Sustainability Reporting & Stakeholder Engagement:
Determinants on Reporting quality

Abstract

The main objective of this work is to explore what are the driving forces of corporate sustainability reporting quality (SRQ) and what is the role of stakeholder engagement in shaping SRQ. It is found that the more companies engage their stakeholders the higher quality are their sustainability reporting. The key findings of this research are: first, company size, ownership structure and level of stakeholder engagement are significant determinants on SRQ; second, stakeholder engagement (SE) moderates company visibility with increasing effect and SE moderates company’s ownership structure with decreasing effect. Using data from G250 companies, multiple factors are verified in a theoretical model. It is the first time to use GRI, KPMG and PIRC methods to evaluate SRQ simultaneously. Some interesting findings are, for example, companies of high leverage in terms of high pressure from investors are more likely to report, while their reporting quality is not necessarily high. As companies are operating in different sectors, construction companies are found less likely to disclose and if they disclosed, their reporting quality would be high; on the contrast, chemical companies are not particularly to disclose, and their reporting quality would be high if they did.
As theoretical contribution, the research provides a holistic view to link stakeholder theory, legitimacy theory, signaling theory and institutional theory together. It validates stakeholder theory in SR by arguing that SE is one determinant of SRQ rather than one of its dimensions. It also contributes to clarifications on definition of SR quality by distinguishing ambiguity between extent of reporting and quality of reporting. The author shifts evaluation of reporting quality from volumetric measurements to semantic assessments. Comparison of different methods to measure SRQ indicates a comprehensive view of what are the difference and why are the difference. This research expands and verifies theoretical model of determinants on SR and SRQ by adding stakeholder engagement as a new independent variable. How SE impacts other determinants are also explored. The comprehensive framework developed in this study to identify and assess environmental reporting quality, is an initial step in the direction of examining sustainability reporting quality. From practitioner’s perspective, it helps to understand how SRQ were evaluated, and then provides implications for communication managers to enhance reporting quality and corporate communications from institutional, governance, and financial perspectives. This study argues that the quality of sustainability reports directed to various stakeholders are improved when stakeholder engagement is perceived important and said to be well implemented by companies. During sustainability reporting process, signaling of stakeholder engagement could also be enhanced. The researcher suggests companies to move from stakeholder management to stakeholder engagement, that is from a reactive way of consulting and influencing stakeholders to a proactive instrument of engaging them in process of the company's decision making and reporting on sustainability development.