This chapter examines the role of the institutional environment in the adoption of GRI-based sustainability reporting in emerging markets. Panel data analysis of the relevant data of firms from 20 emerging markets provides evidence that environmental, social, and governance performance, financial structure, and cultural dimensions are the institutional drivers of corporate social responsibility disclosure which was measured by publishing a GRI-based sustainability report. Overall findings of the study show that strategic decisions regarding CSR disclosure of companies are shaped by the institutional context in which they operate.
TopIntroduction
Sustainability report, also called by various terms such as corporate responsibility (CR), corporate social responsibility (CSR), triple bottom line (TBL), environmental, social, and governance (ESG), social or sustainable development report, was defined as: “public reports by companies to provide internal and external stakeholders with a picture of corporate position and activities on economic, environmental and social dimensions” by the World Business Council for Sustainable Development (WBCSD, 2002).
Sustainability reporting satisfies the stakeholders' requirements of the disclosure about environmental, social, and governance outputs of the business activities. Sustainability reports also provide companies with the opportunities for the legitimacy of their activities, products, and services, improvement of brand value and reputation, competitive advantage, corporate transparency and accountability, and increasing employee motivation (Herzig and Schaltegger, 2006). Despite the increasing adoption and recognized importance of sustainability reporting, there has not been a commonly held way of collecting, evaluating, and reporting non-financial data of companies (Kolk and Perego, 2010). As an attempt to provide guidance to companies on reporting their sustainability performance and thereby enhancing the quality, transparency, and comparability of the worldwide sustainability reports, Global Reporting Initiative (GRI) has released some set of guidelines. Between 2000 – 2013, GRI published 5 sets of guidelines as GRI – G1/G2/G3/G3.1/G4, and finally in 2016 Global Sustainability Standards Board (GSSB) has developed GRI Standards as “the first global standards for sustainability reporting” (GRI, 2020a).
According to the KPMG’s Survey of Corporate Responsibility (CR) Reporting in 2017, CR reporting rate of the N100 companies (the top 100 companies by revenue in the sample covering 49 countries) and the G250 companies (the top 250 companies by revenue in the list of Fortune 500 in 2016) was 75% and 90%, respectively. As a result of this survey, the Global Reporting Initiative (GRI) was specified as the most commonly used framework by companies for their sustainability reporting. More precisely, 63% of the sustainability reports of the N100 companies and 75% of the G250 reports were prepared based on GRI standards (KPMG, 2017).
GRI developed the GRI Sustainability Disclosure Database (SDD) to enable companies to add their sustainability reports on the database and make them accessible for the users. Based on the data-driven from GRI SDD, some academic papers investigated the determinants of GRI-based sustainability reporting. While some of these papers searched for company-level drivers of GRI-based sustainability reporting (Karaman et al., 2018), some addressed country-level characteristics which may affect the likelihood of publishing a GRI-based report for specific industries (Karaman et al., 2020; Kılıç et al., 2019; Uyar et al., 2019).
Unlike the above-mentioned studies, this study focused on not only a specific industry but all the companies from 20 emerging countries that have a sustainability report in the GRI SDD. Focusing on a group of emerging countries instead of a diverse group of countries could provide a better understanding of the country-level determinants of corporate social responsibility disclosures (De Villiers and Marques, 2016). From this point of view, this study seeks to investigate the country-level drivers of the adoption of GRI-based sustainability reporting in emerging markets listed in the Morgan Stanley Capital International (MSCI) Emerging Markets Index. The country-level factors addressed in this study are mainly environmental, social, and governance performances of the countries, the structure of the financial system, and cultural factors. Furthermore, the country’s trade openness and the number of listed companies were used as country-level control variables throughout the statistical analyses.
The main results of the study reveal that the companies in the countries with higher environmental, social, and governance performances and a market-oriented financial system are more likely to publish GRI-based sustainability reports. Additionally, cultural factors were also found to be significant determinants of GRI-based sustainability reporting.
Contribution of this study is twofold: First, identifying the level of both GRI and non-GRI based sustainability reporting in emerging markets would provide insight into the adoption level of sustainability reporting requirements in the markets with high economic growth potential. Second, highlighting the country-level drivers of the adoption of GRI-based sustainability reporting would be a guide for the efforts to encourage sustainability reporting adoption by companies.