The influence of societal differences on ESG controversy reporting – A comparison of Italian and Nordic companies
No Thumbnail Available
URL
Journal Title
Journal ISSN
Volume Title
School of Business |
Master's thesis
Authors
Date
2023
Department
Major/Subject
Mcode
Degree programme
Accounting
Language
en
Pages
87 + 10
Series
Abstract
The purpose of this study was to examine how companies report their ESG controversies in their annual sustainability disclosures. In addition, the effects of societal differences and the level of ESG risk ratings on the content and quality of ESG controversy disclosures were examined. The content and quality of companies’ disclosures were evaluated by using the requirements of selected GRI principles as a framework. This study combined two methods, a qualitative content analysis and a counter-accounting analysis. The reports of 24 companies were investigated, of which twelve were chosen from Italy’s main stock index, FTSE MIB, and twelve in total from the main stock indices of Denmark, Finland, Norway, and Sweden, OMXC20, OMXH25, OBX, and OMXS30. Italy and the Nordic countries were chosen for this study as they have different governance practices and cultures according to the Worldwide Governance Indicators (WGI) and Hofstede’s Cultural Dimensions, which according to previous studies, have an impact on companies’ ESG controversy disclosures. The findings of this study suggested that companies often failed to produce high-quality ESG controversy disclosures, as only 8% of the controversies were clearly reported based on the requirements of the GRI principles. Most of the disclosures on ESG controversies were too brief, biased, vague, or omitted information, if the controversies were even reported at all. These findings are aligned with previous studies. Since 51% of the ESG controversies were not reported, the findings are not fully aligned with legitimacy theory, which assumes that when a controversy occurs, companies increase their disclosures. However, the disclosures that were made support the legitimacy theory. Multiple image-restoring strategies that were found in companies’ reports also support the assumptions of legitimacy theory since these strategies are used to enhance legitimacy. Regarding the effects of societal differences, this study did not find correlations between the differences in countries’ governance practices and culture and the content and quality of companies’ ESG controversy disclosures. This contradicts the assumptions that were made based on prior studies. When studying the correlation between companies’ ESG risk ratings and their performance in reporting according to the GRI principles, it was found that there was not a significant link between these two factors. This is somewhat contradicting with legitimacy theory as the theory expects companies with weaker sustainability performance to have disclosures with lower quality. This study contributes to the research gap of studies that examine the content and quality of ESG controversy disclosures through the requirements of an external reporting framework. In addition, this study gave insights into the effects of societal factors and companies’ ESG risk ratings on the content and quality of ESG controversy disclosures.Description
Thesis advisor
Sihvonen, JukkaKeywords
ESG controversies, ESG controversy reporting, sustainability reporting, GRI standards, Hofstede's cultural dimensions, WGI