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Title of the Proposed Study:
The Impact of Sustainability Reporting on Selected Companies’ Financial Performance
Area of Study:
Sustainability Accounting, Accounting standards, Sustainability report, Sustainability report disclosure
Hypotheses:
H01: The number of overall sustainability disclosures in the GRI Index that companies submit is related with the
company’s performance.
H02: The number of economic performance indicator disclosures in the GRI index that companies submit is
related with the company’s performance.
H03: The number of environmental performance indicator disclosures in the GRI index that companies submit is
related with the company’s performance.
H04:The number of social performance indicator disclosures in the GRI index that companies submit is related
with the company’s performance.
Literature Review:
(1) Aggarwal, P.. (2013).Impact of Sustainability Performance of Company on its Financial Performance: A
Study of Listed Indian Companies – The article discussed whether sustainable companies are more
profitable and examined the impact of sustainability rating of company on its financial performance in an
Indian context using secondary data. This can be used as a guide for analyzing the sustainability reporting
practices of companies and how they impact the performance of a company in long run and in short run
because it provides data for the study of the same theoretical framework.
(2) Jamali, D., Mezher, T. & Bitar, H. (2006). Corporate social responsibility and the challenge of triple bottom
line integration: insights from the Lebanese context – According to this article, the findings suggest that
organisations in a developing country context report challenges in maintaining a sustainable performance
on the three dimensions, respectively the Triple Bottom Line (TBL) integration. This literature will help
gain information about TBL as a systematic approach to managing the complete set of a company’s
responsibilities, this term is used to refer to a framework for measuring and reporting corporate
performance against economic, social and environmental parameters.
(3) Ogundare, E.A (2013). The Impact of Sustainability Reporting on Organisational Performance – The
Malaysia Experience - In this article, the study is about embedding sustainability reporting culture into
organisational activities and whether it can impact significantly on an organization's performance. This
article is useful for determining the effect of overall sustainability reporting and the use of individual
performance indicators including economic, social and environmental disclosures to the performance of
companies.
The study to be used as a basis is the thesis work of Tia Mare L. Ebdane entitled, The Impact Of
Sustainability Reporting On Company Performance: The Philippine Perspective. Based on the findings of three
sustainable dimensions (economic, social and environmental), results showed that control variables like company
age and size when considered, impacts the company’s performance. To explore it further, a quantitative research
featuring the same thesis will be applied in The Impact of Sustainability Reporting on Selected Companies’
Financial Performance. The required data would be collected from the selected companies published sustainability
reports from 2013-2017.
Framework:
There are three major theories, namely, Legitimacy Theory, Stakeholder Theory and Agency Theory,
which suggest that companies should be sustainable and should incorporate sustainability in their core strategic
goals. The companies should disclose their sustainability performance in a proper sustainability report. These
theories primarily suggest positive relationship between corporate sustainability and company performance.
● Stakeholders Theory
Apart from issues relating to the attempt to appear legitimate, another view reflected in the
literature is that organisations will respond to the demands of the stakeholder groups that control resources
required for their operations (i.e. powerful or influential stakeholders), and will tend to ignore the concerns
of the groups without power (Belal & Owen 2007; Deegan & Blomquist 2006). Satisfying the implicit
expectations of stakeholders improves a company’s reputation to citizens in a way that has a positive effect
on its financial performance attracting the interest of investors and other stakeholders’ bodies (Brammer
and Pavalin, 2006; Weber et al., 2008), whilst disappointing stakeholders may have negative consequences
on the financial performance (Makni et al., 2009; Preston and O’Bannon, 1997).
● Legitimacy Theory
Legitimacy theory posits that the legitimacy of a business entity to operate in society depends on
an implicit social contract between the business entity and society. Companies can lose their license to
operate in society by breaching society’s norms and expectations. Accordingly, legitimacy theory predicts
that companies adopt environmental and social responsibility reporting to legitimise their operations when
society’s norms and expectations of the business entities change or the business entities perceive
themselves in breach of existing norms and expectations of society (Deegan 2002; Deegan & Blomquist
2006; O’Donovan 2002).
● Agency Theory
The agency theory is generally concerned with the relationship between the agent and the principal
(De Villiers, et al., 2011). The theory defines the separation problem between a firm’s ownership and
control. The agency theory also posits that the board is responsible to monitor management’s sustainable
policy and strategy (environmental and social policy, strategic CSR, environmental investment, and
information availability). It is also evident that social and environmental investment is generally a
long-term goal and management may be reluctant to invest in sustainable areas because there is no
immediate benefit (Chan, 2014).
Belal, A. R., Owen, D. L. (2007). "The views of corporate managers on the current state of, and future prospects for,
social reporting in Bangladesh: An engagement-based study", Accounting, Auditing & Accountability
Journal, Vol. 20 Issue: 3, pp.472-494, https://doi.org/10.1108/09513570710748599
Bouten, L., & Hoozée, S. (2013). “On the interplay between environmental reporting and management accounting
change”. Management Accounting Research, 24( 4), 333–348.
Brammer, S.J. and Pavelin, S. (2006). “Corporate reputation and social performance: the importance of fit”, Journal
of Management Studies, 43(3), pp. 435-455.
Chan, M.C.C.; Watson, J.; Woodliff, D. (2014). “Corporate Governance Quality and CSR Disclosures”, J. Bus.
Ethics 2014, 125, 59–73
Deegan, C. (2002). “The legitimising effect of social and environmental disclosures – a theoretical foundation”,
Accounting, Auditing, & Accountability Journal, vol.15, no.3, pp. 282-311.
Deegan, C & Blomquist, C 2006, “Stakeholder influence on corporate reporting an exploration of the interaction
between WWF-Australia and the Australian minerals industry”, Accounting, Organizations & Society,
vol.3, no.4-5, pp343-373.
De Villiers, C.; Naiker, V.; van Staden, C.J. (2011). “The Effect of Board Characteristics on Firm Environmental
Performance”, J. Manag., 37, 1636–1663.
Ebdane, T.M. (2016). “The Impact Of Sustainability Reporting On Company Performance: The Philippine
Perspective”, .Journal of Asia Entrepreneurship and Sustainability; Tauranga Vol. 12, Iss. 1, 34-76.
Hohnen, P. & Potts, J. (2007). Corporate Social Responsibility: An Implementation Guide for Business.
International Institute for Sustainable Development. Retrieved: June 2015:
http://www.iisd.org/pdf/2007/csr_guide.pdf
Jamali, D., Mezher, T. & Bitar, H. (2006). Corporate social responsibility and the challenge of triple bottom line
integration: insights from the Lebanese context
https://pdfs.semanticscholar.org/1036/753546bf6995eec5216d1be86bbb50aaf7ef.pdf
Makni, R., Francoeur, C. and Bellavance, F. (2009). Causality between corporate Social performance and financial
performance: Evidence from Canadian firms, Journal of Business Ethics, 89(3), pp. 409-422.
Preston, L.E. and O’Bannon, D.P. (1997). The Corporate Social-Financial Performance Relationship A Typology
and Analysis, Business Society, 36(4), pp. 419-429.
Truant, E., Corazza, L. & Domenico, S. (2017). Sustainability and Risk Disclosure: An Exploratory Study on
Sustainability Reports.