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ACCOUNTING FOR THE
ENVIRONMENT: MORE TALK
AND LITTLE PROGRESS
ADVANCES IN ENVIRONMENTAL
ACCOUNTING & MANAGEMENT
Series Editors: Martin Freedman and Bikki Jaggi
Recent Volumes:
Volumes 14: Edited by Martin Freedman and Bikki Jaggi
Volume 4: Sustainability, Environmental Performance and

Disclosures, 2010
Volume 3: Environmental Accounting: Commitment or Propaganda,
2006
Volume 2: Advances in Environmental Accounting and
Management, 2003
Volume 1: Advances in Environmental Accounting and
Management, 2000
ADVANCES IN ENVIRONMENTAL ACCOUNTING &
MANAGEMENT VOLUME 5
ACCOUNTING FOR THE

ENVIRONMENT: MORE
TALK AND LITTLE
PROGRESS
EDITED BY
MARTIN FREEDMAN
College of Business and Economics, Towson University,
Towson, MD, USA
BIKKI JAGGI
School of Business, Rutgers University,
New Brunswick, NJ, USA
United Kingdom North America Japan

India Malaysia China
Emerald Group Publishing Limited
Howard House, Wagon Lane, Bingley BD16 1WA, UK
First edition 2014
Copyright r 2014 Emerald Group Publishing Limited
Reprints and permission service

Contact: [email protected]
No part of this book may be reproduced, stored in a retrieval system, transmitted in

any form or by any means electronic, mechanical, photocopying, recording or
otherwise without either the prior written permission of the publisher or a licence
permitting restricted copying issued in the UK by The Copyright Licensing Agency
and in the USA by The Copyright Clearance Center. Any opinions expressed in the
chapters are those of the authors. Whilst Emerald makes every effort to ensure the
quality and accuracy of its content, Emerald makes no representation implied or
otherwise, as to the chapters’ suitability and application and disclaims any warranties,
express or implied, to their use.
British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library
ISBN: 978-1-78190-303-2
ISSN: 1479-3598 (Series)
ISOQAR certified
Management System,
awarded to Emerald
for adherence to
Environmental
standard
ISO 14001:2004.
Certificate Number 1985

ISO 14001
CONTENTS
EDITORS vii
LIST OF CONTRIBUTORS ix
LIST OF AD HOC REVIEWERS xi
EDITORS’ INTRODUCTION xiii
AN EXAMINATION OF THE RELATIONSHIP

BETWEEN CORPORATE SOCIAL RESPONSIBILITY
AND FINANCIAL PERFORMANCE: THE CASE OF
CHINESE STATE-OWNED ENTERPRISES
Robert W. Rutledge, Khondkar E. Karim, 1
Mark Aleksanyan and Chenlong Wu
TOWARDS A MORE COMPREHENSIVE

FRAMEWORK FOR SUSTAINABILITY CONTROL
SYSTEMS RESEARCH
Angelo Ditillo and Irene Eleonora Lisi 23
MEASURING ENVIRONMENTAL PERFORMANCE: IS

NEWSWEEK’S GREEN RANKING THE SOLUTION?
Yu Cong, Martin Freedman and Jin Dong Park 49
CORPORATE GOVERNANCE AND

ENVIRONMENTAL ACTIVITY
Martin Stuebs, Jr. and Li Sun 81
SEC GUIDANCE ON CLIMATE CHANGE RISK

DISCLOSURES: AN ASSESSMENT OF FIRM AND
MARKET RESPONSES
Joan DiSalvio and Nina T. Dorata 115
v
EDITORS
Martin Freedman Bikki Jaggi

Towson University, Towson, MD, Rutgers University, New Brunswick,
USA NJ, USA
ASSOCIATE EDITORS
A. J. Stagliano Dennis Patten
Saint Joseph’s University, Illinois State University, Normal,
Philadelphia, PA, USA IL, USA
EDITORIAL BOARD
Nola Buhr Jesse Dillard
University of Saskatchewan, Portland State University, Portland,
Saskatoon, Saskatchewan, Canada OR, USA
Charles Cho Marc Epstein

ESSEC, Paris, France Rice University, Houston, TX, USA
Jeffrey Cohen Ora Freedman

Boston College, Boston, Stevenson University, Stevenson,
MA, USA MD, USA
David Cooper Rob Gray

University of Alberta, Edmonton, University of St. Andrews,
Alberta, Canada St. Andrews, Scotland
Charl De Villiers Khondikar E. Karim

University of Auckland, Auckland, University of Massachusetts-Lowell,
New Zealand Lowell, MA, USA
vii
viii EDITORS
Carlos Larrinaga Robin Roberts

University of Burgos, Burgos, Spain University of Central Florida,
Orlando, FL, USA
Cheryl Lehman
Hofstra University, Hempstead, Bill Schwartz
NY, USA College of Charleston, Charleston,
SC, USA
Glen Lehman
University of South Australia, Paul Shrivasta
Adelaide, Australia Concordia University, Montreal,
Quebec, Canada
Yue Li
University of Toronto, Toronto, Tony Tinker
Ontario, Canada Baruch College, New York, NY,
USA
Vanessa Magness
Ryerson University, Toronto, Arieh Ullmann
Ontario, Canada Binghamton University,
Binghamton, NY, USA
Lee Parker
RMIT University, Melbourne,
Australia
LIST OF CONTRIBUTORS
Mark Aleksanyan Adam Smith School of Business,

University of Glasgow, Glasgow, Scotland
Yu Cong Department of Accounting and Finance,
Graves School of Business, Morgan
State University, Baltimore, MD, USA
Joan DiSalvio Department of Accounting, Tax and Law,
Silberman College of Business, Fairleigh
Dickinson University, Madison, NJ, USA
Angelo Ditillo Accounting Department, Università
Bocconi, Milan, Italy
Nina T. Dorata Department of Accounting and Taxation,
Peter J. Tobin College of Business,
St. John’s University, Jamaica, NY, USA
Martin Freedman Department of Accounting, College of
Business and Economics, Towson
University, Towson, MD, USA
Khondkar E. Karim Robert J. Manning School of Business,
University of Massachusetts Lowell,
Lowell, MA, USA
Irene Eleonora Lisi Accounting Department, Università
Bocconi, Milan, Italy
Jin Dong Park Department of Accounting, College of
Business and Economics, Towson
University, Towson, MD, USA
Robert W. Rutledge McCoy College of Business
Administration, Texas State University,
San Marcos, TX, USA
ix
x LIST OF CONTRIBUTORS
Martin Stuebs, Jr. Department of Accounting and Business

Law, Hankamer School of Business,
Baylor University, Waco, TX, USA
Li Sun Department of Accounting and MIS,
Collins College of Business,
University of Tulsa, Tulsa, OK, USA
Chenlong Wu Adam Smith School of Business,
University of Glasgow, Glasgow, Scotland
LIST OF AD HOC REVIEWERS
Yu Cong
Morgan State University, Baltimore, MD, USA
Andy Felo
Nova Southeastern University, Ft. Lauderdale, FL, USA
Janet Mobus
Pacific Lutheran University, Tacoma, WA, USA
Jeffrey Unerman
Royal Holloway, University of London, London, England
xi
EDITORS’ INTRODUCTION
When we first started working on this series in 1998 the Kyoto Protocol
(Protocol) had just been signed and there was tremendous awareness as to
the impact of pollution on the planet. It appeared that world leaders, work-
ing together, would be able to lead us in an era of rising living standards
and diminished pollution. Sustainable development, seemingly, was a rea-
listic goal.
The end of 2012 concluded the first phase of the Protocol. The EU
agreed to reduce their pollution emissions to 92 percent of 1990’s carbon
emissions and they succeeded in accomplishing that goal. Unfortunately,
the United States never ratified the Protocol, and Canada, although it did
agree to reduce its emissions by 94 percent of 1990’s carbon emissions,
dropped out of the Protocol. Australia agreed to participate in the Protocol
when it was already in effect, and created a carbon tax to facilitate the
reduction in carbon emissions. Unfortunately, they recently rescinded the
tax. Finally, India and China ratified the Protocol but they agreed to no
reductions, and China is now the largest producer of carbon emissions in
the world.
Despite what is a litany of mostly bad news about greenhouse gases and
especially carbon emissions, some positive events are taking place to deal
with pollution problems. In the United States, nine northeastern states
have created the Regional Greenhouse Gas Initiative which has reduced
carbon emissions about 30 percent since it was implemented in 2009.
California has created a similar system that is just being implemented. A
consortium of Midwestern states has discussed creating a regional network
similar to the northeastern states. The Environmental Protection Agency
(EPA) is planning to take drastic steps to limit the use of coal in electricity
production. The EU continues to limit carbon emissions based on extend-
ing the Protocol and extending emissions goals.
The accounting profession, however, continues to operate as if sustain-
ability is not a meaningful concept. As we discussed in the last volume of
this series, it pays lip service to the concept, but it takes no action to
provide meaningful information to stakeholders. There is one bright spot,
xiii
xiv EDITORS’ INTRODUCTION
however. The Securities and Exchange Commission (SEC) issued an inter-

pretive release that went into effect in February 2010 and required the firms
impacted by the climate change to divulge all climate-change-related infor-
mation that has an impact on their financial performance (mainly in their
10K). Therefore, companies reporting to the SEC (essentially all US public
companies and foreign registrants to US stock exchanges) must determine
the impact of climate change on the firm and report it to the stakeholders.
Although the accounting profession is essentially avoiding the issue, the US
government is forcing the firms and their accountants (since 10Ks are
audited) to deal with the issue.
The views of accounting educators seem to reflect those of the account-
ing profession. Sustainable/environmental accounting is rarely taught. It is
not a topic that is usually covered in accounting undergraduate, Masters,
or PhD programs in North America or anywhere else in the world.
Although a number of excellent journals publish environmental/sustain-
ability accounting research, some of the top journals in accounting, how-
ever, ignore this issue. We find it unfortunate that an issue of such
importance to human kind is ignored by these journals.
The first chapter in this volume by Robert W. Rutledge, Khondkar E.
Karim, Mark Aleksanyan, and Chenlong Wu is devoted to the study of
relationship between corporate social responsibility (CSR) performance
and corporate financial performance of Chinese firms. The authors focus
on 66 Chinese state-owned enterprises, all of which are listed on the stock
exchanges in Shanghai or Shenzhen. Results of the study indicate a nega-
tive relationship between CSR performance and financial performance. An
interesting aspect of the chapter is that the authors argue that because of
the involvement of the Chinese government, resources are devoted to social
goals which may have a detrimental effect on financial performance.
Angelo Ditillo and Irene Eleonora Lisi discuss the link between manage-
ment control systems and sustainability. Arguing strongly that there is a
need to link them to make sustainability a reality, they explain limitations
in the current approach and suggest a holistic way to create a link. The
authors provide a framework for analyzing the effectiveness of the manage-
ment control system in achieving a measure of sustainability and make sug-
gestions for future research.
Newsweek magazine has been producing an annual issue ranking firms
based on their environmental performance. Yu Cong, Martin Freedman,
and Jin Dong Park examined the 2009 “Green Ranking” issue to determine
whether environmental performance ranked by Newsweek is consistent
with a measure of hazardous wastes for firms from industries that produce
Editors’ Introduction xv
hazardous wastes. Using Toxics Release Inventory (TRI) amounts that are
reported by US firms and adjusting them for risk factors, the authors con-
cluded that the overall Newsweek measure, the green score, was consistent
with certain risk-based and non-risk-based TRI measures for the utility
industry, but not for other industries. However, one of Newsweek’s mea-
sures of environmental performance, the environmental impact score, is
consistent with TRI for all firms. The authors conclude that disaggregating
environmental measures may be necessary to obtain meaningful results.
In their chapter Martin Stuebs, Jr., and Li Sun report on a research
study linking corporate governance to environmental performance. Using
mainly the KLD database to determine environmental performance and
correlating that to the IRRC governance and director database, they find a
positive relationship between corporate governance and environmental per-
formance. Furthermore, environmental strength has a positive relationship
with corporate governance and the environmental concerns have a negative
relationship with corporate governance. Although the study does not deal
with causality, one may conjecture that having good corporate governance
may lead to better environmental performance.
The last chapter provides the findings of a study that reports on the
impact on companies of the SEC interpretive release on climate change.
Joan DiSalvio and Nina T. Dorata found that firms disclosed more about
climate change after the SEC required these disclosures and that companies
in industries facing greater climate change disclosures had a greater
increase in their disclosures. However, in general, the amount of disclosures
provided by the companies in the sample was quite limited. The authors
then examined the market reaction to climate change disclosures and dis-
covered that the market reacted favorably to this event.
Since this is the final volume of Advances in Environmental Accounting &
Management that we will edit, we would like to thank many people who
have helped us with this endeavor. Our associate editors, A. J. Stagliano
and Dennis Patten have been critical in the editorial process. We have con-
sulted with them often and they made a number of editorial decisions that
have helped us to create successful volumes. We would like to thank Stag
and Den for their help and support throughout the period of our tenure as
editors of the journal.
One of the first things we realized in creating this publication was that
having an editorial board you could rely on is essential. Our editorial board
has been active in reviewing papers and we have been highly appreciative
of their suggestions on improving the editorial process. They have been a
xvi EDITORS’ INTRODUCTION
great asset and we wish to thank them all for being there when we needed
them and for all they contributed.
Despite having excellent associate editors and a strong editorial board, it
is often necessary to find reviewers who have the expertise for a given sub-
mission and are not part of the editorial family. We have utilized a number
of ad hoc reviewers and they have done an excellent job. What is great
about accounting academics is that when asked to do a review they readily
accept. We would like to thank all of the people who have reviewed papers
for AEAM and we hope that they will be available to review papers for the
new editors.
We began this endeavor in 1998 with JAI as our publisher.
Subsequently, JAI was purchased by Elsevier and then Elsevier sold us to
Emerald. Working with each of these publishers has resulted in successful
issues of the series. The publishers were supportive in producing the
volumes and letting us publish when we had a sufficient number of high
quality articles. For that we thank them. We also wish the best to the new
editors Ataur Belal and Stewart Cooper.
Finally we would like to thank our families for their love and support.
Martin Freedman
Bikki Jaggi
Editors
AN EXAMINATION OF THE
RELATIONSHIP BETWEEN
CORPORATE SOCIAL
RESPONSIBILITY AND FINANCIAL
PERFORMANCE: THE CASE OF
CHINESE STATE-OWNED
ENTERPRISES
Robert W. Rutledge, Khondkar E. Karim,

Mark Aleksanyan and Chenlong Wu
ABSTRACT
Research in the field of corporate social responsibility (CSR) has grown
exponentially in the last few decades. Nevertheless, significant debate
remains about the relationship between CSR performance and corporate
financial performance (CFP). This is particularly true for the case of
Chinese state-owned enterprises (SOEs). The purpose of the current
study is to empirically test the relationship between CSR and CFP. We
use data for 66 Chinese SOEs listed on the Shanghai and Shenzhen stock
Accounting for the Environment: More Talk and Little Progress

Advances in Environmental Accounting & Management, Volume 5, 122
Copyright r 2014 by Emerald Group Publishing Limited
All rights of reproduction in any form reserved
ISSN: 1479-3598/doi:10.1108/S1479-359820140000005001
1
2 ROBERT W. RUTLEDGE ET AL.
exchanges. The results are interesting in that they are not consistent with
similar studies using US and other Western market data. We find a sig-
nificant negative relationship between CSR performance and CFP. The
results are discussed in light of the preferential government treatment
afforded to Chinese SOEs, and social welfare requirements imposed on
such entities. Implications for Chinese policy-makers are discussed.
Keywords: Corporate social responsibility; financial performance;
social performance; state-owned enterprises
INTRODUCTION
There has been a rapid development of the Chinese economy. The origins of
this expansion are rooted in China’s economic reforms in 1978. These initial
reforms are known as “Socialism with Chinese Characteristics.” Since the
1990s, China has allowed expanded privatization, increased foreign invest-
ment, a reduction of state-owned industry, and a lifting of price controls.
According to the United Nations (2014) National Accounts Main
Aggregates Database, nominal GDP of China surpassed Japan in 2011, and
China has become the world’s second largest economy after the United
States. However, the pursuit of maximum profits in many companies leads
to a disregard of social responsibility, which can be detrimental to stake-
holders’ wealth. The impression of China by other countries is one of serious
environmental pollution, sweatshops, and substandard products. Ironically,
one of the main drivers for Chinese corporate social responsibility (CSR)
development is the widespread image of corporate irresponsibility in China.
More recently, the Chinese government has played a significant role in
guiding CSR performance. The government has established a requirement
for companies to provide social responsibility in the course of their business
(as established in Article 5 of the 2006 Chinese Company Law). Further,
the Chinese government has promulgated CSR principles that central gov-
ernment controlled companies are required to follow. The question
remains, however, as to the real purpose of these CSR initiatives, and is it
merely window dressing to improve international images of Chinese com-
panies. Lin (2010) finds that the Chinese government is sincerely promoting
human rights and the environmental aspects of CSR that are consistent
with their political and economic interests. Chinese state-owned companies
are found to have taken the lead in CSR performance and disclosure, and
Corporate Social Responsibility and Financial Performance 3
they provide much more social responsibility resources and disclosures

than private enterprises and foreign-invested enterprises.
The purpose of the current study is to examine the relationship between
CSR performance and corporate financial performance (CFP) for Chinese
state-owned enterprises (SOEs). Very few prior studies have focused on
CSR in China, particularly for SOEs. The majority of previous studies
have examined the CSRCFP relationship for US markets, only. Their
samples usually come from the KLD 400 index which consists of 400 com-
panies drawn from the universe of the 3,000 largest capitalized US public
equities. A motivating factor for studying Chinese SOEs is that China has
an unusual institutional background. Approximately 60% of companies
listed on China’s two major exchanges (Shanghai and Shenzhen) are SOEs.
Additionally, there are many “special advantages” enjoyed by Chinese
SOEs that are provided by the Chinese government (e.g., special listing
benefits, and preferential borrowing terms, etc.). Thus, the current study
provides an opportunity to examine the CSRCFP relationship in one
of the world’s largest, fastest growing, and unique markets. The special
features and advantages enjoyed by Chinese SOEs are discussed in more
detail below.
The current study is further motivated by the opportunity to examine
the relationship between CSR and CFP for Chinese SOEs using a new mea-
sure of CSR (i.e., the latest available Chinese CSR Blue Book) combined
with a “preferred” accounting-based measure of CFP.
This study uses a sample of 66 Chinese SOEs from the CSR develop-
ment index report. CSR performance data are collected from the 2011
Chinese CSR Blue Book published by the Research Center for CSR
Chinese Academy of Social Science. Financial data are obtained from
SOE’s financial reports and notes through the RESSET database.
The empirical results find that Chinese SOE’s overall level of CSR per-
formance is negatively associated with CFP. Four key indicators of CSR
are also tested in this study (responsibility management, market responsi-
bility, social responsibility, and environmental responsibility). The overall
negative results on CFP are primarily driven by social and environmental
responsibility. Alternatively, management and market responsibility are
found to be positively associated with CFP. The results are further inter-
preted within the context of Chinese SOEs that are heavily influenced by
government.
The remainder of this study is organized as follows. First, a review of
the relevant literature in the area of CSR and CFP is provided, and the
testable hypotheses are developed. Next, is a discussion of the research
design including a description of the variables, the data collection, and sta-
tistical methods used to analyze the data. This is followed by a presentation
of the results of the analyses. Lastly, is a discussion of the results, including
practical implications of the findings.
RELATED RESEARCH AND HYPOTHESES

DEVELOPMENT
Definition of CSR Activities
CSR has been an increasingly common topic of discussion in the academic

literature. However, a lack of clarity about definitions and assump-
tions has led to confusion in the CSR literature (Margolis & Walsh, 2003).
A majority of definitions of CSR in the international literature emphasize
the firm’s relationship with stakeholders and the social welfare policies
of the firm, or they stress the voluntary nature of firms’ actions (Fiori,
di Donato, & Izzo, 2007).
Many view CSR activities as those designed to improve social and
environmental conditions, and are frequently voluntary firm actions. These
managerial decisions and actions do not usually have direct economic
or technical benefit. Another view suggests that CSR activities provide
benefits to society, and go beyond what is legally required (Vogel, 2006).
Thus, CSR is usually something above economic profits and legal criteria.
Indeed, even some major public policy initiatives support these core
assumptions (Brammer, Jackson, & Matten, 2012). For example, the
European Commission Green Paper (2001) suggests that CSR focuses on
social and environment activities in business operations and in communi-
cation with stakeholders on a voluntary basis.
Measures of CSR
Four primary methods exist for the measurement of CSR (Griffin &
Mahon, 1997). These can be broadly classified as (1) external social ratings
(e.g., the Domini 400 Social Index), (2) reputation survey scores
(e.g., Fortune reputation survey) (3) actual release data (e.g., Toxics Release
Inventory TRI), and (4) philanthropy. The first two CSR methods
require the use of corporate performance perceptions of what the firm is
believed to have done. The second two measures (actual release data and
philanthropy) are quantitative and based on the actual actions taken by
firms.
The most popular CSR measure is the Domini 400 Social Index. It is
constructed by using the Kinder Lydenberg Domini (KDL) rating system,
whereby each S&P 500 company is rated on multiple attributes commonly
considered to be relevant for CSR (cf. McWilliams & Siegel, 2000; Peters &
Mullen, 2009; Waddock & Graves, 1997). These attributes include commu-
nity, corporate governance, diversity, employee relations, environment,
human rights, product quality, and controversial business issues.
The Fortune reputation survey (a purely perceptual measure) uses
“senior executives, outside directors, and financial analysts” to rate compa-
nies within their industry (Fortune, 1994, p. 58). The overall corporate
reputation index is determined by summing scores from zero to ten for
each of eight attributes of a firm’s reputation. This measure of CSR is used
in one of the more noted longitudinal studies of the relationship between
CSR and CFP (Preston & O’Bannon, 1997).
The TRI is a self-reported measure consisting of information on
environmental discharges to the water, air, and landfills, and disposal of
hazardous waste. It is mandated by Emergency Planning and Community
Right-to-Know Act (EPCRA) of 1986 (U.S. Environmental Protection
Agency, 1994). The TRI has been used in scholarly research (Karim,
Lacina, & Rutledge, 2006), but is most often used by the government and
special interest groups. Lastly, some studies use philanthropy or generosity
as a CSR measure (e.g., Godfrey, 2005; Griffin & Mahon, 1997). Such data
can be found in sources such as the Corporate 500 Directory of Corporate
Philanthropy.
Chinese CSR Blue Book
The current study uses a measure of CSR performance that is based on

content analysis. We use the Research Report on Corporate Social
Responsibility of China (Chen, Huang, Peng, & Zhong, 2011). This report is
also known as the Chinese CSR Blue Book, and is produced annually
(since 2009) by the Chinese Academy of Social Sciences (CASS). CASS
developed the Blue Book with consideration to other existing international
measures of CSR such as the Global Reporting Initiative (GRI), Fortune
top 100 ranking index, Financial Times and Stock Exchange (FTSE4Good
Index), ISO26000, and individual CSR reports of the top 500 world
enterprises. All these international standards or index systems guided

CASS in their attempt to design an accurate system to measure CSR in the
Chinese economic environment.
There are a few stages for evaluation of CSR index for Chinese enter-
prises. In the first stage, 4 key CSR indicators are weighted through an ana-
lytic hierarchy process, and 13 sub-items within each indicator are also
weighted. Next, based on content analysis, the index adopts a methodology
called disclosure-scoring. If the enterprise has a structured relevant system
and has disclosed performance information about one item, this item will
be added to their score. Thus, the original CSR development index is repre-
sented by the following equation:
X
Original CSR index = Aj Wj ð1Þ
j = 1;2;3;4
where Aj is the score in one of the four key CSR performance indicators,
and Wj is the weight of this indicator.
Based on this original CSR index, the CSR development index in an
industry can be calculated after adding the score adjustment. In this
weighting scheme, the score adjustment contains “reward” points (plus 1
for each sub-item), “penalty” points (minus 2 for each sub-item), and spe-
cial bonus points awards and honors. If an enterprise only operates in one
industry, the CSR development index is also its final score. However, the
enterprise engages in multiple industries, the final CSR index is shown as:
X
Final CSR index = Bj Ij ð2Þ
j = 1:::k
where Bj is the CSR development index of an enterprise in each industry,

and Ij is the weight of this industry.
The weight of an industry is decided by the susceptibility to social
responsibility. If an enterprise operates in two industries, it will comply
with the principle of “6, 4,” which means the weight of higher CSR suscept-
ibility is 60% and lower one is 40%. If a company operates in three or
more industries, the principle will be changed to “5, 3, 2.” The weight of
the most susceptible industry is 50%, then 30%, and lastly 20%. The level
of susceptibility is mainly depended on an investigation of the environment
and its customers. For example, industries with high energy consumption
and pollution have higher susceptibility (e.g., mining, construction, and
manufacturing). Industries directly connected with customers also have

higher susceptibility. The current study uses CSR indices directly from the
latest available Chinese CSR Blue Book (2011).
Institutional Considerations for Chinese SOEs
China has a unique institutional setting. Stock markets in China are a rela-
tively new phenomena. There are currently two major stock markets in
China which are the Shanghai and the Shenzhen Stock Exchanges. Both of
these markets were founded in the early 1990s. The listed companies in
these two markets are not permitted to be cross-listed.
Chinese stock markets have several categories of stocks. The most com-
mon stocks traded in the two markets are A and B shares. Initially, there
were major restrictions on share transactions. A shares were permitted to
be traded only by domestic investors including individuals and institutions,
whereas B shares were only allowed to be traded by foreign investors.
However, since February 2001, B shares were permitted to be traded by
domestic investors. Additionally, in 2002, the Chinese government initiated
the Qualified Foreign Institutional Investors (QFII) program which allows
licensed foreign investors to deal in A shares. The launch of QFII is consid-
ered the start of a gradual liberation of Chinese capital markets.
Although Chinese capital markets have become more open, approxi-
mately 60% of companies listed on China’s two major stock exchanges are
SOEs (Sheng & Zhao, 2013). These SOEs enjoy many “special advantages”
not available to other firms. Such advantages include (1) fiscal subsidies
(e.g., for losses incurred) and reduced taxes and fees from the central gov-
ernment; (2) preferential financing costs on loans from state banks (1.6%
average SOE rate vs. the market rate of 4.7%); and (3) free or subsidized
land, buildings, and other resource rents. Even with these many advan-
tages, Chinese SOEs perform worse than non-SOEs (e.g., they have signifi-
cantly lower return on equity). This may be the result of Chinese SOEs
having a different relationship with their constituents than non-SOEs, and
different objectives.
The typical perspective of CSR expenditures and related disclosures is
that they occur because of shareholders’ demand for information and mon-
itoring. Under this perspective, firms would not intentionally engage in
CSR activities at the expense of shareholders. However, it is also possible
that such expenditures are a result of demands by constituents other than
shareholders (Moser & Martin, 2012). This second case may result in costs
of CSR activities in excess of the expected benefits to the firm and at the
expense of shareholders. Chinese SOEs do not have the same relationship
as other entities with their shareholders and other constituents, and some
of their objectives are “other than profit” including social welfare. Such
SOEs may incur costs of CSR activities that are not intended only to maxi-
mize profits.
The hypotheses development below includes a review of prior research
on the relationship between CSR and CFP. This research suggests the rela-
tionship between CSR and CFP is positive. However, the government-
provided advantages to SOEs, and the SOEs differential relationship with
constituents discussed above provide potential forces that might weaken,
eliminate, or even reverse the expected relationship between CSR and CFP
for Chinese SOEs.
Hypotheses Development
There exists a large body of literature that examines the relationship

between CSR and CFP (cf. Bragdon & Marlin, 1972; Carter, Kale, &
Grimm, 2000; Cochran & Wood, 1984; Jaggi & Freedman, 1992; Li, 2006;
McGuire, Sundgren, & Schneeweis, 1988; Shi & Tang, 2012; Simpson &
Kohers, 2002; Waddock & Graves, 1997; Wang, Choi, & Li, 2008, etc.).
However, many unanswered questions still exist. For example, currently,
CSR reporting does not disclosure the amounts spent on specific CSR
activities, nor do they reveal the profitability of such expenditures. This cre-
ates a difficulty in directly determining the relationship between specific
CSR expenditures and CFP (Moser & Martin, 2012).
Margolis and Walsh (2001) performed a meta-analysis of over 100
research studies in an attempt to quantify the link between CSR perfor-
mance and CFP. According to their analysis, it is argued that CSR activ-
ities generate CFP in the overall orientation. Orlitzky, Schmidt, and Rynes
(2003) performed a meta-analysis of 52 previous quantitative studies. They
also generally confirm a positive relationship between CSR and CFP.
The most recent and comprehensive meta-analysis of CSRCRP
research to date is Margolis, Elfenbein, and Walsh (2009). They examined
251 different studies (214 manuscripts) published over a 35-year period,
and found that the overall relationship between CSR and CFP is positive,
but quite small (median r = 0.085). Only 28% of the studies found a signifi-
cant positive relationship, 2% found a significant negative relationship,
and 59% found no significant relationship (the remainder of the studies did
not report significance levels). The 106 studies that were published in the
most recent 10-year period suggest even less of a relationship between CSR
and CFP.
While most prior research has been conducted using US or UK market
settings, China has begun to attract attention in the debate about the rela-
tionship between CSR performance and CFP. China is a strong economic
entity, and has been expanding rapidly over the last decade. However, the
development of CSR in China is still in the early stages. Results from stu-
dies on the relationship between CSR and CFP in China have produced
contradictory results. For example, Li (2006) investigated 521 listed com-
panies in Shanghai Stock Exchange in 2003. He found that increased
CSR activities were associated in the short run with a decreased value of
a firm (a market measure of CFP); however, no significant relationship
exists in the long run. Zhu and Yao (2010) find that CSR disclosures to
employees or the government are positively related with CFP, while CSR
disclosures to investors are negatively related with CFP. Shi and Tang
(2012) examine the relationship between CSR and CFP in China’s agricul-
ture companies. They find a significant positive relationship between CSR
and CFP.
Overall, past research suggests that a small but positive relationship
exists between CSR performance and CFP. The current study examines the
CSRCFP relationship using a new measure of CSR performance (the lat-
est available Chinese CSR Blue Book), and an accounting-based measure
of CFP. Given the results of prior research, the following hypothesis is
suggested:
Hypothesis 1. The relationship between CSR performance and CFP for
state-owned enterprises in China is positive.
The predicted relationship between CSR and CFP in Hypothesis 1 is
based on prior CSRCFP research. However, the prior research has been
dominated by samples of public firms with typical ownership structures.
The ownership structure for the sample in the current study is dominated
by the Chinese government and strongly influenced by nonowner constitu-
ents. The current study will provide information as to the effect (in any) of
SOE ownership structure on the CSRCFP relationship.
The summary CSR performance index provided in the Chinese CSR
Blue Book evaluates firms based on a combination of four separate subin-
dices, including the: (1) responsibility management index, (2) market
responsibility index, (3) social responsibility index, and (4) environmental
responsibility index (Chen et al., 2011).
The Responsibility Management dimension of CSR performance quanti-

fies firms’ CSR development plans, CSR communications, and manage-
ment of CSR activities. A positive relationship should exist between good
management practices and financial performance (Waddock & Graves,
1997). This suggests a positive relationship between the responsibility man-
agement dimension of CSR performance and CFP.
Hypothesis 2. The relationship between responsibility management and
CFP is positive.
The Market Responsibility dimension of CSR rates firms’ product qual-
ity, integrity, and fair competition, as well as consumer protection efforts.
It relates a firm’s CSR efforts to its customers. Firms that are socially
responsible within a customer context (i.e., having quality products and
fair competition) should provide increased customer satisfaction, and
increased firm performance.
Hypothesis 3. The relationship between market responsibility and CFP is

positive.
The Social Responsibility dimension of CSR performance includes con-
sideration of firms’ product safety and the public welfare. Also, it includes
the assessment of firms’ relationships with local government, employees,
and safety production. Better financial performance should provide more
slack resources for companies to invest in the domain of social activities
(Waddock & Graves, 1997). Thus, better financial performance should lead
to better social performance through the reallocation of excess resources
into the social domain. This suggests a positive relationship between the
social responsibility dimension of CSR and CFP.
Hypothesis 4. The relationship between social responsibility and CFP is

positive.
The Environmental Responsibility dimension of CSR performance
includes consideration of resource conservation and emission reduction.
Investment in environmental CSR activities should improve a firm’s reputa-
tion in the market, which may improve product sales. Alternatively, the
penalty for environmental pollution may lead to reduces revenues and prof-
its, suggesting a positive relationship between the environmental responsi-
bility dimension of CSR and CFP.
Hypothesis 5. The relationship between environmental responsibility and
CFP is positive.
Measures of CFP
CFP is measured in a wide range of methods. Most all studies of the rela-
tionship between CSR and CFP use either accounting rates of return or
market-based measures of performance (Margolis et al., 2009). The use of
accounting returns focuses on how firm earnings respond to different poli-
cies. For example, earnings per share (EPS) or price-earnings (P/E) ratios
are commonly used measures of accounting returns (Zhu & Yao, 2010).
Further, an increasing number of studies use return on assets (ROA),
return on equity (ROE), or return on sales (ROS) as measures of CFP
(Simpson & Kohers, 2002; Tsoutsoura, 2004). It has been suggested that
accounting returns are the most appropriate proxy for CFP (Cochran &
Wood, 1984). As a result, the current study uses ROE to proxy for CFP.
Because accounting measures of CFP such as ROE have been shown to be
affected by several firm attributes, control variables will be used (including
size, growth, and operating leverage).
DATA AND METHODOLOGY
Sample Selection
The China Enterprise Directors Association (CEDA) and China Enterprise

Confederation (CEC) jointly determine the Top-500 Enterprises in China.
CASS selects their Top-100 SOEs to be evaluated in the Chinese CSR Blue
Book based on size (sales revenue), after removing SOEs that are in the
military industry, and enterprises that have merged, reorganized, or been
bankrupted. We began our sample selection with the latest available CSR
Blue Book (Chinese Academy of Social Sciences (CASS), 2011); that is,
CASS’s Top-100 SOEs for the period 20102011. The initial sample of 100
firms is then subjected to several filters.
First, sample firms were required to be listed on the Shanghai or
Shenzhen Stock Exchange. Sixteen firms were removed because they were
not listed on an exchange, and another eight firms were listed on other for-
eign stock exchanges (leaving 76 SOEs). Second, insurance companies (five
SOEs), and banks or any other companies that provide financial services
(five SOEs) are excluded, thus reducing number of SOEs in the final sample
to 66 firms. Full financial information for all 66 sample firms was acquired
from the RESSET database, including the ROE data used as the
accounting-based performance measurement. Beijing Gildata RESSET

Data Tech Co., Ltd (RESSET) is China’s leading provider of financial
databases and software for financial and investment research. They collect
financial and other data from Chinese companies’ financial statements, and
rank as the top Chinese database for domestic financial research.
Model Specification
In this study, ROE is the dependent variable, and represents a proxy for
the CFP of each sample firm. The primary independent variable of interest
is the CSR performance obtained from the 2011 Chinese CSR Blue Book
(see Eq. (3)). This study further divides CSR into four parts, and tests the
relationship between these four indicators (responsibility management,
market responsibility, social responsibility, and environmental responsibil-
ity) and ROE (see Eq. (4)). This breakdown of CSR into the four Blue
Book categories has not been previously examined in the research.
A significant amount of previous research (e.g., Burke, Logsdon,
Mitchell, Reiner, & Vogel, 1986; McWilliams & Siegel, 2000; Ullman, 1985;
Wu, 2006) suggests firm size, industry, and risk to be factors that may influ-
ence a firm’s CSR performance. For example, Burke et al. (1986) find evi-
dence that smaller firms are less committed to socially responsible
behaviors. Wu (2006) finds a positive relationship between firm size and
CFP, and between firm size and CSR. Growth is also an important control
variable, since growth firms may require acquisition of more resources
from society or other stakeholders (Burke et al., 1986). Moreover, the lever-
age of the firm represents management’s risk tolerance, which may influ-
ence CSR activities due to the impact it produces on the management
reputation. As a result of the findings of past research, the current study
uses firm size, growth rate, and risk as control variables.
Eq. (3) indicates the OLS model that is used to test Hypothesis 1, and
Eq. (4) is used to test Hypotheses 2, 3, 4, and 5.
ROEi;t = β0 þ β1 CSRi;t þ β2 SIZEi;t þ β3 GROWi;t þ β4 DEBTi;t þ ɛi;t ð3Þ
ROEi;t = β0 þ β1 RMi;t þ β2 MRi;t þ β3 SRi;t þ β4 ERi;t þ β5 SIZEi;t

ð4Þ
þ β6 GROWi;t þ β7 DEBTi;t þ ɛ i;t
Table 1. Variable Definitions.

Variable Name Variable Description
Financial performance (CFP)

ROE Return on equity
Social performance
CSR Corporate social responsibility index
RM Responsibility management
MR Market responsibility
SR Social responsibility
ER Environmental responsibility
Control
SIZE Natural logarithm of total assets
GROW Growth rate of revenue
DEBT Debt ratio = Total liabilities/Total assets
where the βi’s are the parameters for estimation; CSR is the Chinese CSR
Blue Book index (2011); SIZE is the natural log of total assets; GROW is
the growth rate of revenue; DEBT is the debt ratio; RM is the Blue Book
index for responsibility management; MR is the Blue Book index for mar-
ket responsibility; SR is the Blue Book index for social responsibility; ER is
the Blue Book index for environmental responsibility; and ɛi,t is random
disturbance term. Table 1 provides the definitions of each variable.
EMPIRICAL RESULTS AND ANALYSIS
Descriptive Statistics
Table 2 presents average CSR scores by industry (including the subindices

RM, MR, SR, and ER). Other descriptive statistics for the 66 SOE sample
are provided at the bottom of Table 2. As indicated in Table 2, consider-
able differences exist in industry average CSR indices. Higher scores indi-
cate a better CSR performance. Electricity rated at the highest of all
industries (mean CSR = 63.6), and it performed well under each CSR sub-
index. Mining is the lowest CSR-rated industry (mean CSR = 23.6).
Manufacturing and construction also scored low on their CSR indices
(mean CSR = 27.6 and 30.7, respectively). These SOEs with low CSR per-
formance may be still at the stage of building CSR systems or testing effects
of investments in CSR activities.
Table 2. Average CSR Summary Scores by Industry Including the Four

Subindices (RM, MR, SR, and ER) (for All Industries where n = 4 or
More SOEs).
Industry n RM MR SR ER CSR
Construction 7 22.4 39.6 33.7 22.0 30.7

Electricity 4 58.5 52.5 53.9 60.3 63.6
Manufacturing 14 23.0 33.3 29.6 18.8 27.6
Mining 5 22.5 29.5 30.6 16.3 23.6
Mixed 9 41.0 54.1 45.4 37.8 47.4
Petroleum 4 37.5 53.1 50.9 44.4 47.3
Smelting 12 21.7 41.7 32.0 30.1 33.3
Transportation 7 36.0 37.0 41.7 32.2 38.6
Other 4 2.7 12.5 9.3 8.3 9.2
Overall CSR and subindices scores RM MR SR ER CSR
Minimum 0 0 0 0 0
Maximum 87.5 86.7 96.3 99.4 82
Mean 28.7 40.1 35.6 28.8 35.2
Median 26.8 42.5 39.6 21.9 37.4
Standard deviation 25.4 24.6 24.9 25.2 25
Total 66
RM, responsibility management; MR, market responsibility; SR, social responsibility; ER,
environmental responsibility; CSR, corporate social responsibility development index.
The CSR indicator that appears to be receiving the most attention from
the sample SOEs is market responsibility (mean score = 40.1, median =
42.5); whereas the areas of responsibility management and environmental
responsibility are receiving the least CSR attention (mean scores = 28.7 and
28.8; medians = 26.8 and 21.9, respectively).
Market responsibility includes sub-indicators such as product innovation
and relationships with partners. These sub-indicators are more directly
related with economic profit than other CSR responsibilities. Alternatively,
environmental responsibility requires a large investment in technology
and equipment with less direct benefits. This may explain why firms
appear to avoid environmental responsibility, and focus more on market
responsibility.
Correlation Matrix
Table 3 provides a Pearson’s correlation matrix for the variables considered

for testing Hypothesis 1 (ROE, CSR, SIZE, GROW, and DEBT). The
Table 3. Pearson’s Correlation Coefficients (r).

ROE CSR SIZE GROW DEBT
ROE 1
CSR −0.19* 1
SIZE 0.04 0.42*** 1
GROW 0.10 −0.14 −0.21** 1
DEBT −0.10 0.06 0.29*** −0.06 1
ROE, return on equity; CSR, corporate social responsibility development index; SIZE, natural
logarithm of total assets; GROW, growth rate of revenue; DEBT, debt ratio (=total liabilities/
total assets).
***Significant at <0.01 level.
**Significant at <0.05 level.
*Significant at <0.10 level.
analysis examines the level of correlation between dependent, independent,

and control variables. Table 3 indicates that CSR has a significant correla-
tion with two variables (ROE and SIZE). The CSR/ROE correlation is
significantly negative (r = −0.19; p < 0.10), and the CSR/SIZE correlation
is significantly positive (r = 0.42; p < 0.01). These initial results are not con-
sistent with previous studies (e.g., Graves & Waddock, 1994; McGuire
et al., 1988; Waddock & Graves, 1997). None of the variables combina-
tions are found to have serious multicollinearity due to the low correlation
coefficients between each variable (Judge, Griffiths, Lutkepohl, and Lee
(1982) suggest multicollinearity is considered as a serious problem when
the correlation coefficient between variables exceeds 0.80.) Spearman
correlations were also calculated, and only SIZE/CSR (0.51) and SIZE/
DEBT (0.31) show significance (p < 0.10). As with the Pearson correla-
tions, none of the Spearman correlations approach the 0.80 threshold for
concern.
Regression Analysis Hypothesis 1
Hypothesis 1 suggests that the relationship between CSR and CFP for
SOEs in China is positive. A multiple linear regression analysis is per-
formed using the data for the 66 SOEs considered in the study. The form
of the regression is as suggested in Eq. (3) and examines the relationship
between CSR and CFP. That is, ROE (a proxy for CFP) is regressed on
CSR, and SIZE, GROW, and DEBT are included as control variables. The
results are presented in Table 4.
Table 4. OLS Regression Results: Eq. (3).

Model: ROEi;t = β0 þ β1 CSRi;t þ β2 SIZEi;t þ β3 GROWi;t þ β4 DEBTi;t þ ɛ i;t
Coefficients SE t-statistic p-Value
Constant −11.39 18.07 −0.630 0.531

CSR −0.09* 0.05 −1.889 0.064
SIZE 2.65 1.79 1.480 0.144
GROW 0.04 0.05 0.816 0.417
DEBT −0.08 0.07 −1.059 0.294
N = 66
F(4, 61)=1.35 (p = 0.263)
R2 = 0.081
CSR, corporate social responsibility development index; SIZE, natural logarithm of total
assets; GROW, growth rate of revenue; DEBT, debt ratio (=total liabilities/total assets).
*Significant at <0.10 level.
Overall, the model does not find a significant linear relationship between
the independent variables included in the model and ROE (F = 1.35;
p = 0.263). However, the primary variable of interest, CSR performance,
has a significant negative relationship with ROE (t = −1.889; p = 0.064).
For SOEs in China, undertaking social responsibility appears to be nega-
tively related to their financial performance. This result is contrary to most
of the research results of Western economies, and it is opposite to what is
predicted in Hypothesis 1. Additional findings from Table 4 indicate that
none of the control variables have a significant relationship with CFP.
Regression Analysis Hypotheses 2 through 5
Eq. (4) separates corporate social responsibilities into four key factors:
responsibility management, market responsibility, social responsibility, and
environmental responsibility. Through analyzing the relationship between
these four independent variables and ROE, additional insight into the rela-
tionship between CSR performance and CFP can be provided. Hypotheses
2 through 5 predict a positive relationship between each of the four subin-
dices of CSR and CFP. However, this is not likely to be found in the analy-
sis to follow since the analysis above finds overall CSR performance is
negatively related to CFP.
The regression results from testing the model suggested by Eq. (4) are
shown in Table 5. A significant linear relationship is found between the
Corporate Social Responsibility and Financial Performance
Table 5. OLS Regression Results: Eq. (4).
Model: ROEi;t = β0 þ β1 RMi;t þ β2 MRi;t þ β3 SRi;t þ β4 ERi;t þ β5 SIZEi;t þ β6 GROWi;t þ β7 DEBTi;t þ ɛ i;t
Coefficients SE t-statistic p-Value
Constant −24.07 17.18 −1.402 0.166

RM 0.21** 0.10 2.208 0.031
MR 0.21** 0.09 2.394 0.020
SR −0.32** 0.13 −2.504 0.015
ER −0.21** 0.08 −2.500 0.015
SIZE 3.56** 1.72 2.069 0.043
GROW 0.06 0.04 1.420 0.161
DEBT −0.05 0.07 −0.739 0.463
N = 66
F(7, 58) = 3.16 (p = 0.007)***
R2 = 0.276
RM, responsibility management; MR, market responsibility; SR, social responsibility; ER, environmental responsibility; SIZE, natural
logarithm of total assets; GROW, growth rate of revenue; DEBT, debt ratio (=total liabilities/total assets).
***Significant at < 0.01 level.
**Significant at < 0.05 level.
*Significant at < 0.10 level.
17
independent and control variables included in the model and ROE

(F = 3.16; p = 0.007).
All four subindices of CSR are found to have a significant effect on
ROE. Both responsibility management (RM) and market responsibility
(MR) have significant positive relationships with ROE (t = 2.208, p = 0.031;
and t = 2.394, p = 0.020 respectively). The results for RM and MR support
Hypotheses 2 and 3. That is, increases in RM and MR are related to
increases in firms’ ROE for Chinese SOEs.
Alternatively, both social responsibility (SR) and environmental
responsibility (ER) have significant negative relationships with ROE
(t = 2.504, p = 0.015; and t = 2.500, p = 0.015 respectively). These results are
not consistent with Hypotheses 4 and 5, but they are consistent with the
overall negative effect found for CSR on ROE. The results suggest that
increases in SR and ER are related to decreases in the ROE for Chinese
SOEs.
DISCUSSION AND CONCLUSIONS
Discussion
The relationship between CSR performance and CFP was empirically

tested for a sample of Chinese SOEs. Sixty-six Chinese SOEs listed on the
Shanghai and Shenzhen stock exchanges are included in the firms exam-
ined. Contrary to the results of previous studies on the CSRCFP relation-
ship, Chinese SOEs’ CSR activities are negatively associated with CFP.
This suggests a penalty for Chinese SOEs that invest in and report CSR
activities. Closer examination of the data reveals that certain CSR activities
are associated with the negative impact on ROE (financial performance),
while others are found to be associated with a positive impact on ROE.
Chinese SOEs engaged in activities related to responsibility management
(RM) and market responsibility (MR) are associated with improved finan-
cial performance. Alternatively, the negative impact on CFP from social
responsibility (SR) and environmental responsibility (ER) appear to out-
weigh these financial-performance benefits.
Previous studies have generally indicated a positive relationship between
CSR and CFP. That is, investing in CSR activities has been found to be
associated with improved financial performance. However, these studies
are based on sample firms that have a different, nongovernmental,
ownership structure. Chinese SOEs have significant government ownership

interests, and pressures from constituents other than owners. Given the
results of the current study, it appears that the effect of having strong gov-
ernment and other influences on Chinese SOEs is associated with invest-
ments in CSR activities than are at the expense of SOE ownership. This
appears to be the case for overall CSR activities, and is particularly true
for investments in environmental and social CSR activities. Thus, what the
results really imply is that having strong Chinese governmental influence
over SOEs may influence undertaking CSR activities that do not result in
the profit maximization of the enterprise.
Historically, Chinese SOEs have performed less profitably than non-
SOEs. Profitability (ROE) for SOEs from 1993 to 2000 ranged from 2.72%
to 4.85%, while profitability for non-SOEs ranged from 5.25% to 6.66%
for the same period (Holz, 2002). The performance of SOEs continues to
lag behind non-SOEs. In 2009, the ROE for SOEs was 8.2% while non-
SOEs are found to have an average ROE of 15.6% (Sheng & Zhao, 2013).
This difference would be even greater if it was adjusted for the preferential
government treatment enjoyed by SOEs. They receive government subsi-
dies, artificially low financing charges, and subsidized land and other
resources. Further clouding the relationship between ownership structure
(SOEs vs. non-SOEs) and profitability is the social welfare requirements
imposed on SOEs by the Chinese government.
The State-owned Assets Supervision and Administration Commission
(SASAC) provides guidelines to SOEs related to their CSR responsibili-
ties and requirements (SASAC, 2011). Chinese SOEs are required to “be
responsible to stakeholders and environment, so as to achieve well-balance
among the growth of enterprises, social benefit and environment pro-
tection … an important measure for promoting the socialist harmonious
society” (SASAC, 2011, p. 1).
It is difficult to determine whether the difference in profitability between
SOEs and non-SOEs is caused by management ineffectiveness and ineffi-
ciencies within the SOEs, or by government imposed policies such as those
imposed by SASAC. If the primary goal of certain Chinese SOEs is to serve
the public interest, and not to (necessarily) make a profit, then these enter-
prises should be transformed into nonprofit public enterprises. For other
SOEs that are more appropriately suited for performance measured by the
market, the Chinese government should reduce their control over these
enterprises and allow them to fairly compete in the market. Without signifi-
cant reform by the Chinese government, SOEs will continue to have diffi-
culty in measuring their “true profitability” and the effects of their CSR
policies. The results of this study need to be viewed in light of the environ-
ment that Chinese SOEs currently operate.
Conclusions
The current study examines the relationship between CSR performance

and CFP in Chinese SOE markets. On the surface, the results suggest that
Chinese SOEs should limit their SOE activities because they reduce finan-
cial performance. More specifically, Chinese SOEs should concentrate on
the CSR activities of responsibility management and market responsibility
to improve financial performance, and they should also avoid social and
environmental CSR activities that are associated with reduced financial
performance.
However, the results cannot be taken at face value. SOEs that are heav-
ily influenced by the Chinese government have different incentives and con-
stituent demands other than financial performance. They appear to be
carrying out CSR activities that do not maximize firm profits, but rather
fulfill part of the government’s overall social benefit function to serve the
public interests and to promote a more “well-off” society. The findings of
the current study are useful because they provide new insight into the rela-
tionship between CSR performance and CFP for Chinese SOEs.
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TOWARDS A MORE
COMPREHENSIVE FRAMEWORK
FOR SUSTAINABILITY CONTROL
SYSTEMS RESEARCH
Angelo Ditillo and Irene Eleonora Lisi
ABSTRACT
Although companies are increasingly embracing the sustainability dis-

course in their external reporting and disclosures, little is known about
how management control systems support sustainability within organiza-
tions. This is unfortunate, given the important role that properly designed
Sustainability Control Systems (SCS) may play in helping firms to bet-
ter face their social and environmental responsibilities. Starting from
these premises, the aim of this essay is twofold. On the one hand, we pre-
sent a review of the emerging stream of research on sustainability and
management control mechanisms, in order to identify and discuss the
link between the two. On the other hand, we try to illustrate the main
unaddressed issues in this literature as a premise to exploring one possible
way to advance research in this area. Specifically, we make a call for a
more holistic approach to the study of SCS, which considers also their
organizational and cultural dimensions in addition to their technical
Accounting for the Environment: More Talk and Little Progress

Advances in Environmental Accounting & Management, Volume 5, 2347
Copyright r 2014 by Emerald Group Publishing Limited
All rights of reproduction in any form reserved
ISSN: 1479-3598/doi:10.1108/S1479-359820140000005010
23
24 ANGELO DITILLO AND IRENE ELEONORA LISI
properties. A framework for informing future work on the topic is pro-

posed, based on the concept of ‘control package’ (Malmi & Brown, 2008;
Sandelin, 2008) complemented with notions from the complementarity-
based approach developed in organizational economics (Grandori &
Furnari, 2008; Milgrom & Roberts, 1995). By enhancing our understand-
ing on how SCS operate as a package, the application of our framework
should allow researchers to develop better theory of how to design a range
of controls to support organizational sustainability objectives, control
sustainability activities, and drive sustainability performance.
Keywords: Sustainability; environment; control; control package;
Sustainability Control Systems
INTRODUCTION
The last decades have witnessed a growing consensus and increasing regula-
tion underpinning the notion that firms have environmental and social
responsibilities (Gray, Dey, Owen, Evans, & Zadek, 1997; Gray, Owen, &
Maunders, 1987; Unerman, Bebbington, & O’Dwyer, 2007) and that ‘good’
business practices can provide a contribution towards the achievement of
sustainable development1 goals (United Nations Conference on Trade and
Development, 1996; World Business Council for Sustainable Development,
2001). Confronted with ever escalating pressures from multiple sources
(governments, NGOs, social rating agencies, public opinion and so on) to
operate in a socially and environmentally responsible fashion (Porter &
Kramer, 2006), businesses have started to embrace the sustainability rheto-
ric in their external reporting and disclosures (Gond, Grubnic, Herzig, &
Moon, 2012; Spence & Rinaldi, 2012), claiming that engaging in sustain-
ability is an important activity (ACCA, 2006; AccountAbility, 2008).
Indeed, over the last 20 years, several thousand companies have started to
disclose information about their social and environmental performance and
the number of published social, environmental or sustainability reports has
rapidly grown (KPMG, 2011). In addition, companies are increasingly
adopting voluntary environmental management systems for handling the
environmental impacts of their processes, products and services (Adams &
Larrinaga-Gonzalez, 2007; Albeda Perez, Correa Ruiz, & Carrasco Fenech,
2007; Buysse & Verbeke, 2003; Perego & Hartmann, 2009).
Towards a More Comprehensive Framework for SCS Research 25
Academic research on the topic has also flourished (Durden, 2008). This
literature, variously named as social accounting, sustainability accounting
or social and environmental accountability (Deegan, 2002; Gray, 2002),
has so far extensively explored issues relating to external social and
environmental reporting and in particular to its determinants (see,
e.g. Adams, 2002; Adams & Whelan, 2009; Gray, 2010; Gray, Kouhy, &
Lavers, 1995; Owen, 2008; Spence, 2007). Another stream of research in
sustainability accounting concerns the relationships among environmental
disclosure, environmental performance and economic performance (see,
e.g. Al-Tuwaijri, Christensen, & Hughes, 2004; Cho, Freedman, &
Patten, 2012a; Cho, Guidry, Hageman, & Patten, 2012b; Clarkson, Li,
Richardson, & Vasvari, 2008).
On the contrary, much less attention has been devoted to the intra-
organizational impact of sustainability (Bebbington, 2007) and in particular
to the role of Management Control Systems (MCS)2 supporting sustain-
ability within organizations (Bonacchi & Rinaldi, 2007; Durden, 2008;
Songini & Pistoni, 2012). This gap is particularly unfortunate given the
important role that properly designed Sustainability Control Systems
(SCS) may play in helping firms embracing sustainability as a strategic goal
to better face their social and environmental responsibilities, pushing them
in the direction of sustainability (Gond et al., 2012; Henri & Journeault,
2010; Songini & Pistoni, 2012). Indeed, providing social and environmental
performance measures to external stakeholders through sustainability
reports is ineffective if these data are not also used for internal decision-
making and control purposes (Adams, 2002; Perego & Hartmann, 2009).
Literature has long recognized that such reports may represent impression
management techniques (Neu, Warsame, & Pedwell, 1998) or ‘greenwash-
ing’ phenomena (Laufer, 2003) aimed at maximizing perceptions of legiti-
macy but with little, if any, effects on the real work of organizations
(Larrinaga-Gonzalez & Bebbington, 2001). On the other hand, a few
studies on the interplay among external sustainability reporting and inter-
nal management control mechanisms have also started to shed light on the
instances in which external reporting initiatives may spur management
accounting change towards more sustainable business operations (see,
e.g. Adams & McNicholas, 2007; Bouten & Hoozée, 2013). As noticed by
Pondeville, Swaenb, and De Rongé (2013), a well-developed environmental
information system even if adopted for external reporting purposes in
the first place can in turn facilitate the implementation of formal and
informal control systems, generating more articulated results that have an
impact both externally and internally.
Starting from these premises, the aim of this essay is twofold. On the
one hand, we present a review of the emerging stream of research examin-
ing sustainability accounting from the perspective of how it should fit or
align with an organization’s MCS. More specifically, we describe the
sustainability management accounting and control techniques which
have been advanced over the last two decades to overcome the widely
acknowledged limitations of traditional MCS with respect to the sustain-
able development agenda. On the other hand, we try to illustrate the main
unaddressed issues in this literature as a premise to exploring one possible
way to advance research in this area. In so doing, we make a call for a
more holistic approach to the study of SCS, which considers also their
organizational and cultural dimensions in addition to their technical prop-
erties. A framework for informing future research in such sense is also pro-
posed, based on the concept of ‘control package’ (Malmi & Brown, 2008;
Sandelin, 2008) complemented with notions from the complementarity-
based approach developed in organizational economics (Grandori &
Furnari, 2008; Milgrom & Roberts, 1995). By gaining a broader under-
standing of how SCS operate as a package, we should be able to develop
better theory of how to design a range of controls to support organiza-
tional sustainability objectives, control sustainability activities, and drive
sustainability (and organizational) performance.
The remainder of the chapter is organized as follows. The next section
reviews relevant prior research in sustainability management accounting and
control, highlighting the need to carefully consider also the organizational
and cultural dimensions of SCS, in addition to their technical facet. The
succeeding section develops and discusses our proposed framework. The
final section concludes the chapter by offering directions for further research.
SUSTAINABILITY AND MANAGEMENT CONTROL:

AN OVERVIEW OF THE LITERATURE
Starting from the early 1970s, sustainability accounting research became
established as a substantial discipline in its own right and started attracting
increasing scholarly attention, as the number of review papers appearing in
recent years demonstrates (see, e.g. Burritt & Schaltegger, 2010; Deegan &
Soltys, 2007; Gray, 2002; Gray et al., 1995; Owen, 2008). According to the
conceptual classification provided by Durden (2008), such research appears
to follow two main themes. The first theme adopts a societal or ethical
perspective and is concerned with the obligations of organizations in

relation to the provision and disclosure of social and environmental infor-
mation (Gray, Owen, & Maunders, 1991). The second theme adopts a man-
agerial perspective and explores issues concerned with the information
organizations choose to produce and disclose to stakeholders and how this
may be used to legitimize the existence of the organization (Deegan, 2002).
Independently of the perspective employed, the context of analysis of this
literature tends to be external reporting, whereas there is relatively limited
consideration of sustainability accounting from the standpoint of how it
should fit or align with an organization’s MCS (Durden, 2008; Ferreira &
Moulang, 2010; Gond et al., 2012; Norris & O’Dwyer, 2004; Songini &
Pistoni, 2012).
However, from a normative point of view, organizations that attempt to
embed sustainable principles in practice beyond external reporting, dis-
course and mission statements should have control systems in place
enabling them to regularly monitor whether the business is operating in
accordance with sustainable development goals (Bonacchi & Rinaldi, 2007;
Durden, 2008; Gond et al., 2012; Songini & Pistoni, 2012). As noticed by
Bonacchi and Rinaldi (2007), ‘it is necessary to provide adequate planning
and control systems in order to quantify sustainability, understand the fac-
tors that contribute to it and support management in implementing sustain-
ability strategies. An innovative planning and control system is essential for
the diffusion of the principles of sustainability’ (p. 462). In this context,
MCS play a fundamental role due to the fact that in the organizations the
objectives that are pursued and the actions that are implemented are those
for which managers are responsible and upon which they are evaluated and
rewarded.
Yet conventional MCS which were traditionally developed to assist
managers to achieve the economic goals of their organizations do not
seem to be fully suited to the philosophy of sustainable development (Gond
et al., 2012), in which environmental, social and economic goals are
expected to be achieved simultaneously in a ‘triple bottom line’ logic
(Elkington, 1997). Notwithstanding more recent developments in hybrid
and non-financial measurement systems and research suggesting that finan-
cial and non-financial information can be considered equally important for
strategy development (Bhimani & Langfield-Smith, 2007), traditional MCS
are seen to be limited in their ability to address the interests of a broad
range of stakeholders other than shareholders and to handle environmental
and social issues as well as their interrelationships with financial ones
(Bonacchi & Rinaldi, 2007; Burritt & Schaltegger, 2010; Durden, 2008;
Norris & O’Dwyer, 2004). In response to these limitations, over the last
two decades several management accounting and control systems specifi-
cally tailored to the sustainability challenge have been proposed. Table 1
provides an overview of extant literature on SCS. They are derived from
the emerging stream of literature on environmental management account-
ing and eco-control that, in the last few years, has started to capture the
broader aspects of sustainability (Bonacchi & Rinaldi, 2007; Burritt &
Schaltegger, 2010; Gond et al., 2012).
As shown in Table 1, research on the topic has to date mainly focused
on performance measurement, with particular attention paid to hybrid
performance measurement systems. Specifically, many authors have sug-
gested the use of some modified versions of the most prominent hybrid
Table 1. Sustainability Control Systems Literature.

Traditional MCS Examples of Corresponding SCS Authors and Publications
Budgeting Environmental budgeting Burritt and Schaltegger

(2001)
Sustainability budgeting Roth (2008)
Financial Environmental/Material flow cost Bennet and James (1998)
measurement accounting systems Bebbington et al. (2001)
systems Wagner and Enzler (2006)
Jasch (2009)
Sustainable value added Figge and Hahn (2004)
Non-financial Environmental performance Dias-Sardinha et al. (2002)
measurement evaluation systems
systems Material and energy flow accounting Wagner and Enzler (2006)
systems Jasch (2009)
Hybrid measurement Sustainability performance Epstein and Roy (2001)
systems measurement Rouse and Putterill (2003)
Schaltegger and Wagner
(2006)
Performance prism Neely et al. (2002)
Sustainability dartboard and clover Bonacchi and Rinaldi (2007)
Sustainability balanced scorecard Epstein and Wisner (2001)
Figge et al. (2002)
Hubbard (2009)
Dias-Sardinha et al. (2002)
Project management Socio-eco-efficiency analysis Schmidt et al. (2004)
Environmental investment appraisal Burritt, Herzig, and Tadeo
(2009)
Reward and Reward system based on Dutta and Lawson (2009)
compensation multidimensional performance
system
performance measurement system the balanced scorecard (BSC) as an

effective way for embedding sustainability principles within organizations’
strategies and business processes (Dias-Sardinha, Reijnders, & Antunes,
2002; Epstein & Wisner, 2001; Figge, Hahn, Schaltegger, & Wagner, 2002;
Hubbard, 2009). Different approaches to the design of a sustainability BSC
have been suggested, depending on how the relationship among business
strategy and sustainable strategy has been conceptualized (Songini &
Pistoni, 2012). As a first approach, Kaplan and Norton’s framework (2004)
can be used. Under this approach which is suited when sustainability
goals are considered instrumental and subordinated to the company’s busi-
ness strategy and financial objectives some sustainability objectives and
measures are included in the internal processes perspective, particularly in
regulatory and safety processes. Secondly when sustainability objectives
stand alongside the firm’s business objectives, but without a complete
integration between them two different options for designing a sustain-
ability BSC have been suggested. According to the first option, a new
perspective the so-called ‘non-market perspective’ is added to the
traditional BSC model (Figge et al., 2002). The second approach suggests
developing a sustainability BSC as a separate tool, distinct from the tradi-
tional BSC (Epstein & Wisner, 2001). In this latter case, the sustainability
BSC should be specifically designed following both a triple bottom line
approach (Elkington, 1997) and a stakeholder perspective. Finally if
sustainability is pervasively integrated within the company’s goals and
mission as sustainability strategy and business strategy coincide we
should observe sustainability objectives and measures to be included perva-
sively across the four perspectives financial, customer, internal business
processes and learning and growth of the traditional BSC.
Other scholars have proposed alternative conceptual frameworks for the
integration of sustainability concerns into hybrid performance measure-
ment systems, different from the BSC model (Bonacchi & Rinaldi, 2007;
Epstein & Roy, 2001; Neely, Adams, & Kennerly, 2002; Rouse & Putterill,
2003; Schaltegger & Wagner, 2006). For example Neely and colleagues
(2002) have developed the ‘Performance Prism’ model, a multidimensional
performance evaluation framework that links strategy to stakeholders.
In particular, the authors consider the identification and fulfilment of sta-
keholders’ needs, expectations and desires as a necessary starting point for
embedding sustainability principles into companies’ day-by-day operations.
On this ground, they develop a five-step model which puts stakeholders’
explicit needs and contributions at the centre of the strategy formulation
and performance monitoring processes. However, the framework
appears limited in its ability to account for and assess trade-offs among
conflicting stakeholder expectations. With the intention of broadening the
functionality of this and other extant frameworks of sustainability perfor-
mance measurement, Bonacchi and Rinaldi (2007) suggest a performance
measurement system that includes two complementary instruments, called
Sustainability DartBoard and Sustainability Clover. This multidimensional
and multilevel model attempts to measure the three dimensions of sustain-
ability (economic, environmental, social) through a set of primary and
secondary measures connected with stakeholder satisfaction and able to
detect and articulate both winwin and trade-off situations.
Moving beyond hybrid performance measurement systems, Table 1
indicates that other streams of SCS research investigated financial and non-
financial performance measurement systems (Figge & Hahn, 2004; Jasch,
2009; Wagner & Enzler, 2006). With respect to financial performance mea-
surement, over the last years research has in particular elaborated a
plethora of costing techniques for quantifying the environmental impacts
of companies’ operations (Jasch, 2009; Wagner & Enzler, 2006). Among
them, the more popular techniques such as activity-based costing, quality
costing and product/service costing tend to focus upon internalized,
privately incurred costs rather than any imputed costs or measurement of
external social and public costs (Buhr & Gray, 2012). For example, by
incorporating such internalized environmental costs into an activity-based
costing methodology it is possible to allocate the costs of treating toxic
waste to the product that creates the waste. As already noticed, such cost-
ing techniques rarely extend to the whole supply chain (cradle to grave) or
the whole of society (Amigoni, Caglio, & Ditillo, 2003; Bennett & James,
1998; Caglio & Ditillo, 2008a, 2008b, 2012b). Indeed, taking a broader
view of a company’s environmental impacts poses undeniable challenges as
it requires organizations to struggle with externalities that impact all stake-
holders, even those as yet unborn as future generations. However, notwith-
standing such (sometimes exceedingly complex) difficulties, accountants
have also developed more inclusive costing methodologies known as full-
cost accounting, life cycle costing and cost-benefit analysis which include
a monetization of externalities. For example, Bebbington, Gray, Hibbitt,
and Kirk (2001) describe how full-cost accounting includes: (1) the usual
direct and indirect costs; (2) hidden costs such as regulatory, monitoring
and safety costs; (3) liability costs including fines and future clean-up costs;
(4) less tangible costs such as the loss or gain of goodwill arising from a
project and the impact of changing stakeholder attitudes; and (5) costs to
ensure that a project has zero environmental effect.
Finally, regarding non-financial performance measurement systems, two

examples of tools advanced by the literature are represented by material
flow/eco-balance analysis and eco-efficiency indicators. Physical flow ana-
lysis is a non-financial quantification of organizational resource usage and
outputs (Jasch, 2009; Wagner & Enzler, 2006). It is a crucial first step in
the management of an organization’s environmental impacts given that
to effectively control the environmental impacts of waste, effluents and
emissions it is essential that the organization monitors the physical flow
of these contaminants in the first place. Eco-efficiency indicators are
meant to measure such things as energy and material intensity. They are
expressed in non-financial ratios for example, energy consumed by the
company divided by unit of output that can be used as benchmarks to
improve the efficiency of resource usage by companies (Buhr & Gray,
2012).
The SCS literature summarized in Table 1 and briefly reviewed in the
previous paragraphs undoubtedly contributed to the development of
several management accounting techniques and control systems aimed at
helping companies to face their social and environmental responsibilities
and to attain their sustainable development goals.3 However, SCS research
is still at its infancy (Gond et al., 2012; Henri & Journeault, 2010;
Songini & Pistoni, 2012). As noticed by Henri and Journeault (2010),
most of this literature is either conceptual or descriptive and often based on
a limited number of case studies.
In addition and more interestingly to the ends of this work atten-
tion has often been paid to the development of individual systems and tools
of sustainability management accounting and control, such as environmen-
tal budgeting, environmental/sustainability performance evaluation systems
or sustainability BSC (Gond et al., 2012). In contrast, we have nearly
no research investigating the interplay among these individual systems and
the improvements in decision-making created through their interactions.
With the exception of a very few in-depth case studies that have examined
the relationships between different types of MCS in the context of
socially responsible managerial decision-making (Durden, 2008; Norris &
O’Dwyer, 2004), empirical evidence is scarce and our understanding of the
interaction among these new forms of SCS is limited.
Finally and relatedly to date research on SCS has nearly exclusively
investigated the technical dimension of sustainability accounting and
control systems, at the expense of their organizational and cultural compo-
nents. However, embedding sustainability principles within companies’
strategies and internal business processes is a particularly complex process
which starting from top managers’ ethical values and commitment

requires the mobilization of an holistic approach considering also organiza-
tional and cultural aspects, in addition to technical ones. Indeed, the few
empirical, case-based papers to date conducted on the use of management
accounting tools and systems in the context of sustainability (see,
e.g. Acquier, 2010; Adams & McNicholas, 2007; Bouten & Hoozée, 2013;
Larrinaga-Gonzalez & Bebbington, 2001) convey quite well the challenges
and difficulties for environmental and sustainability management account-
ing interventions in effectively encouraging organizations to change in
ways that reduce their unsustainability (Hopwood, 2009). For example,
Larrinaga-Gonzalez and Bebbington (2001) provide a nice account of a
failed attempt to achieve substantive organizational change through the
implementation of environmental accounting. While it was possible to
identify marginal improvements in the environmental performance of
the case study organization, the way in which the company viewed the
environment and its underlying rationale (i.e. to generate profits through
expanded sales) remained the same. In attempting to explain this failure,
the authors mobilize the concept of ‘assemblage’ (Duncan & Thomson,
1998) and suggest that the assemblage of events, structures and conditions
(including internal organizational and cultural factors) that would have
been necessary for organizational change to have been effected was not
present in their case. As this example indicates, organizational responses
exclusively focused on the technicalities of SCS are likely to fail in substan-
tively shaping organizational strategies and actions towards improved sus-
tainability. Management accounting techniques, in their own, do not
appear to suffice.
In sum SCS research, as an emerging field of literature, has up to now
provided us with precious insights on the challenges of designing and
implementing SCS by focusing on their technical properties. While this
focus on the technical dimensions of environmental and sustainability
accounting is certainly understandable and also appropriate given the
novelty of the discipline, we argue that it is now time to turn to a more
holistic approach (Ditillo, 2004, 2012) which considers also the organiza-
tional and cultural dimensions of SCS. Starting from these premises, the
next section will suggest a framework incorporating both organizational
and cultural dimensions as well as the notion of interrelationships
among SCS which could hopefully provide an impetus for future
research and practice on sustainability management accounting and
control.
TOWARDS A MORE COMPREHENSIVE FRAMEWORK

FOR SCS RESEARCH: THE ‘SCS PACKAGE’
Given the considerations expressed thus far, a particularly useful frame-

work for informing future research on SCS we argue could be derived
by adapting to the sustainability context under investigation the MCS
‘package’ proposed by Malmi and Brown (2008).4 The starting point of
their work is the recognition that, despite the fact that the idea of MCS
operating as a package has existed for a long time (Otley, 1980), and not-
withstanding several calls to study the phenomenon (Chenhall, 2003;
Flamholtz et al., 1985), there has been little explicit theorizing or empirical
research on the topic (Abernethy & Chua, 1996; Caglio & Ditillo, 2012a;
Simons, 1995). However, studying specific MCS elements in isolation has
‘the potential for serious model under-specification’ (Chenhall, 2003,
p. 131) as failing to recognize the links between various MCS can lead to
erroneous conclusions. Starting from these premises, Malmi and Brown
(2008) develop a comprehensive but parsimonious typology of an MCS
package which could be used to study the phenomenon empirically. The
framework is structured around five groups of control mechanisms: plan-
ning, cybernetic (i.e. budgets, financial measurement systems, non-financial
measurement systems, hybrid measurement systems), reward and compen-
sation, administrative, and cultural controls.
The strength of this MCS typology and the reason for it being parti-
cularly interesting to our purposes lies in its explicit inclusion of the
organizational and cultural dimensions of MCS, dimensions which man-
agement accounting literature has tended to overlook. As the authors state,
‘while much management accounting research has studied accounting-
based controls and this is typically focused on formal systems, there is still
limited understanding of the impact of other types of control (such as
administrative or cultural) and whether/how they complement or substitute
for each other in different contexts’ (Malmi & Brown, 2008, p. 288). These
remarks parallel very closely what we observed with respect to extant litera-
ture on sustainability management accounting and control. Indeed, if we
confront the types of SCS reviewed in Table 1 with the five groups of con-
trol mechanisms of Malmi and Brown’s (2008) typology, it is apparent that
nearly all of them (with the exception of project management and reward
and compensation) fall within the category of cybernetic control systems.
However, if the neglect of administrative and cultural types of control
represents a limitation for management accounting literature in general,
Exploring the Variety of Random
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WELSH NATIONALITY, AND

HOW ALONE
IT IS TO BE SAVED
A
SERMON
PREACHED IN THE
Chapel of St. David’s College, Lampeter

ON THE MORNING AND EVENING OF
SUNDAY, OCTOBER 30th, 1870
BY THE
REV. W. G. DAVIES, B.D.
Chaplain of the Joint Counties Asylum, Abergavenny
PUBLISHED BY REQUEST
LONDON: SIMPKIN, MARSHALL. & CO.
CARMARTHEN: W. SPURRELL
1871
“The Clergy everywhere should be emphatically ‘the teachers of

people,’ and leaders of modern thought.”
The Rector of Merthyr.
A SERMON.
I.
Luke x. 42.
“But one thing is needful, and Mary hath chosen that good part
which shall not be taken away from her.”
The discourses which I have the privilege of delivering in this chapel,

are specially addressed to my younger brethren, the
undergraduates. I cannot but dwell with pleasure upon the time
when I was myself a student in this college. This, together with the
fact that I am a native of the lower part of this county, and was
brought up among some of the most primitive of the Welsh people,
and consequently am familiar with their leading sentiments,
manners, and customs, places me, I cannot help feeling, in a state
of close sympathy with the greater number of you. Assuming the
existence of this fellow feeling, I have chosen, on this occasion, to
investigate the social and religious condition of my countrymen in a
light which has not yet penetrated into the fastnesses of the popular
mind of Wales. I have done this, because the subject is one that
elicits ideas of high import, which it is desirable you should know,
inasmuch as they ought to prove of signal service to you in your
future ministrations.
We are living, you should be aware, in critical times. Old institutions
and dogmas are rudely assailed, and challenged to vindicate their
right to respect before the tribunal of reason. It is well then that
you should have some leading ideas implanted in your mind, so that
you may the better be able to comprehend the nature of the change
that is coming over us. As this change proceeds, you will probably
hear cries of despair from this party and from that, and harsh and
uncharitable accusations will be flung by one at the other. Be not
therefore in perplexity, but of this be very certain, “The Lord hath
prepared His throne in the heavens, and His kingdom ruleth over
all;” and though we may see the pet schemes of men ending in
signal failure, not for one moment can we suppose that God’s
eternal purposes will come to nought, that His word will return to
Him void.
“This,” remarks the learned bishop of this diocese, “is an age of
restless curiosity, and searching inquiry. If we fail to come at the
truth, it is not because we ever shrink from approaching it; not
because we let ourselves be stopped by any conventional barriers of
usage or authority. We admit no right in any one to judge for us on
subjects which we are able to judge for ourselves. We take no
opinion upon trust, because it has come down to us with the stamp
of an honoured name. We adopt it only after we have made it our
own by a rigid scrutiny of its intrinsic claims to our assent. It is an
age in which all pretensions to respect and deference are jealously
examined, and in which it is more difficult than ever for any false
pretences long to elude detection.” [4]
The tendency here described by the bishop, ought to suggest to you
the necessity of making yourselves acquainted with the leading
characteristics of the time, and urge you so to train your
understanding, that you shall be always ready, as the apostle
enjoins, to give a reason for the hope that is in you. In Wales,
however, owing to her isolated condition, divided like a Milford
Haven from the vast Atlantic, it is quite possible that it may be a
considerable time before this restless and inquiring spirit will make
itself so generally felt as elsewhere. This may be an advantage to
you; for, from your tranquil haven, you may be able dispassionately
to form a judicial opinion of the commotion which is being felt by
others at a distance from you.
Few things indicate more clearly the religious condition of the Welsh
people than the closeness with which, in so many respects, they
apply, but in a certain limited sense, the principle contained in the
text, “But one thing is needful;” namely, to learn and to have the
mind of Christ, a requirement far more comprehensive than many
seem to think; for does not that good part which shall not be taken
away, embrace all the knowledge we can obtain of God’s power,
wisdom, and love?
How deeply the cares of life, the “what shall we eat, or what shall
we drink, or wherewithal shall we be clothed?” the anxieties of
business, the wild fever of speculation and gambling, the frivolities
of a life devoted to the exclusive pursuit of pleasure and excitement,
the arduous strain endured in climbing giddy heights of fame, glory,
and power; how deeply are all such merely temporal pursuits, even
were they innocent, condemned as vanity of vanities, by that loving
reproof of our Saviour, “But one thing is needful.” However
unmindful we may be of the fact, eternity surrounds and makes
prisoners of us all; and what is the whole world with all its pomp,
wealth, greatness, and pleasures, viewed in the dimming light of
that eternity? What shall it profit a man if he gain everything but
what is really needful, everything but the good part, since “when he
dieth he shall carry nothing away, his glory shall not descend after
him?” This indeed, is a most serious and awful consideration, and
no one possessed of proper feeling, can treat it with levity. The
grave, without respect of persons, confronts us all with its awe-
inspiring illimitable beyond; and we cannot, if we would, brought up
as we have been to possess long-standing associations on the side
of Christian truth, and in harmony with the voice of conscience and
the higher aspirations and presentiments of the soul, bring ourselves
to believe that we shall not reap hereafter as we have sown here.
How often have the hills and valley of Wales resounded to stains like
these, and long may they do so. But a most important question to
ask is, what is comprised in the one thing needful? Are science,
literature, and art of only temporary value? In the day of trial will
they prove, even when true and pure, but “wood, hay, and stubble,”
or will they turn out to be a portion of the “gold, silver, and precious
stones” which we can carry with us to the better land?
I shall not, I presume, be far from the truth, when I declare that the
Welsh are, on the whole, a God-fearing people; and that they are
somewhat remarkable for the manner in which they put into practice
the principle contained in the text, “But one thing is needful.” If we
except the various pursuits by which they gain their livelihood, the
Welsh-speaking portion of my countrymen have few proclivities apart
from religion. Their reading is almost purely religious reading; their
music, psalmody; their social gatherings, for the most part, clerical
meetings, religious camp meetings, and the assembling of Sabbath
schools. Their periodical literature consists almost wholly of religious
magazines. Secular knowledge, secular music, and well nigh
everything approaching to fiction, are by many of them deemed not
only valueless but sinful. Y gwir yn erbyn y byd, a motto of which
the Welsh nation may justly be proud, expresses the intolerance with
which many natives of the Principality regard everything but what
they believe to be downright sober truth. Is it the one thing
needful? If not, avoid it as mischievous; at all events, “do not spend
your money for that which is not bread, and your labour for that
which profiteth not.” That the great mass of my country-people are
remarkable for what many would consider the logical reduction of
Christianity into practice, is unquestionable; but are they therefore,
any more than St. Anthony and the early pilgrims, who believed they
did the same thing, to be pointed out as worthy the imitation of
others in all respects?
The Welsh-speaking inhabitants of this country, it must be admitted,
live in a manner which has its attractions for primitiveness and
homeliness; their wants are few, their passions are much under
control, they are self-denying, industrious, and provident; and
throughout the Principality, much to its credit, criminal cases but
seldom darken the calendar. Such being the social condition of the
Welsh, but more especially in the agricultural districts of what has
been termed Welsh Wales, though not indeed without exceptions as
regards keeping the “body in temperance, soberness, and chastity,”
would it not be desirable to take note of the influences which
conduce to such a state of things, with the view of bringing the
same to bear upon communities, in which so many are deplorably
corrupt, criminal, and profane? When, however, we come to
consider that one of the leading causes of the peculiarities exhibited
by the Welsh, is the isolation resulting from their language, few
distinctive points remain in their social economy which admit of
being copied with advantage by other communities. Influences
which are rapidly changing the character of the English, and the
better educated classes in these parts, exercise but a faint effect
upon the primitive Welsh; because they are, by their language, shut
out from the rest of the world. They are like the river water, which
is out of the main current. Their manners, customs, and ideas, all
tend to permanency. The sons follow with little change in the steps
of their fathers, and the daughters in those of their mothers. As a
consequence of this, even in business pursuits, they are, like the
French Canadians, deficient in enterprise, and acquire property
mostly by saving and self-denial. Like the Chinese, they give one
the idea of a people whose development has been arrested at a
certain stage, whose inspiration is drawn from the past, and not, as
by the Israelites of old, from the future. They love to dwell on the
antiquity of their language, and its purity from foreign elements.
What they were is to them a source of fond exultation. What they
are destined to become, they fear to contemplate.
I claim to be a lover of my country. I admire much the social and
civic virtues, and the religious enthusiasm of her people; but I am
forced to admit that among the Welsh, as such, there is no onward
tendency. That is a great and noble ambition of theirs which urges
them to retain their language; and they firmly believe in the
prophecy, “Eu hiaith a gadwant.” But to be equally bent on
perpetuating certain peculiarities which unite them with the past as
a race opposed to their English neighbours, this desire to surround
themselves with a sort of Chinese wall, instead of letting “the dead
past bury its dead,” is not the part of true patriotism. For, by blindly
adhering to such a stationary policy, they will eventually, as a distinct
nation, be submerged by the tide of progress, instead of floating on
its surface, and exist about as much in reality as their fabled
Lowland Hundred. In everything but political sectarianism, and this
only because they are moved to it by political agitators, the Welsh
are in fact a most conservative nation.
This primitive condition of the Welsh, however, is not singular. It has
existed, and exists even now, in various parts of the world. As an
instance with which we have lately been made acquainted, it may be
mentioned, that Wallace has found, in some of the islands of the
Malay Archipelago, several communities which have no intercourse
with the world at large, leading an industrious, peaceful, moral life;
committing little or no crime; “showing the work of the law written
in their hearts;” and a pattern to many of the inhabitants of so called
Christian and civilized countries. When we contemplate such
beautiful simplicity and purity of life, we must admit that these
people “are not far from the kingdom of God;” and one is tempted to
doubt whether civilization with its extremes of wealth and
destitution, refinement and barbarism, culture and ignorance,
integrity and crime, saintliness and profanity, is the blessing that it is
commonly held to be. But yet if we compare the endowments of
mankind with those of the more intelligent brutes, we find that man
has a capacity for being educated into a higher being in proportion
as the race stores up knowledge, a power which opens the vast
treasury of nature; whereas the most intelligent of the brutes are
but slightly educable, and therefore stationary. While man, however,
is gifted with this immense superiority, he does not always turn it to
the greatest advantage. Some nations are rapidly advancing; some,
having advanced in time past up to a certain point, have either long
ago halted, or have gone back to barbarism or worse. Of these
three tendencies, the one strongly manifested by the Welsh is
halting. What forces there are urging them forward are almost
entirely from a foreign source; and the fact that such influences are
operating upon them is, by many of their number, regarded as a
misfortune, by few as a blessing. Painful, however, as it must be to
Welsh patriotism, and high-wrought sentiment, yet it is not to be
doubted that the genius of Wales is receding before that of England,
as is so clearly evident to those who dwell on the border land, where
the two rival powers are brought face to face. And now what I wish
my country-people particularly to understand is, that as long as they
adopt a policy of stagnation, Cambria is sure to be worsted in the
conflict for distinctive existence; because such is the law of
evolution, a law which pervades all nature; and to this law I would
now draw your attention.
What is called evolution or development in nature is a procedure
from simplicity to complexity of structure. The more elaborate and
special an organ is, the higher is the function which it has to
perform. To select an illustration from the animal kingdom: among
the lowest kind of animals called the hydra there is no distinction of
parts such as seen in the human body; no nutritive, muscular, and
nervous system; no senses, no brain. Each portion of them being
complete in itself, these animals can be propagated by simply cutting
them into bits. Each part is independent of every other part; as if in
this country we had local government, but no central government.
The whole is a medley in which there is no division of labour and of
responsibility, no interdependence.
How different the case in man’s elevated and complex nature! And
how can I express this more forcibly, or in a way better adapted for
conveying to you the principle here held in view, than in these words
of St. Paul:—“There are many members, yet but one body. And the
eye cannot say unto the hand, I have no need of thee; nor again the
head to the feet, I have no need of you.” The principle here
enunciated is that of unity in variety. “The body is one, and hath
many members; and all the members of the body, though they be
many, are one body.”
The chapter from which these passages are taken demands your
special notice, in order that you may see how fully the Apostle’s
mind was possessed with the law of unity in variety—many
members, yet but one body; and together with the sequel to it, the
New Testament song of love, should deeply impress upon our hearts
the all important truth conveyed in the words, “Now ye are the body
of Christ, and severally members thereof.” There will be diversities
in the Church, there cannot be uniformity, but there must be unity.
“For as it is noted by one of the fathers,” says Bacon, “Christ’s coat,
indeed, had no seam, but the Church’s vesture was of divers
colours; whereupon he saith, ‘In veste varietas sit, scissura non sit.’”
There was a time, even in the memory of living men, when Welsh
households had little need of aid from commerce, when almost
every kind of food was home grown, and almost every article of
clothing home spun and home made. Some lament that this is not
still the case. Let these, however, console themselves with the
knowledge that as mankind progress, they are made, by division of
labour, to become more dependent on each other, and that perforce
the law of love, of mutual beneficence, is being propagated in the
world, not only by the Christian ministry, but by the agency of
commercial, scientific, and literary progress. Not only the
inhabitants of the same land, but the various nations of the earth
are more and more coming to this, that they can less and less do
without each other’s co-operation.
An early stage of society, like that of animal development, is a
medley. It is made up of families or tribes, each of which has its
own separate organization; and the tendency is, where selfishness
and a contentious spirit predominate, to split up into fragments;
whereas, on the other hand, where the domestic virtues are highly
advanced, and there is a general disposition to sink private interest
in public good, men will cling together, thus forming larger
communities, exercising more advanced functions, and eventually
absorb those weaker tribes which have not acquired these virtues;
that is, have not realized, to the same extent, the principle of many
members in one body.
It is characteristic of the human mind, in its first attempts to pierce
the mists of ignorance and mystery, to embrace, in one view, the
whole realm of knowledge, and necessarily to suppose that it is
much more limited than it is. The astrologers of old little dreamed
that the stars, which were the objects of their superstitions
contemplation, were but a small portion of the illimitable universe of
worlds. We see at first of any subject which we study but about as
much as we see of the stars without the aid of the telescope, or of
minute objects near at hand without the aid of the microscope. The
realm of knowledge enlarges in proportion as we intimately explore
it. The more we discover distinctions, which have been overlooked
by previous observers, or the more we differentiate, and at the same
time assign the differences their right place in the class, the unity to
which they belong, the more we advance that branch of
investigation towards which our efforts are turned. In the infancy of
knowledge, science, poetry, history, politics, theology, form one
medley, like the hydra in the animal world. Pythagoras, because he
possessed insufficient powers of abstraction, could not keep
mathematics apart from metaphysics, theology, and æsthetics. And
Xenophanes must needs, in the philosophical and theological travail
of his soul, give expression to his ideas in flowing hexameters. The
early ballads were not simply the minstrelsy, but the only chronicles
of the period. Out of the medley state, which has now been
described, the sciences file in the order of their simplicity, generality,
and remoteness from religious, poetic, and political emotion.
The development of knowledge and of civilization, therefore, like
that of the animal kingdom, is commensurate with the degree in
which labour is divided, while perfect unity is retained. “Now hath
God set the members every one of them in the body, as it hath
pleased Him. And if they were all one member, where were the
body?” (where were the multiplicity in the unity?) “But now are they
many members, yet but one body.” As a striking instance of the
manner in which civilization is effected by this law Guizot tells us
that it is more advanced in modern than in ancient times, because it
is more complex. In ancient civilization, there was no country
population existing as a class distinct from that of the towns, and
exercising a power peculiar to itself. By means of the feudal system,
however, the country population has assumed a distinct character in
modern times, and it wields an influence which greatly modifies the
power of the great populous centres. Here we have another
instance of differentiation out of a prior medley state, such as
existed in the civilization of Greece and of Rome.
So much chiefly for the doctrine of differentiation; now more
particularly for that of unity. Let us never forget that God has
fashioned the body in such a perfect manner that there should be no
schism among the different members, but that there should be “the
same care one for another.” Thus it is found to be throughout the
region of animal life. There is, at first, no variety in the unity. As
animals ascend in the scale of being, variety emerges; organs having
special functions to perform are divided off from the structureless
germinal matter; but the oneness of the living being is perfectly
preserved; there is no schism among the various parts of the body
to which a special sphere of labour is allotted. Now this is just what
ought to be the case with the great social body. If it advances from
one stage to a higher, it must be by division of labour combined with
the union of love. It is by division of labour that men acquire that
skill and excellence in the arts, that greater accuracy and extent of
knowledge in general which enables them to surpass their
forefathers. But here we enter the sphere of will and of moral
obligation, choice, and duty; and instead of witnessing that
harmonious action of many parts exhibited by the involuntary
regions of organic life, we witness all those evils which, if they do
not have the effect of awakening a nation to the error of its ways,
eventually lead to anarchy and decay. What, however, we mostly
behold in civilized communities is, that while some are in a highly
advanced state, the majority form an appalling mediocrity, while too
many are but paupers and criminals. Yea, the social body is seen to
have many weak, many diseased parts; and is often, through strife
and dissension, threatened with dismemberment. These are the
great trials which civilization has to encounter; and amidst great
physical progress, notably amidst and wealthy magnificence, there
may be much rottenness at the base.
Since communities as they advance become more divided into
members having special offices to perform, there is, where the
higher emotions, the source of union, are not in the ascendant, a
tendency to an isolation of the parts, to one-sidedness, to a want of
“the same care one for another,” to those gross inequalities, those
frightful extremes which too often reflect such discredit upon our
large towns and cities; social disorders which it is the province of the
Church to counteract, laying a heavy weight of responsibility upon
her, as well as upon the State; and which are found to exist to a far
less extent among a Christian and primitive people like the Welsh.
The lower animals exhibit a well-regulated constitution. They fulfil
the purpose of their being; there is no schism among their
members. “If we saw the lion,” says George Combe, “one day
tearing in pieces every animal that crossed his path, and then
oppressed with remorse for the death of his victims, or
compassionately healing those whom he had mangled, we should
exclaim, what an inconsistent creature, and conclude that he could
not by any possibility be happy, on account of this opposition
between, the principles of his nature.” Now this is just the
opposition which deforms human nature. “The flesh lusteth against
the spirit, and the spirit against the flesh, and these are contrary the
one to the other, so that ye cannot do the things that ye would.”
How is this internal discord to be quelled but by the inner man
having the mastery over the inferior propensities of our nature? As
long as these latter are not brought under the wholesome restraints
of the Gospel, the Master’s easy yoke, the truth which makes us free
from carnal bondage; as long as the raging waves of animal passion
hear not the voice of Him who says, “Peace, be still,” in vain shall we
look for those social and political virtues which constitute the
stability of a state; and which, therefore, since self-preservation is
the first law of nature, it should be a prime duty of the State to
promote. Without vital Christianity, without a large number on the
side of God, and forming the salt of the earth, we must expect
nothing but general corruption and downfall. We may pride
ourselves upon our railways, our steam navigation, our electric
telegraphs, and all the rest of our mechanical wonders; we may
pride ourselves upon our immense resources, our domestic
comforts, our scientific and literary attainments, our proficiency in
the fine arts; but if the conscience of the nation be not adequately
developed by a devout and enlightened contemplation of God’s holy
will, the social body will be constantly reminding us, by its feverish
restlessness and by its terrible sores, that it is not nicely compacted
together—that “where one member suffers, all the members do not
suffer with it,” that we have not paid sufficient heed to “the one
thing needful;” and that we are, in consequence, reaping, by way of
warning, disquieting and painful intimations that though our
progress is rapid, the rails on which we run are alarmingly insecure.
Now among the Welsh people the elements of stability, of unity, are
strong, but those of progress or differentiation are weak. Then as
regards the people’s social condition in general, it exhibits few of
those disheartening extremes which are so often to be met with in
our large towns, but presents, with slight deviations, a general level
of moderate elevation.
In more civilized communities, and notably in one of them, while the
elements of physical and intellectual advancement are in a state of
vigorous existence, social virtue and political stability are in a very
unsatisfactory condition indeed. There are many members, but they
have not arrived at that stage of perfection in which they constitute
one body. Let us hope, however, that as chaos preceded cosmos, so
it will be with them. Then as respects the various stages of
development which exist side by side, they present all the
inequalities of a mountain region—
A savage horde amid the civilized;

A servile band among the lordly free.
Now these two requirements, variety and unity, when you go hence
to proclaim the Gospel, it will be most important that you should
promote. The “unity of the Spirit in the bond of peace” will,
doubtless, be to you a prime object of cultivation. But will you not
also exert yourselves to kindle in the bosom of your country-people
that spirit of progress which results from always adding new truths
to those of the past; and from continually realizing more and more
the truth, beauty, purity, and grandeur of the indwelling Word of
God, namely, “His Word abiding in you,” that is, in the children of
light, the only medium through which revelation, as distinguished
from the mere outward signs which alone can exist in the Book, is
kept, by the Holy Spirit, a living saving power on earth.
II.
“The world is moving on; the nation which stands still must be left
behind. No people can now live upon its remembrances. Like the
runners in the ancient games, the nation which surrenders its torch
to another, not only loses the race, but loses the light. The whole
distinction of English intellect has arisen from its continually looking
forward, forgetting the past, and continually anticipating a new day
of toils and of triumphs, of severer straggles, but of loftier
splendours.” The distinction here pointed out by Dr. Croly, in an
essay entitled, “The Cultivation of the Intellect, a Divine Duty of
Man,” does not exist to any extent among the great body of the
Welsh people, many of whom attach but slight importance to the
acquisition of knowledge; because, possessing but little of it
themselves, they are naturally disposed to regard it as a matter of
mere temporary concern. Even the majority of their religious
teachers having, till of late years, no knowledge of any books but
the Welsh and the English versions of the Bible, Matthew Henry’s
Commentary, and not many more, tacitly, if not openly, encouraged
this tendency. For uninformed minds are prone to disparage
intellectual attainments, and to interpret the Holy Scriptures, so as
to find therein abundant confirmation of their primitive conceptions.
Yes, even in our own Church, which did make some pretensions to
learning, was to be found, not fifty years ago, too many a parish
priest without a library, too many a Trulliber forgetful of the high
responsibility of his sacred calling.
But is familiarity with aught but the Bible—with philosophy, science,
history, and æsthetics—even remotely comprised in the good part
which shall not be taken away from us when we go hence for ever?
Yea, is not such knowledge “the wisdom of the world, which is
foolishness with God?” and is it not written that “not many wise after
the flesh are called?” These questions, I am strongly impressed,
indicate the tone of too much of the preaching in Wales. But we
need not hesitate to reply that, though the knowledge of evil and of
science falsely so called is to be avoided as most pernicious to the
soul, the knowledge of good, in all its bearings, cannot be too
diligently sought. He who knows nothing but the Bible, as Matthew
Arnold reminds us, knows but little of the Bible. Indeed the
knowledge of good, yea, and taken in the widest sense, cannot be
thought of slight value and of transient importance, without
irreverence towards Him of whose existence, intelligence, power, and
goodness, it is the great exponent.
That the passion of acquiring a knowledge of God’s works and ways
in general was strong in Solomon, we cannot doubt. He, indeed,
tells us that in the exclusive pursuit of intellectual truth there is no
real satisfaction to be gained, “that a man cannot find out the work
that is done under the sun . . . yea, though a wise man think to
know it, yet shall he not be able to find it.” All passionate seekers
after undiscovered truth know that much mental toil, and probably
years of wearisome watching, are demanded before any one can
hope to snatch a new secret from the close keeping of the
unknown. This must be humiliating to the man of sanguine
temperament, but profitably so, because it cultivates within him a
longing for the happy time when “we shall know as also we are
known.”
Then intellectual attainments, though calculated to satisfy the wants
of the perceptive and reasoning faculties, cannot still the cravings of
the conscience, cannot meet the demands of the moral and religious
emotions. These can find in such food only a stone when hungering
for bread, the apple fair to the eye, but ashes under the teeth.
When Solomon, therefore, sought for full satisfaction of soul in the
exercise of his intellect, and the acquisition of its related knowledge,
meanwhile starving his moral and religious nature, it was only to be
expected that such a course should be found to lead to “vanity and
vexation of spirit.”
But while admitting to the full the humiliating limitations of the mind
which Solomon deplores, and that the soul cannot live by intellectual
food only, even though it be contained in God’s own Word, yet we
fully believe that it is man’s duty, as well as his privilege, to seek for
truth wherever to be found; and that he can so cultivate his intellect,
and store his memory, as to ensure thereby a greater nearness of
soul to his Father in heaven.
The operations of the giant-intellect, we know, are not acceptable to
God, except they are imbued with that glow of soul which
constitutes the babe-like spirit. But how can the giant-intellect,
when thus wedded to the love of holiness, better serve God than by
ever realizing more and more of His divine fulness as displayed in all
his works and ways?
Although we must allow that no one is so low in the scale of
intellectual culture as to be out of the reach of that redemption
which is not conceded to learning and talent, but to newness of
heart, still we must not forget that the apostle says, “Brethren, be
not children in understanding: howbeit in malice be ye children; but
in understanding be men.” Let the mental horizon of genius, joined
to deepest piety, stretch ever so far away, it encircles but an
insignificant portion of that which is open to the glance of
Omniscience. Under the most favourable circumstances, the human
mind, while in this present tabernacle, must meet with many
problems which it “cannot know now, but shall know hereafter.” And
now what we would with much stress insist upon is, in opposition to
an opinion too prevalent in this part of the kingdom, that the
believer who has a mind of little grasp, scantily stored with
information, has not the same command of spiritual blessings, does
not live so fully the Christian life, does not mount in heart and mind
so near to the Redeemer’s throne in heaven, as the believer whose
mind has attained a high degree of culture, and amassed large
stores of knowledge. It must be so, for the region of divine truth
being boundless, he who is ever pushing further into it, and ever
striving to embody its purity into his life and practice, must be
further advanced than the man who simply loiters near some one
spot in this region, as soon as he has gained admittance into it. And
now is it competent for the loiterer, say for the man of one talent
and little energy, to say to the more gifted and diligent inquirer,
“Your labour is in vain; but one thing is needful; and that is simply to
pass over the border”?
Is this view, so disheartening to the Christian scholar, in accordance
with the teaching of the Word of God? What does the most learned
of the apostles tell us in regard to his own experience? “Brethren, I
count not myself to have apprehended; but one thing I do,
forgetting those things which are behind, and reaching forth unto
those things which are before, I press toward the mark for the prize
of the high calling in Christ Jesus.” Now this is exactly true to the
experience, not only of the Christian yearning for perfect freedom
from sin, and a feeling of complete incorporation with Christ, but of
every one who longs to surpass his past achievements, from
Alexander pining for more worlds to conquer, down to the miser who
the richer he becomes the poorer he feels. Thus the great poet,
artist, or musician, is never quite satisfied with his accomplished
works, but always feels how much better they might be, his ever
growing fastidiousness urging him to cry out, Excelsior, excelsior!
Highly cultivated minds, more especially if of an imaginative turn,
are never satisfied with the real. “The ideal, the ideal,” is their cry.
They push on to lay hold of it, but it ever recedes before them. The
ideal will always shine far in advance of the real.
This longing for the unattained, when sanctified by the Spirit of God,
will never permit the on-pressing Christian to feel that he has finally,
and without occasion for further effort, laid hold of the one thing
needful. Yea, in the life to come the same feeling will exist, for after
ages of looking into the wonders of God’s love, wisdom, and power,
the language of the heart still will be, “I count not myself to have
laid hold of the divine ideal.”
It is recorded by those who have sought the conversion of the

savage that his capacity for receiving Christian truth is commentate
only with the contracted character of his intellect, and the low range
of his attainments. If he does become a Christian, it is only such
views of the Gospel find an abode in his heart as accord with the
feeble mental powers which he possesses. And now I would ask, is
this degree of truth all that is absolutely necessary for salvation in
every ease? Being but a child in intellect, the savage is not yet
capable of putting away childish things. But you may think he can
be educated, and be thus brought into a state of mind in which the
seed of the Word may grow with less stint. But then it is found that
his capacity for education, except in rare instances indeed, is very
slight. So again I ask, after an attempt has been made to enlarge
his mind, is that measure of Christianity which he is capable of
realizing all that is absolutely necessary in every case? I take it for
granted that your answer to this question is in the negative. Do you
not believe that besides the education of individuals, there is, as the
result of this, the education of the race; that as the sins of the
fathers descend unto the third and fourth generation of them who
continue to hate God, the punishment for violation of law increasing
in intensity till the guilty race dies out; so God’s mercies in the shape
of increasing aptitude for knowledge, refinement, and Christian
elevation, are transmitted from generation to generation among
those who stedfastly love the Lord? At all events, savage tribes
when brought under the influence of civilized nations, instead of
becoming civilized themselves, disappear from off the face of the
earth. For as the wind which makes the larger flame burn more
brightly, extinguishes the lesser and feebler flame, so the manners
and customs of advanced life put upon savage nature a strain too
heavy to be borne; and this because such a nature needs to undergo
that gradual elevation of the race which it would take generations to
accomplish.
What is the drift of these remarks? That the more the mind is
developed, both intellectually and emotionally, the greater becomes
its power of realizing the knowledge of good, and therefore of
glorifying God—the Good.
When a gifted man stores his mind with truth, and at the same time
strives his utmost to attain purity of heart, his Christian experience
must needs be widened, and his whole soul elevated, in proportion
to the number of distinct kinds of truth which combine with each
other, and with the ruling passion of his life, to form one grand
result, many systems of truth all threaded on that one cord, “the
love of Christ constraining;” much differentiation, but perfect unity;
many members, yet but one body; in short, a state of mind similar in
kind to the Son of Man’s. For is there anything in the whole range of
the sciences, physical, biological, political, social, and moral;
anything connected with the theory and the practice of art; anything
relating to the history of the past, even eternity ab ante; in short, is
there anything which is not perfectly open to the mind of Jesus?
And is He not our elder Brother, and divine Pattern in all things
heavenly? Is not the realization, in so far as that privilege is
extended to us of His mind, to be the grand object of our life here
and for evermore?
To be possessed of talents and of facilities for obtaining for them the
highest cultivation, what do these gifts involve? That they should be
diligently used in promoting the glory of God who gave them. Can
the savage mind know much of God? Can he who knows no more of
the infinite ocean of truth than he has explored of it, so to speak, in
his rude canoe, know as much as is really essential for you and for
me of the redeeming love of Christ? The true answer to this
question evidently is, that in a babe’s mind you can expect no more
to exist than a babe’s knowledge; it has “need of milk, and not of
strong meat;” but “unto whomsoever much is given, of him shall
much be required.”
The Christian life then is not a fixed quantity, the same in the child,
the savage, the barbarian, and the Welsh peasant, as in the saintly
scholars of the Christian Church; but answering to every advance in
pure knowledge, there is, in the man after God’s own heart, a
corresponding advance in moral and spiritual excellence. For
emotions are manifested only in proportion as ideas form the
branches round which emotions twine. No well-defined emotion can
exist without its related ideas. True, ideas are countless, while
emotions are comparatively few, and from age to age retain their
identity and freshness, while ideas change and change. Still,
however, emotion must enter into union with ideas in order to have
any definite existence. The more, therefore, the intellect is stored
with knowledge, the greater also must be the number of instances in
which ideas and sentiments become associated together.
But what is of more importance still to consider is, that certain ideas
can only exist when other ideas have been fully realized first. The
former grow out of the latter as branch from trunk, and twig from
branch. Certain twinings of feeling with thought must follow,
therefore, the evolution of these various grades of ideas. Now the
notions in the savage mind are of the lowest grade, and rest assured
that his religious feelings, however warmly manifested, cannot reach
beyond the level of his knowledge.
Now it must be almost superfluous to ask the question which these
remarks suggest. Are all the thoughts and feelings which hold a
higher elevation than the lowest, to be deemed, not as the
necessaries, but the luxuries of religion? You cannot fail to perceive
that the reply to this inquiry must depend on the level you have
been made to occupy. If you have been placed in a high position to
start from, and if every advantage in the way of mental culture has
been extended to you, the one thing needful for you is clearly to
push on higher, to enlarge the intellect by searching still further for
the true, which to the heart is the good and the beautiful; and to
enlarge the heart by cultivating for these latter, an evergrowing
love. Moreover, are you not justified in believing, that if you do this,
you will be choosing that good part which shall not be taken away
from you when you die? For if we are not to forget in heaven that
we were once on earth; if we are not to lose the feeling of identity
which is to unite our heavenly with our earthly existence, why
should it be thought incredible that the knowledge of good which we
acquire below should not be one of the links in that chain of identity;
more especially as it will be our supreme delight to be always
extending such knowledge in the realms of light? Yea, what a
source of joy it will be in the bright spirit-land to discover that our
mental powers are as compared with their prior state, so much
enlarged and strengthened, that we can acquire knowledge with so
much more ease and precision than while on earth, and that
questions which baffled solution then, are easily solved now. But
does not this imply that the remembrance of the earthly life, with its
trials, miseries, infirmities, ignorances, and doubts, is the dark
surface, which by contrast, heightens the splendour of celestial bliss?
Even in heaven, then, knowledge will be progressively acquired. “No
one,” writes Dr. M‘Leod, “surely imagines, that on entering heaven,
we can at once obtain perfect knowledge; perfect, I mean, not in
the sense of accuracy, but of fully possessing all that can be known.
This is possible for Deity only. For it may be asserted with
confidence that Gabriel knows more to-day than he knew yesterday.”
[23]
Throughout these remarks, it has been supposed that the scholar’s

piety is great; for without piety, however extensive his learning, he
will have less insight into divine truth than the dullest of God’s own
scholars. Truth also impels us to concede that the good qualities of
the heart, and intellectual capacity, are frequently bestowed in an
inverse proportion upon God’s people; so that many that are first in
the one, shall be last in the other, and the last in this shall be first in
that.
I have now, to the best of my endeavour, combated a too prevalent

propensity, not only of my countrymen, but of most people of little
or no education; a sort of complacent resting in ignorance, as if it
were the part of a wise man, and most in accordance with the
teaching of Holy Scripture, whereas it is, in fact, but the self-
excusing Stoicism of the unfledged mind.
But surely since man is endowed with capacities for advancement in
knowledge and righteousness, we must conclude that they are
bestowed upon him with the intention that he should use them to
the greatest advantage. In proof of this conclusion, we find that the
nation which does not highly esteem these gifts must be content to
give place to one that does; must, indeed, decay, while the other
goes on from strength to strength.
And now to apply these remarks more closely to you, my younger
brethren, what does your presence in this college imply? That in the
estimation of the wisest and best men of our communion, an
ignorant ministry is an evil to be avoided, as not only discreditable
and injurious to our Church, but dishonouring to Him who gives us
talents in order that they may be made the very most of in
promoting His glory and His cause.
Ponder well over the fact, that without knowledge it will be
impossible for you to raise yourselves to a high level. “The
barbarian,” remarks Dr. Croly, “cannot bring the past in aid of the
present, cannot ascend a step in civilization on the stone laid by the
generation gone; he has virtually no ancestors, and can have no
posterity. The red man of the West is, at this moment, the same
solitary, fierce, and miserable being that he was a thousand years
ago. The Mongol is the same wild, marauding, and miserable being
as when he followed the trumpets of Tamerlane.” [24] Now, what is
the reason that these people do not advance? It is because they do
not begin building the fabric of sound knowledge. And do you not
perceive that the same deficiency which keeps them down as a
nation, will also keep you down as individuals? If, among these
people, one generation laid the foundation, and another and another
continually built thereon, they would rise in proportion in civilization
and power. The scholar of to-day, therefore, owes his high position
to the accumulations of the giant-intellects of the past. “Other men
laboured, and ye are entered into their labours.” The modern
scholar by moderate effort, though no giant, stands upon an
elevation which was piled up by one generation of learners and
thinkers after another with slow, painstaking, and disinterested toil.
This rich heritage of knowledge, this grand moral leverage, this high
energy of position, constituting the imperative reason for not
“breaking with the past”—of which the present is the outcome—it
should be your holy ambition to attain. For how can you stretch out
a hand to pull others up, unless you occupy higher ground than
they? Bear with me then while I tell you that unless you thus strive
to fit yourselves for the onerous duties of the sacred calling which
you hope to adopt, you will be doing nothing towards averting the
downfall of Welsh nationality. Of course, you will meet with too
many who will tell you that the only way to do this is to encourage
the present fatal tendency of Cambria to live solely on her
remembrances. Meanwhile, however, the invincible army of
progress, with the tramp of doom to effete nationalities, marches
steadily and irresistibly on; and the Welsh, as a distinct race, if not
better led and advised, will, by the deadly error of seeking “the living
among the dead,” simply become a people of the past.
It is my regard for my country that forces me to say what I do. I
hope she will always retain a certain degree of individuality, and live
to emulate in her own Welsh way the other great nations of the
kingdom. The Scotch do this, why should not we? Honesty,
however, forces me to affirm that by clinging unwisely to her
antiquated habits when she ought to have out-grown them, Cambria
will be thrown down, the advancing host will march over her
prostrate form, and she will cease to be a living presence on the
earth. “In the strife of tribes, of races, and of nations, in the
political as in the physical world,” says the author of Habit and
Intelligence, “a process of natural selection goes on, of which the
tendency is to give the victory to the best.” [25a] And Bishop Butler
[25b]
foreshadowed the same law when he indicated that as power
and reason united have proved themselves capable of prevailing
over power devoid of reason, as exhibited by the brute creation; so

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ACCOUNTING FOR THE

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British Library Cataloguing in Publication Data

Certificate Number 1985

LIST OF AD HOC REVIEWERS xi

EDITORS’ INTRODUCTION xiii

AN EXAMINATION OF THE RELATIONSHIP

TOWARDS A MORE COMPREHENSIVE

MEASURING ENVIRONMENTAL PERFORMANCE: IS

CORPORATE GOVERNANCE AND

SEC GUIDANCE ON CLIMATE CHANGE RISK

Martin Freedman Bikki Jaggi

Charles Cho Marc Epstein

Jeffrey Cohen Ora Freedman

David Cooper Rob Gray

Charl De Villiers Khondikar E. Karim

Carlos Larrinaga Robin Roberts

Mark Aleksanyan Adam Smith School of Business,

Martin Stuebs, Jr. Department of Accounting and Business

however. The Securities and Exchange Commission (SEC) issued an inter-

Robert W. Rutledge, Khondkar E. Karim,

Accounting for the Environment: More Talk and Little Progress

they provide much more social responsibility resources and disclosures

RELATED RESEARCH AND HYPOTHESES

Definition of CSR Activities

CSR has been an increasingly common topic of discussion in the academic

Chinese CSR Blue Book

The current study uses a measure of CSR performance that is based on

enterprises. All these international standards or index systems guided

where Bj is the CSR development index of an enterprise in each industry,

manufacturing). Industries directly connected with customers also have

Institutional Considerations for Chinese SOEs

There exists a large body of literature that examines the relationship

The Responsibility Management dimension of CSR performance quanti-

Hypothesis 3. The relationship between market responsibility and CFP is

Hypothesis 4. The relationship between social responsibility and CFP is

DATA AND METHODOLOGY

The China Enterprise Directors Association (CEDA) and China Enterprise

accounting-based performance measurement. Beijing Gildata RESSET

ROEi;t = β0 þ β1 CSRi;t þ β2 SIZEi;t þ β3 GROWi;t þ β4 DEBTi;t þ ɛi;t ð3Þ

ROEi;t = β0 þ β1 RMi;t þ β2 MRi;t þ β3 SRi;t þ β4 ERi;t þ β5 SIZEi;t

Table 1. Variable Definitions.

Financial performance (CFP)

EMPIRICAL RESULTS AND ANALYSIS

Table 2 presents average CSR scores by industry (including the subindices