, 2019; La Torre et al., 2018; Manes-Rossi et al., 2018; Tschopp & Nastanski, 2013), which is a particularly difficult endeavor in sustainability reporting, because there is no fixed structure as is in financial reporting. Few authors studied de facto harmonization (Manes-Rossi et al., 2018), but did not clearly distinguish these two types of harmonization in their work, so it was up to us to make this distinction. Finally, we came to the concluded that no one explicitly addressed the issue of de facto harmonization of sustainability reporting, certainly not in the hotel industry. This led to our assumption that it is necessary to learn what hotel companies do in their operational and strategic practices in order to produce sustainability reports, i.e., we felt it was necessary to investigate the degree of de facto harmonization in hotel companies.

We approached de facto harmonization as:

  • internal de facto harmonization of sustainability reporting

  • external de facto harmonization of sustainability reporting harmonization.

At least to our knowledge, no one in sustainability has taken this approach. The roots of this classification of de facto harmonization lie in the structure of financial accounting and reporting, where there are financial reports intended for internal stakeholders (management and non-management employees) and external financial reports intended for external stakeholders (investors, community, legal institutions, etc.). The authors who have studied sustainability reporting harmonization have focused primarily on external de facto harmonization, i.e. the study of available sustainability reports. We therefore chose a less traveled road and decided to look behind the scenes that should be behind all external financial reporting and, by analogy, external sustainability reporting. The goal was to find out what it looks like behind the scenes of external sustainability reporting. Our decision was reinforced by European Commission’s Proposal for a Directive on Corporate Sustainability Reporting (EC, 2021) amending the Accounting Directive (2013/34/EU), the Non-Financial Reporting Directive (2014/95/EU), the Transparency Directive (2004/109/EC), the Statutory Audit Directive (2006/43/EC) and the Statutory Audit regulation (No 5357/2014), pushes sustainability reporting to the margins of the norm for regular corporate reporting. If followed, this directive will represent a great leap forward in sustainability reporting by raising the harmonization of sustainability reporting to a de jure level. We believe this EC Proposal will have some impact on the actual practice of sustainability reporting by some companies, i.e. a de facto harmonization of sustainability reporting. However, we also believe that companies should be considered and treated within their respective industry segment in such approaches. Rather than leaving them in the dark, they should be offered concepts and practices to measure and report their environmental and social impact in their internal and external sustainability reports. This was the rationale for our research, which is explained in more detail in this paper.

3 Methodology

The questionnaire was sent to 68 hotel companies in Croatia, of which only 14 completed the online questionnaire either fully of partially. The data collected from those 14 hotel companies is considered relevant and representative as it reflects the number of establishment, average number of employees and income earned. The data were collected in 2019 and refer to 2018, and one segment of the questionnaire focused on (1) measuring and disclosing environmental and social key performance indicators (KPIs) and (2) the assessment the importance of environmental and social KPIs. Harmonization of the measurement and disclosure of environmental and social KPIs was measured using the C index, while assessment of the importance of environmental and social KPIs was measured using Kendall’s W.

For this study, we decided to test the level of a segment (measuring and disclosing environmental and social key performance indicators (KPIs)) harmonization of internal sustainability reporting with C index for several primitive reasons. First and foremost, C index “looks at the number of financial statements that are compatible with each other” easily coping with multiple reports within a single country (Roberts et al., 2005, p. 240, 241). The filled-out questionnaires were considered as financial statements, and the answers therein were compared and measured by C index. The paradigm of a single country was replaced with a paradigm of an industry, meaning that instead of measuring the level of (de facto) accountancy harmonization within geography of a country, we measured the level of de facto sustainability accountancy harmonization within the hotel industry. The most compelling reason for choosing this method for measuring de facto harmonization was just 14 observations (or filled-out questionnaires), because more complex statistical methods such as Jaccards or Roger-Tanimotov coefficient cannot be computed with such a low number of observations as we received. C index is calculated as follows (Van der Tas, 1988):

$$\frac{\sum [{n}_{i}*\left({n}_{i}-1\right)]}{[{N}_{i}*\left({N}_{i}-1\right)]}$$

where: ni is the number of companies using method i, N is the total number of companies and ranges <0, 1>, with 0 meaning no harmonization and 1 meaning an absolute harmonization.

Nonparametric statistics of Kendall’s W test of concordance was applied in measuring harmonization of the importance of environmental and social KPIs. In cotrast to the measurement and disclosure of environmental and social KPIs, the importance of environmental and social KPIs was assessed on an ordinal Likert scale of importance, and the degree of harmonization was measured using the Kendall’s W test of concordance. Kendall’s W test of concordance is a general measure of association in multiple classifications and measures “the association between the ranks of the k variates of the k sets of rankings of n objects, which in turn estimates some measure of the relationship between the k variates in the population [and] if the variates are independent, there is no association and W is zero, and where is complete dependence, there is perfect agreement and W equals to 1” (Gibbons & Chakraborti, 2003, p. 450). That is, W ranges <0, 1>, where W zero means there is no association, and when W is one, there is absolute association, i.e., harmonization.

4 Research Results

Harmonization of measurement and disclosure of environmental and social key performance indicators (KPIs)

Since sustainability reporting is still a voluntary disclosure in terms of content and form, we felt it was important to investigate the approach hotel companies take to measuring and subsequently disclosing environmental and social KPIs. Table 1 and Table 2 show the results of this investigation. The GRI Standards indicate that environmental and social KPIs can be reported in natural terms as well as in monetary or any type of relative values; we added the option to not measure if this was the case in some hotel companies, but this was not part of the calculation equation.

Table 1 Measuring and disclosing environmental KPIs
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Table 2 Measuring and disclosing social KPIs
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The most commonly used environmental KPIs are water consumption, measured in 100% of hotels, and energy consumption by source in 93.33% of hotels, which means that almost all of the hotel companies studied measure and track these two KPIs in some way, and the de facto harmonization indicates their importance in the hotel industry. Material consumption by types is slightly lower on the harmonization scale (80% of the hotels), but still quite strong in presence among the hotel companies. Other KPIs that are quite common in the hotel companies are measures to reduce GHG emissions, consumption of detergents and cleaning agents, and waste recycling (in 66.67% of the hotels), which means that the hotel companies consider the information on these KPIs to be quite important. It is interesting to note that most of the proposed KPIs are measured and disclosed with almost equal frequency in hotel companies, ranging from 46.67% to 66,67% of hotels overall, indicating that most of these hotel companies consider most of the proposed KPIs to be of at least somewhat important for their business. Most of these indicators are measured and tracked in monetary terms (in 57.89% cases out of 133 of total possibilities) or not measured/tracked at all (in 42.11% of cases out of 133 total). The index for harmonization of environmental indicators is 0.47, indicating rather low value.

The results for the social KPIs are slightly lower than those for the environmental ones (Table 2).

The social KPIs that all hotels measure are the impact of products/services on customer health and safety, support of cultural events at the destination, employee loyalty, employee turnover, employee education and development, work, personal and moral employees’ rights. It is interesting to note that all other social KPIs seem to be almost equally important to hotel companies, as all other social KPIs are present in 80% and 93.33% of hotel companies.

It is also interesting to note that most of the proposed social KPIs are measured and tracked in monetary or natural (absolute) values; some hotel companies track these KPIs in relative values,  while very few are not measure them at all. The C-index for harmonization is 0.36, which is even lower than the C-index for environmental KPIs. Although hotel management recognizes the importance of social KPIs, the way they view their performance measurement and management seems to fall somewhere in between.

Harmonization of the assessment of the importance of environmental and social KPIs

We felt it was important to assess the perceptions of hotel company’ management regarding the importance of the proposed environmental and social KPIs (Table 3 through Table 6). The importance of the KPIs was rated on a Likert scale from 1 to 5.

Table 3 Ranking of the assessment of the importance of environmental KPIs
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As shown in Table 3, the environmental KPIs with the highest rank are those related to energy consumption by source, water consumption, and detergents and cleaning agents’ consumption (9.54). The lowest ranked KPIs relate to biodiversity and traffic impact on the environment (6.54). These results indicate that, in this respect, hotel management focuses on the operational KPIs, while KPIs that are significant for sustainable strategic positioning and management of the hotels were rated significantly lower.

The importance of environmental KPIs was measured using Kendall’s W (Table 4) and was 0.160 (p = 0.010). This indicates that even the choice of importance of environmental KPIs among hotels in Croatia is harmonized to a very low degree.

Table 4 Kendall’s W for environmental KPIs
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The social KPIs with the highest score (Table 5) are employee education and development (8.65), working conditions, health and safety of employees (8.54) and work, personal and moral employees’ rights (8.54). The lowest rated social KPIs are stakeholder involvement at the destination level (6.08) and incident prevention (5.81). Just as with the environmental KPIs, hotel managers place greater importance on operational social KPIs than on strategic KPIs.

Table 5 Ranking of the assessment of the importance of social KPIs
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Kendall’s W (Table 6) measure for harmonization of the social KPIs is 0.112, which is slightly lower than for the environmental KPIs. This leads to the conclusion that there is no harmonization of importance of neither for environmental nor social KPIs. Since this research tested the degree of de facto harmonization, that is, the harmonization of existing practices and perception of the environmental and social KPIs, these results imply that there is almost no harmonization between hotels even in the selection of the KPIs. These results of the level of harmonization for environmental and social KPIs  suggest that while hotel management recognizes the importance of measuring and disclosing these KPIs, sustainability reporting has not yet advanced to the point where a single industry, at least the hotel industry, could create a list of KPIs that are clearly important to their business. This in turn leads to the issue of de jure harmonization of sustainability, or the harmonization of the laws and regulations related to the sustainability reporting that impose higher standards on companies (de jure) in terms of the sustainability practices they must disclose and report on.

Table 6 Kendall’s W for social KPIs
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5 Discussion and Conclusion

Sustainability in the hotel industry is becoming increasingly important, and more and more companies are implementing it in their business practices. There are several reasons for it. They have significant implications for economic, environmental and social issues. These issues affect a wide range of hotel performance. Hotel companies have high energy consumption (Arenhart et al., 2022), water consumption (Cruz-pérez et al., 2021) and waste generation (Singh et al., 2015). The hotel industry not only impacts the environment but also social issues. Although the GRI Standards as a prominent frameworok for sustainability reporting, recognize a variety of social issues to be addressed internally and reported in sustainability reports, ranging from human resource issues (e.g., GRI Standards on employment, labor and management relations, occupational health and safety, training and education, etc.), to their impact outside the company (e.g., right of indigenous people, local communities, publica assessment, etc.), most recent research has focused on social sustainability issues that address the interrelations between corporate social responsibility and human resource management (Salama et al., 2022; Youn & Kim, 2022), even being referred to it as “green human resource management” (Haldorai et al., 2022). Other issues that authors have addressed include employee turnover (Vetráková et al., 2019) and their creativity (Guo et al., 2021). It is significant to emphasize that researches on these topics are of particular importance. As mentioned earlier, sustainability accounting at this stage of development does not have internal protocols, systems or forms necessary for clear and harmonized internal and external sustainability reporting, and such research provides deeper insight into these topics and facilitates their measurement, recording, and  disclosure in sustainability reports. Because social topics defined in the GRI Standard are so complex, it is understandable that researchers are addressing one issue at a time. However, the impacts that companies have on their external environment (e.g., local communities, public policy, indigenous rights) should not be ignored or left outside the scope of research for too long, because doing  business sustainably business means measuring and managing impacts on the external environment as well.

It is important to draw attention that corporate social responsibility has a positive impact on financial performance of hotel companies (Babajee et al., 2022; Ghaderi et al., 2019; Inoue & Lee, 2011), but also on customer satisfaction and loyalty (Mohammed & Rashid, 2018; Olya et al., 2021), as well as the pressure from laws and regulations (Kinderman, 2019), to name a few.

To successfully manage their positive and negative impacts, hotel companies need to measure all aspects of sustainability. Differences in the amount and detail of information disclosed and the lack of common reporting protocols in sustainability reporting contribute to the lack of comparability among sustainability reports (Jones et al., 2014) making it difficult for stakeholders and shareholders to evaluate their performance.

Following  the parallels with financial accounting, harmonized protocols, systems, and forms for internal sustainability reporting would be an excellent starting point for achieving a de facto level of harmonization in sustainability reporting from which external sustainability reporting processes can derive and disclose data in external sustainability reports.