An exploration of the disclosure of practices for environmental and social sustainability in sustainability reports

This dissertation explores the value of disclosure in sustainability reports. Sustainability reports are part of the information provided publicly by companies and may reveal information about the type of sustainability practices adopted by the company and extent of implementation. To this end, we explore (1) developed constructs using sustainability reporting, and (2) consistency with established sustainability performance measures. Till now, limited research has been conducted pertaining to the specific operational practices that companies are reporting on for the sake of developing a new measure of social and environmental sustainability out of them. Finally, (3) using the proposed measure, we explore links to financial performance and firm size. To meet these three research objectives, we first synthesize and obtain from the literature and relevant guidelines a list of operational practices for environmental and social sustainability. Next, content analysis of 331 sustainability reports is implemented. In particular, scoring is carried out on the identified environmental and social practices to see which of those are prioritized in companies’ sustainability reports. Based on the prevailing practices, we develop two constructs for social sustainability and three constructs for environmental sustainability. These constructs allow us to identify ‘leader’ and ‘laggard’ companies in four industrial sectors for comparison and provide illustrative text from their sustainability reports to demonstrate our scoring methodology. Second, we check consistency of our developed measure with existing measures of sustainability that are considered valuable. Specifically, we correlate our measure with Dow Jones Sustainability Index and Environmental Social and Governance data and find that all three measures are positively and significantly correlated with each other at the same level. Given the consistency between the three measures, we argue that our measure for sustainability performance is valuable and thus sustainability reporting appears to have some value. Finally, we explore the link between our developed measure with financial performance and firm size. Existing literature has extensively studied this relationship using established measures of sustainability performance, thus the results remain inconclusive. We revisit this relation by investigating whether our developed measure can shed light on that relationship. Structural equation modeling is performed, which indicates that there is not a significant relationship between our developed measure and financial performance, at least in the short term, as is consistent with similar research using ESG or other established measures. Thus, some aspects of sustainability but not all appear to be positively linked to financial performance. Also, to account for the industry effect, we are performing cluster analysis in four industrial sectors and identify upper and lower clusters, based on companies’ total sustainability disclosure score. Our analysis indicates sector specificity as regards the relationship between sustainability disclosure and financial performance based on the proposed instrument. Also, size expressed by revenues does not affect the measure we developed, as suggested by some of the literature