We examine the sustainability reporting activities of companies in controversial industries, e.g., alcohol, firearms, for-profit prisons, gambling, tobacco, marijuana and payday loans. For each industry we identify its controversial social problem – the “elephant in the room.” We then examine whether the company issued a sustainability report in the last three years and, if so, how the report dealt with the firm’s controversial social issue. We categorize responses as:
1. No report
2. Reported but didn’t mention the issue
3. Reported but deflected or minimized the importance of the issue
4. Reported and addressed the issue in a meaningful way
Compared to two other sectors – grocery stores and department/discount stores – companies in controversial industries publish sustainability or CSR-type reports at a lower rate (28% versus 43%). Thus, the lower frequency of reporting among controversial firms suggests these companies tend to adopt a strategy of “ignoring the elephant.” On the other hand, a minority of controversial firms choose to report, which reflects alternative strategies – to either address the problem, to minimize it, or to deflect attention away from it.
Among the controversial firms that did issue reports, 62% dealt with the controversial issue in a meaningful way; that is, they acknowledged there was a serious problem and described the effort they were taking to address the issue. Of the firms in these controversial industries only about 10% chose to ignore the issue entirely.
We also find significant differences in how the two groups of companies allocate space in their CSR reports. We categorize pages in the reports as dedicated to social and community efforts or environmental issues. The non-controversial companies devote significantly more of their reports to environmental issues than do controversial companies. The controversial companies have a higher ratio of their reports dedicated to social and community activities relative to environmental activities. This result is consistent with firms in controversial industries using social and community actions to attain legitimacy by taking actions that off-set the social ills inherent in their core business.