An Empirical Examination of the Market Returns and Financial Performance of Entities Engaged in Sustainability Reporting

The importance of sustainability reporting to external stakeholders is reflected in the advent of various reporting guidelines and government inquiries. However, evidence of the inadequacy of such reporting, coupled with limited evidence of its use by market participants (such as investors and creditors) for resource-allocation decisions, raises questions about the overall value-relevance of sustainability reporting. This study seeks to identify, in the Australian context, whether the level of sustainable reporting is associated with a range of financial and market performance attributes of the firm.     

Stakeholder Engagement in Sustainability Reporting: Evidence of Reputation Risk Management in Large Australian Companies

The objective of this research is to examine whether stakeholder engagement in sustainability reporting constitutes the process of managing reputational risk. This research utilises Shrives and Brennan's (2017) framework of rhetorical strategies of non‐compliance to obtain empirical evidence of reputation risk management (RRM) in the context of stakeholder engagement in sustainability reporting. Quantitative and qualitative content analysis was undertaken on 154 sustainability disclosures in both the annual and sustainability reports of large Australian companies. This research finds that large Australian companies engage with their stakeholders to manage reputational risk: to increase market share and pre‐empt social issues. It is evident that large Australian companies use several forms of rhetorical statements in their sustainability disclosures with respect to RRM. However, there is no evidence that they shirk their responsibilities.     

The valuation relevance of environmental performance revisited: The moderating role of environmental provisions

This study attempts to broaden our understanding of the value relevance of environmental performance by providing empirical evidence on the moderating role of financial environmental reporting. Previous studies find that firms' environmental performance can be both positively and negatively associated with market value. Such contradictory findings can be attributed to the fact that environmental performance is associated with future economic benefits and costs. This study suggests that firms with recognized environmental provisions on their balance sheets enable investors to disentangle these opposite effects either by signaling strong future financial performance or by enhancing the reliability of environmental performance information. Regardless of the mechanism by which this moderation effect is invoked, it is hypothesized that capital market participants place a positive and significantly higher value on the environmental performance ratings of firms with recognized environmental provisions than on the ratings of firms without environmental provisions. Utilizing a sample of 692 firm-year observations of French listed firms and employing a linear price-level model that associates the market value of a firm's equity with its environmental performance, I provide empirical evidence to corroborate this thesis. In addition to contributing to the academic debate on the market valuation implications of environmental performance, this study intends to provide useful insights from a country that can be considered a pioneer of environmental reporting legislation; hence, it provides valuable lessons for other jurisdictions that are in the process of developing their sustainability reporting regulations. Finally, the findings of this study support the calls for more integrated reporting showing that the interaction of financial and non-financial information has market valuation implications.     

Do sustainability disclosure mechanisms reduce market myopia? Evidence from European sustainability companies

Market myopia is a behavioural bias that causes investors to overvalue short-term earnings and undervalue long-term profits. This anomaly should not be compatible with sustainability disclosure mechanisms, the set of tools which firms use for reporting on their sustainable practices, and which contribute towards long-term performance improvements. Our aim is to study whether market myopia, as a symptom of market inefficiency, decreases with the implementation of sustainability disclosure mechanisms. We test for the presence of market myopia in a sample of firms listed on the S&P Europe 350 Index. For this purpose, we propose to use an adaptation of the valuation model for residual income under linear information dynamics developed by Felthan and Ohlson. Using the rating provided by RobecoSAM Sustainability Yearbook, we find market myopia to be less prevalent in companies classified as high sustainability reporters. An association is also found between persistent enforcement of sustainability disclosure mechanisms and a reduction of the market myopia effect.     

The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research

This paper discusses the empirical literature on the economic consequences of disclosure and financial reporting regulation, drawing on U.S. and international evidence. Given the policy relevance of research on regulation, we highlight the challenges with (1) quantifying regulatory costs and benefits, (2) measuring disclosure and reporting outcomes, and (3) drawing causal inferences from regulatory studies. Next, we discuss empirical studies that link disclosure and reporting activities to firm‐specific and market‐wide economic outcomes. Understanding these links is important when evaluating regulation. We then synthesize the empirical evidence on the economic effects of disclosure regulation and reporting standards, including the evidence on International Financial Reporting Standards (IFRS) adoption. Several important conclusions emerge. We generally lack evidence on market‐wide effects and externalities from regulation, yet such evidence is central to the economic justification of regulation. Moreover, evidence on causal effects of disclosure and reporting regulation is still relatively rare. We also lack evidence on the real effects of such regulation. These limitations provide many research opportunities. We conclude with several specific suggestions for future research.     

Firm Value and the Quality of Sustainability Reporting in Australia

This paper investigates the relationship between firm value and the quality of Australian listed corporations’ sustainability reporting. We examine whether firms that make higher‐quality sustainability disclosures exhibit systematically higher equity prices, through either (or both) cost of capital or expected future performance effects. Using proprietary data obtained from a specialist responsible investment research firm, we document a significant negative association between quality sustainability reporting and the cost of equity capital for ASX 200 firms from 2003–2005, and a significant positive association between expected future performance and the quality of sustainability reporting. We also test for industry‐specific associations and find that our main results are driven heavily by the reporting behaviour of, and market response to, firms in environmentally sensitive industries.     

Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows

Examining a shock to the salience of the sustainability of the U.S. mutual fund market, we present causal evidence that investors marketwide value sustainability: being categorized as low sustainability resulted in net outflows of more than $12 billion while being categorized as high sustainability led to net inflows of more than $24 billion. Experimental evidence suggests that sustainability is viewed as positively predicting future performance, but we do not find evidence that high‐sustainability funds outperform low‐sustainability funds. The evidence is consistent with positive affect influencing expectations of sustainable fund performance and nonpecuniary motives influencing investment decisions.     

Sustainability reporting by local government in Australia: Current and future prospects

Sustainability reporting research has historically focused on the corporate sector, with public sector research still very much in its infancy. This exploratory study extends such research in considering the current and future state of local government sustainability reporting in Australia. We utilized a mail survey instrument to collect data. We found that local government in Australia reports on aspects of sustainability, with 50% of respondents indicating that they report on at least one area of sustainability with social reporting being most prevalent. Reporting existed across an array of reports, with no standout reporting focus found. The future of sustainability reporting in local government looks promising, with almost 40% of current non-reporters indicating that they are likely to report in the future.     

The potential of integrated reporting to enhance sustainability reporting in the public sector

This paper examines the influence of integrated reporting (IR) on the sustainability reporting practices of a state-owned enterprise through a content analysis of their reports and interviews with report preparers. The findings show a steady increase in the quantity and quality of sustainability disclosures. In 2012, the organization chose to adopt the IR framework in order to enhance sustainability reporting for all stakeholders. The IR process resulted in a more balanced disclosure of material aspects of sustainability. However, while IR has the potential to enhance public sector sustainability reporting, inter-generational equity issues were ignored.     

企业可持续发展报告研究述评--基于GRI《可持续发展报告指南》发布后的文献

随着全球报告倡议组织（GRI）的成立及其《可持续发展报告指南》的发布与改进,可持续发展报告在全球范围内得到广泛的推行。现有文献对企业可持续发展报告的研究主要集中在四个方面：可持续发展报告的发展历程、现状与趋势,可持续发展报告评价指标体系的构建与实证研究,GRI指南在我国的应用情况以及可持续发展报告带来的经济后果。现有研究大多是对可持续发展报告评价指标体系与影响公司行为的方式进行理论分析,未来研究方向将集中在企业可持续发展报告的评价以及运用实证方法检验公司行为与可持续发展报告的披露两者之间的关系上。     

A Survey of Sustainability Reporting Practices of Australian Reporting Entities

This study examines the nature and extent of sustainability reporting practices in the various reporting media used by companies listed on the ASX (annual reports, discrete reports and websites). The sustainability reporting practices of the sample are compared with key indicators outlined in the GRI framework. The annual report is found to be the least valuable source of information on corporate sustainability in terms of the number of indicators observed and the diversity of the information provided. The discrete reports and websites provide greater levels of information on sustainability; however the overall levels of disclosure are generally low.     

A Tale of Two Stories: Sustainability and the Quarterly Earnings Call

One of the challenges companies claim to face in making sustainability a core part of their strategy and operations is that the market does not care about sustainability, either in general or because the time frames in which it matters are too long. The response of investors who say they care about sustainability—and their numbers are large and growing—is that companies do a poor job in providing them with the information they need to take sustainability into account in their investment decisions. Whatever the merits of each view, the fact remains that an effective conversation about sustainability requires the participation of both sides of the market. There are two main mechanisms for companies to communicate to the market as a way of starting this conversation: mandated reporting and quarterly conference calls. In this paper, the authors argue that neither companies nor investors can be seen as taking sustainability seriously unless it is integrated into the quarterly earnings call. Until that happens, the core business and sustainability are two separate worlds, each of which has its own narrator telling a different story to a different audience. The authors illustrate their argument using the case of SAP, the German software company. SAP was the first company to host an “ESG Investor Briefing,” a conference call for analysts and investors held on July 30, 2013 in which the company discussed both its sustainability performance and its contribution to the firm's financial performance. The narrative of this call was very similar to the narrative of the company's first “integrated report,” which was issued in 2012 and presented the company's sustainability initiatives in the context of its operating and financial performance. Nevertheless, the content and main focus of the “ESG Briefing” were very different from that of most quarterly earnings conferences, and so were the audiences. Whereas the quarterly call was attended mainly by sell side analysts—and the words “sustainability” or “sustainable” failed to receive a single mention—the ESG briefing was delivered to an investor audience made up almost entirely of the “buy side.”     

Sustainability Risk Disclosure Practices of Listed Companies in Australia

This paper investigates the extent to which the top 100 ASX listed companies disclosed economic, environmental and social sustainability risk factors during the 2014/15 financial year in light of the changes introducing Recommendation 7.4 to the third edition of the Corporate Governance Principles and Recommendations in 2014. While all companies complied with the Recommendation, questions of substance over form were raised because some companies had risks that were not disclosed according to Recommendation 7.4. Our conclusion outlines how this research contributes to the growing literature on sustainability and corporate governance. We add to the continuing debate on mandatory versus voluntary disclosures, advocating that Australia may need to introduce mandatory guidelines, beyond the ASX, to regulate the disclosure of material economic, environmental and social risks. Additionally, we conclude that Recommendation 7.4 is unlikely to substantially change Australian corporate reporting and disclosure practices – that, for most companies, it is ‘business as usual’. However, under business as usual, we can naturally expect to see further increases in sustainability and alternative reporting frameworks, such as integrated reporting, as well as increasing use of the Internet to report and disclose sustainability risks.     

CEO statements in sustainability reports: Substantive information or background noise?

This paper examines the question of whether corporate sustainability reports can serve as accurate and fair representations of corporate sustainability performance. It presents the results of a sentiment analysis of CEO statements in corporate sustainability reports and corporate financial reports between 2001 and 2010. Making an analogy with corporate financial reporting it is expected that if corporate sustainability reports accurately reflect sustainability performance, then this should be reflected in the rhetoric used. The analysis shows that the rhetoric in the CEO statements of sustainability reports is indicative of impression management rather than accountability, despite increasing standardization of sustainability reporting.     

The Evolution of Consolidated Financial Reporting in Australia

This paper reviews the history of financial reporting by corporate groups in Australia, and in particular, the States of New South Wales and Victoria. Changes in Statutory and Stock Exchange rules governing consolidated reporting are described and the financial reporting practices of Australian holding companies between 1930 and 1962 are surveyed. The evidence indicates that (a) while the practice was not widespread, some Australian holding companies supplemented their financial statements with consolidated financial statements prior to the incorporation of such a requirement in either legislation or Stock Exchange listing requirements; (b) the influence of Stock Exchanges on the evolution of this practice is somewhat less than that previously attributed to it; and (c) the rapid spread of this form of reporting in an essentially unregulated environment (N.S. W.) coincided with the development of a market for public debt securities.     

Materiality in an integrated reporting setting: Insights using an institutional logics framework

Using institutional logics as a theoretical framework and interviews with 20 preparers from 14 large organisations listed on the Johannesburg Stock Exchange (JSE), this paper focuses on examining differences in integrated reporting practices. The results reveal how a finance-centric market and professional logic interact with a stakeholder logic, leading to differences in the materiality determination process. Market-dominated firms have an internally focused approach to setting materiality which emphasises value-relevance for financial capital providers. Where logics are contested, materiality becomes an amalgamation of the factors which are important for shareholders and other stakeholders and essential for demonstrating compliance with codes of best practice. Organisations with market, professional and stakeholder logics aligned have the most sophisticated materiality determination processes. The emphasis shifts from lengthy reporting and compliance to providing a comprehensive account of the value creation process and how the business ensures long-term sustainability. In this way, how logics are instantiated may explain the considerable variation being observed in integrated reports. There are also implications for the propensity of firms either to view integrated reporting as a hegemonic challenge or to internalise it as part of a process of positive organisational change.     

Materiality in Corporate Governance: The Statement of Significant Audiences and Materiality

Materiality is an elusive, but fundamentally important concept in corporate reporting of all kinds—not only in traditional financial reporting, but in sustainability and integrated reporting as well. In the end, materiality is entity‐specific and based on judgment. Moreover, it is a judgment that should ultimately be made by a company's board of directors, which makes materiality as much a governance as a reporting issue. Whether a given ESG issue is material is in large part a function of the corporate stakeholders, or “audiences,” that the company's board of directors deems to be “significant”—that is, important to the company's ability to create value over the short, medium, and long term. The identification of such audiences—together with the time frames the board uses to evaluate the impact of the company's decisions on these audiences—provides the basis for determining the sustainability issues that corporate management must focus on for performance and reporting purposes. To help ensure that decisions about materiality receive the attention they deserve, the authors propose that corporate boards articulate their views in an annual “Statement of Significant Audiences and Materiality.” Contrary to the prevailing belief that the fiduciary duty of the board is to place shareholders’ interests first, nothing precludes corporate boards from issuing such a statement. Recent research, including the compilation of legal memos on fiduciary duty and nonfinancial reporting for all G20 countries, makes it clear that the board's fiduciary duty is to “the corporation itself.” In exercising this duty, directors have full discretion, under the business judgment rule and other authorities, to decide which audiences, along with the company's shareholders, should be deemed significant.     

Exploring the use of online corporate sustainability information

Whilst the supply, exclusivity and prominence of online corporate sustainability information has increased in recent years, comparatively little is known about what information is used by whom. This paper explores which user groups access online corporate sustainability information, and assesses the relative use of sustainability reports and other forms of social and environmental information disseminated on corporate Websites. To collect the necessary empirical data, the paper analyses 4,652,471 successful requests for information made by the users of 10 UK FTSE 350 corporate Websites.The paper finds that the majority of requests for online sustainability information originate from the reporting company indicative of an inward focus to sustainability reporting. In examining access to different online information sets, distinct profiles of corporate Website users begin to emerge. Requests from employees, private individuals, ISPs and consultants represent the vast majority of the online sustainability reporting audience and the corporate Website in general. Contrastingly, a professional financially-orientated profile of users characterised by professional investors, creditors, accounting firms and lawyers make significantly more use of the Annual Report but significantly less use of sustainability reporting information and other online disclosures.Although prior literature notes how companies have yet to utilise the potential of the online medium in disseminating corporate sustainability information, disclosures are found to attract approximately a tenth of all corporate Website requests. Environmental and ethical disclosures outside the Annual Report are the most popular sources of online corporate sustainability information whilst ‘standalone’ Sustainability and/or Ethics Reports attract comparatively few requests.     

什么决定了利润差异:会计准则还是职业判断?——来自中国A、B股市场的初步证据

我国资本市场有少量的公司同时发行A股和B股,这部分公司需要提供两套财务报表,分别遵循了国内会计准则和国际会计准则。我们以我国会计制度改革的特定时期(1998-2000)为背景,以同时发行A、B 股的公司为样本,经过研究发现,那些同时发行A、B股公司所报告的净利润差异,主要不是来自会计准则,而是来自于会计职业判断;而会计职业判断背后的经济动机在于上市公司为了达到保牌的目的。我们的研究丰富了有关会计准则与会计信息质量之间关系的研究。