The Adoption of International Sustainability Reporting Guidelines within a Mandatory Framework: Lessons from South Africa

Abstract

Listen

Translate article

Purpose: The aim of this paper is to explore the factors influencing the voluntary adoption of international sustainability and integrated reporting guidelines in addition to the regulated King III reports among publicly listed companies on the Johannesburg Stock Exchange (JSE). The Global Reporting Initiative (GRI) guidelines are used as a proxy for sustainability reporting and the International Integrated Reporting Council’s (IIRC) Integrated Reporting Framework is the international guidance considered for integrated reporting. Design/methodology/approach: Hypotheses were evaluated using logistic regression analysis. Two equations were developed to predict the likelihood of firms’ subscribing to either GRI or the Integrated Reporting () Framework respectively. In addition to the independent variables related to the hypotheses, several control variables were included in both models based on findings from prior literature. We consider annual, sustainability and integrated reports issued for the financial year ended 2014. Findings: The results show a statistically and significant positive association between the adoption of the GRI’s guidelines and the level of transparency of non-financial disclosures and environmental sensitiveness. The application of the Framework is also associated with the level of a firm’s transparency score and with its respective analyst following which acts as a measure for capital markets requiring a high information environment. Research limitations/implications: This study is largely confined to a specific context, i.e. corporations listed on the Johannesburg Stock Exchange (JSE). However, the paper provides a basis for examining other contexts with mandated sustainability or integrated reporting traditions such as Norway, Hong Kong, Denmark etc. which could be used in further studies for cross-country comparisons. Furthermore, the findings are relevant for firms operating in Europe given the new directive by the EU parliament necessitating the inclusion of sustainability information within annual reports from 2017. Originality/value: This study contributes to the sustainability and integrated reporting research by exploring the drivers of international reporting frameworks within a context where such practices are locally regulated. Furthermore, it provides a possible explanation for the heterogeneity of integrated reporting quality in South Africa as underscored by previous authors. The paper is also illustrative of the key differences between sustainability and integrated reporting which are ordinarily examined separately in extant research.