Companies’ environmental and social consequences are now more relevant than ever in light of the triple crisis which includes environmental, social, and governance. According to existing non-financial reporting standards, it is difficult to compare social and environmental performance between enterprises or within organizations over time due to a lack of standardization with limited exceptions. As a result, a wide coalition of labor unions, non-profit organizations, and academics has called for firms to follow statutory non-financial reporting criteria.
Businesses have been obligated to report on social problems since the 1970s. Due to concerns such as the climate crisis, pressure on working conditions as a result of globalization and competition, and spectacular business failures, the subject of corporate governance has grown in popularity over the past ten years. Institutional investors have a greater need to know what firms are doing and what possible reputational hazards they and their supply chains may face. Although private voluntary disclosure initiatives such as the Global Reporting Initiative have evolved, it is difficult to accurately analyze companies’ influence on the environment or society as a whole (Stolowy and Paugam, 2018, pp. 525-535).An increasing number of groups and people are lobbying for a legally enforceable mandate that corporations reveal detailed information about their environmental and social policies and performance including employment and working conditions as a first step toward improving a company’s performance. Hence by adhering to a set of standards, this reporting ensures that information is reliable and may be used as a platform for comparisons between different firms.
Corporate social responsibility(CSR) professionals face a number of problems, including the need to boost data collection efficiency, study depth and complexity, and get a better understanding of both macro and micro trends. These problems include:
Improving data collection efficiency
Data gathering efficiency must be prioritized in non-financial reporting. For many people, this means abandoning spreadsheets in favor of an online data collecting platform. The main benefit of online systems is that they allow for speedier data processing and the identification of potential growth opportunities. As a result, businesses can respond faster and make the required changes to reduce waste and better distribute resources. If a company manages hundreds, thousands, or even millions of locations, this information gives them peace of mind that their sustainability programs are on track.
Increasing communication frequency
In a world where news is available 24 hours a day, seven days a week, people have come to anticipate that they can get the information they need whenever they want it. As a result, organizations must examine how to interact with both internal and external stakeholders in order to be successful. CSR activities may become more transparent if they are publicized more often. As a result, professionals in the field are emphasizing the need for a well-thought-out strategy for communicating sustainability problems.
Making every effort to automate as many manual processes as feasible
Using automation to speed up and enhance accuracy is a good idea. Automation may be utilized in a number of ways, such as sending out email reminders for data requests or displaying a summary of the data sets’ completeness without having to resort to multiple spreadsheets. Another example is utilizing dynamic report templates to automate computations and analyze performance.
Analyzing global and micro levels of performance
To get a thorough picture of the efficacy of various sites, it’s vital to collect the correct amount of data. If a site is above, average, or below typical, you may make any necessary changes. If the local energy-saving ideas succeed, they may be replicated across the organization. It is also critical to have a holistic understanding of an organization’s non-financial accomplishments. The headlines are often the most intriguing and crucial information for both corporate leaders and investors. It makes determining if sustainability and CSR projects are accomplishing their goals and what needs to be done to enhance them easier.
Moving beyond the facts of the past and adopting a more forward-thinking perspective
Data collecting is a powerful tool for assessing the past. Organizations, on the other hand, are under growing pressure to prepare for the future in order to stay competitive. For example, if you can forecast future occurrences such as expected energy expenditures or community activities, you will be able to concentrate your efforts more effectively, swiftly determining which programs are most likely to succeed and allocating resources appropriately.
International Difference in Company Reporting between USA and China
According to the CSR literature study, Environmental, Social, and Governance (ESG) disclosure has a beneficial impact on a company’s value and performance (Venturelli et al.,2018). According to La Torre et al.(2020), more precise CSR disclosures allow analysts to properly evaluate the basic business risk. CSR information in non-financial reporting is clearly useful to investors and stakeholders because of this strong relationship. This kind of research is heavily reliant on sustainability reporting metrics that go beyond determining whether or not a company has issued a CSR report or not. Researchers establish their own CSR disclosure index or a publicly accessible grade to examine and evaluate how well firms disclose their corporate social responsibility policy. This has been shown in a number of studies.
The quality of CSR disclosures, as well as institutional factors such as democracy, regulation, and press freedom, have been proven to have a positive relationship with corporate value/share price, which may vary by country depending on institutional characteristics like these (Venturelli et al.,2018).
In China, Stolowy and Paugam (2018), differentiate between government-owned and privately-owned businesses. According to the research, firms that are reporting CSR for the first time have higher market values, but government-controlled corporations have lower market valuations since their CSR activities are less surprising. According to these writers, the quality of CSR reporting and the perceived veracity of the data have a beneficial influence on market value, and they encourage companies to engage in particular CSR initiatives. According to La Torre et al.(2020) increased analyst coverage and institutional ownership, as well as liquidity and reduced rates to maturity when companies issue bonds, are all linked to high-quality disclosures. High-quality CSR disclosures boosted the debt market, according to Al-Dmour et al. (2018), resulting in reduced bond costs in China.
CSR report readability, tone, and length, as well as other textual qualities relating to disclosure style, are increasingly being included in studies assessing the quality of ESG reporting disclosure (Chen and Yin, 2022). When high-quality CSR textual disclosures are provided, prior research demonstrates powerful market responses as well as more accurate analyst estimations. In addition, La Torre et al.(2020) established a link between the value of a company’s CSR reports and these additional data. Additionally, the textual analysis may be used to concentrate on pre-defined CSR-related phrases like “philanthropy” or “green technology.” Al-Dmour et al. (2018) used this method to find that companies with more CSR keywords had greater gross and profit margins over a longer period of time than the industry median. Empirical assessments use data from a number of sources due to the large range of sustainability reporting regimes.
Companies who apply GRI reporting report increased profitability, according to research conducted in Europe and Asia (Aluchna and Roszkowska-Menkes, 2019). There is some evidence that businesses may engage in selective CSR projects and disclosures in order to boost their profits. Stolowy and Paugam (2018) show that in such an environment, the concept of firms seeking public legitimacy that is acting purely symbolically to maintain legitimacy in society rather than profit-driven seems to predominate, howeverStolowy and Paugam (2018) challenge this stance. There is no evidence that CSR disclosures have an impact on company profitability, while publicly listed companies and companies with a bigger workforce are more likely to do so. The legitimacy argument is strengthened by the fact that big firms rely heavily on the support of their shareholders and analysts.
In studies conducted in the United States, data from enterprises adhering to SASB industry standards, stress the financial value of sustainability reporting. When the materiality condition is fulfilled, they demonstrate that businesses with higher sustainability ratings outperform those with lower ratings on the same themes. Firms that voluntarily provide SASB with additional sustainability data demonstrate an even greater level of pricing transparency. Saraite-Sariene et al. (2020) discovered that CSR reporting benefits Islamic banks by improving their future financial performance. Finally, Chen and Yin (2022) find that CSR disclosures had a positive relationship with financial performance for French family businesses, suggesting that such disclosures might be especially advantageous to family businesses. These findings show that CSR disclosure quality matters and has distinct implications for the capital market both stock and debt and financial performance.
ESG data includes a wide variety of non-financial information. In a number of studies, researchers looked at how important environmental information is on its own, as well as how important it is in relation to or in conjunction with other types of information, such as social information. Data on greenhouse gas (GHG) emissions and carbon dioxide (CO2) performance make up the majority of climate data, and investors have proved that this data is both valuable and cheap (Aluchna and Roszkowska-Menkes, 2019). Environmental disclosures, on the other hand, have a lower influence on a company’s stock price than social disclosures.
When environmental and social disclosures are combined, however, research shows a negative connection between total and idiosyncratic risk, indicating that increased openness and trust-building may reduce total and idiosyncratic risk (Chen and Yin,2022). Analyst following is positively related to both types of non-financial disclosures, showing that professional market players are more interested in such information (Saraite-Sariene et al.,2020,p.331).
In summary, financial disclosures have become more comparable and transparent as a result of the adoption of standardized accounting standards. The reporting organization’s financial transparency is primarily concerned with providing reliable information to prospective investors and financing entities, among other stakeholders, so that they may make well-informed choices. To encourage accountability, it is no longer enough to merely proclaim compliance with regulations; the allocation and use of resources must also be scrutinized. Organizations are increasingly turning to environmental preservation projects to put their money to good use. These measures are referred to as “green finance” since they improve the organization’s image and the legitimacy of all stakeholders.
References
Al-Dmour, A., Abbod, M. and Al-Balqa, N., 2018. The impact of the quality of financial reporting on non-financial business performance and the role of organizations demographic’attributes (type, size and experience).
Aluchna, M. and Roszkowska-Menkes, M., 2019. Non-financial reporting. Conceptual framework, regulation and practice. In Corporate Social Responsibility in Poland (pp. 213-236). Springer, Cham.
Chen, S. and Yin, L., 2022. Why do firms issue US dollar bond abroad? Evidence from Chinese non-financial listed corporations. Research in International Business and Finance, 60, p.101600.
La Torre, M., Sabelfeld, S., Blomkvist, M. and Dumay, J., 2020. Rebuilding trust: Sustainability and non-financial reporting and the European Union regulation. Meditari Accountancy Research.
Saraite-Sariene, L., Alonso-Cañadas, J., Galán-Valdivieso, F. and Caba-Pérez, C., 2020. Non-financial information versus financial as a key to the stakeholder engagement: A higher education perspective. Sustainability, 12(1), p.331.
Stolowy, H. and Paugam, L., 2018. The expansion of non-financial reporting: an exploratory study. Accounting and Business Research, 48(5), pp.525-548.
Venturelli, A., Caputo, F., Leopizzi, R. and Pizzi, S., 2018. The state of art of corporate social disclosure before the introduction of non-financial reporting directive: A cross country analysis. Social responsibility journal.
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