Financial materiality in the informativeness of sustainability reporting

This study examines whether financial materiality in environmental, social, and governance (ESG) disclosure benefits the stock market by increasing the amount of accessible and relevant firm-specific information. Based on the value relevance of information and the principle of financial materiality, we demonstrate that disclosing material ESG information increases stock price informativeness. We conduct an automated content analysis of 150,000 electronic documents filed by firms listed on the S&P/TSX Composite Index from 1999 to the end of 2014. Our findings show that ESG disclosure is indeed value relevant for investors and that financial materiality in ESG disclosure leads to more informative stock prices. In addition, the effect of ESG disclosure on stock price informativeness differs across the ESG components, being more sensitive to the social component. This study contributes to the literature on sustainability reporting, and in particular to the ongoing discussion about whether the financial materiality of ESG issues matters. This study also deepens the understanding of agency theory predictions about the economic effects of ESG disclosure.     

Reporting on sustainability and HRM: a comparative study of sustainability reporting practices by the world's largest companies

As a response to the growing public awareness on the importance of organisational contributions to sustainable development, there is an increased incentive for corporations to report on their sustainability activities. In parallel with this has been the development of ‘Sustainable HRM’ which embraces a growing body of practitioner and academic literature connecting the notions of corporate sustainability to HRM. The aim of this article is to analyse corporate sustainability reporting amongst the world's largest companies and to assess the HRM aspects of sustainability within these reports in comparison to environmental aspects of sustainable management and whether organisational attributes – principally country-of-origin – influences the reporting of such practices. A focus in this article is the extent to which the reporting of various aspects of sustainability may reflect dominant models of corporate governance in the country in which a company is headquartered. The findings suggest, first and against expectations, that the overall disclosure on HRM-related performance is not lower than that on environmental performance. Second, companies report more on their internal workforce compared to their external workforce. Finally, international differences, in particular those between companies headquartered in liberal market economies and coordinated market economies, are not as apparent as expected.     

Human resource management and performance in a developing country: the case of Eritrea

This study investigates the relationship between human resource management (HRM) practices and organizational performance. Results based on a sample of 82 organizations from private and public sectors in Eritrea indicate that some of the practices have a significant impact on employee turnover, absenteeism, grievances and productivity. While compensation was the only independent variable found to be statistically significant in affecting grievances, employee selection had no effect across all performance measures. However, the study's results offer support for the assertion that investments in HRM practices results in better organizational performance.     

Integrated thinking and sustainability reporting assurance: International evidence

Recently, there has been increasing demand by stakeholders for firms to demonstrate how they create value within the context of their operating environment. Consequently, a new reporting approach, integrated reporting (IR), was conceptualised with its development linked to the firm's integrated thinking (IT). Yet very little is known about the effects of IT on firms' reporting decisions. Hence, we investigate whether IT influences firms' decision to publish an assured sustainability report. Using an international dataset, we find that IT is positively associated with sustainability reporting assurance. We also find that this association is moderated by the type of legal system such that for firms in code law countries, the IT effects are reduced. Nevertheless, the effects of IT remain strong, indicating that IT is important for reporting decisions regardless of the firm's contextual setting. These findings have implications for policymakers and organisations interested in promoting high-quality sustainability reporting.     

Determinants of Traditional Sustainability Reporting Versus Integrated Reporting. An Institutionalist Approach

The aim of this study is to analyze similarities and differences between companies with traditional sustainability reporting (TSR) and those that publish integrated reports. Based on institutional theory we identify potential determinants of integrated reporting (IR) and test their relevance empirically in a sample of 309 companies. Our analysis shows that IR companies are different from TSR companies with regard to several country‐level determinants. In particular, investor and employment protection laws, the intensity of market coordination and ownership concentration, the level of economic, environmental and social development, the degree of national corporate responsibility and the value system of the country of origin proved to be relevant. Based on these results, both implications for practice and future studies are derived. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.     

Constructing an index for comparing human resources management sustainability in Europe

Assuming that a company's institutional context influences its sustainability approach and its human resources management (HRM), this article compares firms' sustainable HRM systems across countries. Despite the presence of a supranational government, different social models exist in Europe according to the level of social protection in each country. The article compares the engagement of companies with sustainable HRM across Europe and develops an index with which to compare HRM sustainability in countries that present significant institutional differences: Germany, Spain, Sweden, and the United Kingdom. The index is constructed based on a formative measurement model, which reflects the implementation levels of sustainable HRM in 106 western European firms. The index reveals significant differences between companies from the four countries and between liberal and coordinated market economies, indicating the need to address the impact of the national institutional context on firms' HRM sustainability.     

The impact of national culture on integrated reporting quality. A stakeholder theory approach

Integrated reporting (IR) is a new corporate‐reporting system that aims to represent the firm's value creation in the short, medium, and long term. In contrast to other disclosure systems focusing on non‐financial dimensions, including social and environmental aspects, IR is characterized by information connectivity. In recent years, integrated reporting has received increasing interest, both academic and professional. However, report quality is still a critical aspect of IR. Although several studies investigate IR, few focus on quality and its determinants. This study aims to fill this gap by investigating the impact of national culture, an external determinant, from a stakeholder theory perspective. The results show that IR quality is related to five dimensions of Hofstede—power distance, individualism, masculinity, and indulgence negatively and uncertainty avoidance positively. This study contributes to the relevant literature by analysing an additional factor that influences the quality of corporate reports, namely, national culture. This is the first study that investigates national culture as a determinant of integrated‐reporting quality.     

Managerial career development in a developing host-country context: a study of American multinationals in Pakistan

This paper analyses the uptake of distinctly Anglo-Saxon protean and boundaryless careers in the specific organizational context of foreign multinationals operating in a culturally and institutionally distant developing economy. A qualitative case study approach is applied to two American subsidiaries operating in Pakistan. Findings reveal that these ‘new’ career concepts often coexist with, rather than replace, features of traditional, organizational careers both reflecting, and responding to, changing and dualistic individual, organizational and institutional values. Therefore, this paper suggests that all these three levels of analysis need to be considered in conjunction when analysing managerial career development in developing host countries.     

Exploring the firm and country determinants of the voluntary adoption of integrated reporting

Information used to manage the business and support the decision‐making of stakeholders is being subject to an evolution. In this context, traditional financial reporting is considered not sufficient anymore. This has translated into a sharp increase in the number of firms that have begun to adopt emerging reporting practices. This study aims to examine the influence that both firm‐ and country‐specific characteristics have on the voluntary uptaking of integrated reporting internationally. In order to do so, it analyses a sample of 71 international listed companies that have adopted this reporting form in 2016. The results show that firms are more likely to implement integrated reporting if they are located in countries with a higher level of corruption perception and a better risk rating and that are considered as relatively more collectivist and feminist and with a long‐term orientation. Legal system has resulted to be not significant. As for firms' characteristics, large size, profitability, market‐to‐book ratio, and the size of the board are found to be significant variables. Moreover, the results indicate that the adoption of integrated reporting is not influenced by a higher level of leverage, firm efficiency and board diversity and independence.     

Sustainability reporting quality and post‐audit financial reporting quality: Empirical evidence from the UK

This study examines whether firms that appear to exhibit high sustainability reporting quality are less likely to engage in earnings management activities, thereby delivering financial information that is more transparent and reliable than that delivered by firms that do not produce high‐quality sustainability reports. I also investigate whether the association between sustainability reporting quality and post‐audit financial reporting quality is conditional on audit effort. Analysis of data drawn from FTSE 350 companies covering 2007 to 2018 indicates that firms that produce high‐quality sustainability reports are significantly and negatively associated with earnings management metrics. More importantly, this association is moderated by audit effort, measured by audit fees, suggesting that sustainability reporting quality reflects factors considered by auditors in their audit risk assessment practices. These results remain robust after several sensitivity analyses. I conclude that firms that devote more resources to producing high‐quality sustainability reports are likely to demonstrate an overall commitment to quality that alleviates auditors' concerns about the opportunistic use of sustainability reporting and reduces business risk, thereby reducing the effort auditors expend to verify financial reports.     

The how and why of integrated reporting in a public health care organization: The stakeholders' perspective

Despite the widespread calls for in‐depth case studies on adoption of the International Integrated Reporting Council Framework, in practice, it appears to be underexplored, above all in the public sector. Our aim is to explore how and why a public health care organization (PHO) has chosen to adopt the practice of integrated reporting, and we then delve into whether the PHO's perception of the document's value coincides with that of the stakeholders, who are its recipients. Often, society's perception of value can differ considerably from an organization's. Thus, for our research purposes, a case study was examined, adopting a qualitative approach and action research methodology. Our findings demonstrate the centrality of the value created for patients and of the “normative” scenario that takes place during the implementation of an integrated report in a PHO. Moreover, the concept of legitimacy was found to be virtually synonymous with institutionalization.     

Examining the extent of and determinants for sustainability assurance quality: The role of audit committees

This study examines the extent of and determinants for sustainability assurance quality. Data comprise sustainability assurance statements published by the top 100 listed companies in Australia and New Zealand from 2017 to 2019. The findings indicate that Australian companies lead their New Zealand counterparts in sustainability assurance. Although sustainability reporting has risen, assurance rates remain significantly low. Accountants dominate the market, and companies prefer to use their own auditors for sustainability assurance work. Sustainability assurance quality is poor and does not vary significantly among Australian and New Zealand companies. Low-quality sustainability assurance plays a limited role in mitigating potential stakeholder–agency conflicts. The regression analysis indicates that audit committee characteristics such as members' independence, industry/market expertise, and attending meetings enhance sustainability assurance quality, whereas audit committee size has no affect. These findings suggest that audit committee characteristics such as independence, industry expertise, and regular meeting attendance have the potential to reduce stakeholder–agency conflicts by improving the quality of sustainability statement assurance. Our findings build on the sustainability assurance literature by exploring current trends in sustainability assurance practices in Australia and New Zealand where corporate governance codes have been recently revised. Further, these findings are timely given recent changes in standards (International Standard on Assurance Engagements [ISAE] 3000 and Global Reporting Initiative [GRI]). Our study contributes to the audit committee literature and sheds light on the role played by audit committee characteristics on sustainability assurance statement quality. The study findings potentially offer useful insights for practitioners, standard setters, and regulators.     

Nonfinancial reporting regulation and challenges in sustainability disclosure and corporate governance practices

This paper aims to investigate how the shift from voluntary to mandatory nonfinancial information started by the European Union (EU) Directive 95/2014 may influence corporate practices. In particular, this research presents a paradigmatic case study to highlight relevant changes in reporting strategy and corporate governance adopted by an Italian listed company that never disclosed sustainability information before the transposition of the EU Directive into the Legislative Decree 254/2016. In this scenario, new obligations on nonfinancial reporting were not perceived as mere additional administrative duties and the nonfinancial statement became an opportunity to communicate company's paths towards sustainability, guaranteeing transparency and greater stakeholders' engagement. Our findings go beyond prior studies pointing out how organisations adopt strategic and tactical responses to the pressure stemming from the external environment. Additionally, it highlights the pivotal function played by the internal audit in setting up the direction of change. This research has theoretical and practical contributions for academic communities, policymakers and practitioners.     

Sustainable entrepreneurship and sustainability innovation: categories and interactions

The purpose of this paper is to propose a framework to position sustainable entrepreneurship in relation to sustainability innovation. The framework builds on a typology of sustainable entrepreneurship, develops it by including social and institutional entrepreneurship, i.e. the application of the entrepreneurial approach towards meeting societal goals and towards changing market contexts, and relates it to sustainability innovation. The framework provides a reference for managers to introduce sustainability innovation and to pursue sustainable entrepreneurship. Methodologically, the paper develops an approach of qualitative measurement of sustainable entrepreneurship and how to assess the position of a company in a classification matrix. The degree of environmental or social responsibility orientation in the company is assessed on the basis of environmental and social goals and policies, the organization of environmental and social management in the company and the communication of environmental and social issues. The market impact of the company is measured on the basis of market share, sales growth and reactions of competitors. The paper finds conditions under which sustainable entrepreneurship and sustainability innovation emerge spontaneously. The research has implications for theory and practitioners in that it clarifies which firms are most likely under specific conditions to make moves towards sustainability innovation. The paper makes a contribution in showing that extant research needs to be expanded with regard to motivations for innovation and that earlier models of sustainable entrepreneurship need to be refined. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment.     

Environmental transparency and investors' risk perception: Cross-country evidence on multinational corporations' sustainability practices and cost of equity

We explore whether a greater amount of environmental disclosure can reduce a firm's ex ante cost of equity. This could occur because the quantity of environmental information changes investors' risk perception of the company, thereby influencing its ex ante cost of equity. Our study is a cross-country analysis of 1481 multinational corporations (MNCs) across 43 countries and territories from 2013 to 2019. Firstly, we measure investors' risk perception as a firm's ex ante cost of equity by employing five different valuation models, all based on equity analysts' forecasted data. We then investigate whether large quantities of environmental information disclosed by an MNC affect its ex ante cost of equity. We find evidence that investors price the amount of environmental disclosure. More environmental disclosure decreases a firm's ex ante cost of equity because it lessens investors' information asymmetry. However, this relationship is non-linear. Once the amount of environmental disclosure data exceeds a certain threshold level, a firm's ex ante cost of equity will rise again. Our empirical results also suggest that non-financial factors at the country level play a role in shaping how investors perceive a firm's riskiness. Locating the firm in a country with better environmental performance and a higher score of the human development index can reduce investors' risk perception and result in a lower ex ante cost of equity. A policy implication of our findings is that a global standardised and effective corporate sustainability reporting is needed to provide investors a more holistic view for evaluating the riskiness of their investments.     

Voluntary sustainability assurance in small and medium-sized entities: The role of country origin in Europe

The assurance of sustainability information by small and medium-sized entities (SMEs) has not attracted much research interest to date. To rectify this, we draw on a sample of European firms (from the EU, the United Kingdom and Norway) extracted from the Global Reporting Initiative (GRI) database and explore the disclosure variable in relation to country-specific factors. Assurance rates are found to be low among SMEs, and moreover, the level of disclosure is limited. The assurance market is dominated by accounting firms, above all by the Big Four. Legal origin is found to be a highly relevant factor, with Scandinavian countries presenting the highest percentage rates of sustainability report assurance. Among the cultural variables analysed, power distance, masculinity and uncertainty avoidance have a significant negative impact on the decision to assure sustainability information. Overall, the study serves to enhance understanding of SME practices in different countries of origin.     

Determinants of the adoption of sustainability assurance statements: an international investigation

This paper explores the factors associated with voluntary decisions to assure social, environmental and sustainability reports. Since the market for assurance services in this area is in its formative stages, there is a limited understanding of the demand for this emergent non‐financial auditing practice, which is evolving rapidly across different countries. Drawing from extant literature in international auditing and environmental accounting, we focus on a set of country‐level institutional factors to explain the adoption of sustainability assurance statements among an international panel of 212 Fortune Global 250 companies for the years 1999, 2002 and 2005. Consistent with our expectations, our results provide evidence that companies operating in countries that are more stakeholder oriented and have a weaker governance enforcement regime are more likely to adopt a sustainability assurance statement. Further, the demand for assurance is higher in countries where sustainable corporate practices are better enabled by market and institutional mechanisms. Our exploratory findings also indicate that the likelihood of choosing a large accounting firm as assurance provider increases for companies domiciled in countries that are shareholder oriented and have a lower level of litigation. We conclude the paper by suggesting three directions of research in the area of sustainability assurance that have relevant academic and practical implications. Copyright © 2008 John Wiley & Sons, Ltd and ERP Environment.     

Climate change mitigation: Carbon assurance and reporting integrity

Concern about climate change has increased the pressure on firms to be accountable for social impact and to report on environmental, social and governance (ESG) performance. Focusing on the view that sustainability-oriented firms are likely to consider wider stakeholder interests and pursue high financial reporting integrity, this paper examines the association between carbon assurance and earnings management. Using a sample of firms listed on the New York Stock Exchange, we find voluntary adoption of carbon assurance (level), carbon disclosure and gender diverse boards are negatively associated with earnings management. Additional tests using different components of carbon assurance (percent and verification) confirm our main results. Our results suggest that firms that voluntarily invest in carbon assurance, carbon disclosure and gender diverse boards are less likely to engage in earnings management and thus have higher reporting integrity. This aligns with the view that firms' ethical concerns translate into higher quality reporting.