Mandatory Nonfinancial Disclosure and Its Consequences on the Sustainability Reporting Quality of Italian and German Companies

Giorgio Mion,Cristian R Loza Adaui

doi:10.3390/su11174612

Abstract

Companies disclosing nonfinancial information through sustainability reporting practices provide markets with data on their social, environmental, and governance performance. The quality of sustainability reporting is much discussed in the literature because this quality affects factors such as the credibility of accountability and building stakeholders’ trust in the company. Nonetheless, the concept of quality is multidimensional, and empirical evidence relating to the quality of sustainability reporting presents different findings. Regulations on mandatory nonfinancial disclosure (NFD) open new perspectives for research on sustainability reporting quality (SRQ). This study explored the effect of introducing mandatory NFD on SRQ by focusing on the effects of new legislation (Directive 2014/95/EU) introduced in Italy and Germany. The analysis was conducted through qualitative content analysis of the sustainability reporting practices of Italian and German companies in the top lists of stock exchanges. Sustainability reporting practices of one year before (2016) and one year after (2017) the implementation of Directive 2014/95/EU were compared. The results of 132 observations demonstrated that the quality of sustainability reporting increased after implementation of the law on mandatory NFD. Further, the effect of the law seemed to reduce the differences in SRQ of the two countries before the introduction of mandatory NFD. The results suggested that obligatoriness of NFD affects SRQ together with other relevant determinants focused on by previous research (e.g., company size and industry type).

Highlights

During the past decades, researchers, policy makers, and public opinion have made loud calls for business to engage in and ensure sustainable development and increase attention to corporate social responsibility (CSR)
This study was conducted with the principal aim of exploring whether the obligatoriness of nonfinancial disclosure (NFD)—introduced into the Italian and German legal systems following the implementation of Directive 2014/95/European Union (EU)—affects sustainability reporting quality (SRQ)
The results revealed an increase in the mean of SRQ scores after the implementation of Directive 2014/95/EU in both countries

Summary

Introduction

Researchers, policy makers, and public opinion have made loud calls for business to engage in and ensure sustainable development and increase attention to corporate social responsibility (CSR). In response to these calls, sustainability reporting practices have become more common among companies, and the concept of accountability has an increased role in improving market transparency and in building trust between companies and their stakeholders. Some approaches to SRQ identified quantity as an effective proxy of quality [1] or did not clearly distinguish between the concepts of quantity and quality [2] These approaches to SRQ assume a different significance when nonfinancial or sustainability disclosure is voluntary and when it is mandatory. Making nonfinancial disclosure (NFD) obligatory alone could affect the quality of reporting

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Conclusion