Introduction

The connection and the potential reconciliation between sustainability and financial reporting are getting more and more attention. A quite heavy debate started in April 2019 based on a speech from the International Accounting Standard Board (IASB) chairman Mr. Hoogervorst and the most widely used Global Reporting Initiative (GRI) chief executive Mr. Mohin regarding the role of sustainability and financial reporting. Significant progress was made in July 2020 as the opposition between the GRI and the Sustainability Accounting Standards Board (SASB) eased, with the announcement of collaboration. Both institutions provide standards for sustainability reporting, but to fulfill different purposes: SASB focuses on sustainability-related risks on a company’s financial conditions the GRI deals with issues that are of primary importance to stakeholders (SASB 2020). In September 2020, the European Commission recognized the importance of coordinating the development of EU standards with existing and emerging global initiatives (European Reporting Lab 2020), mandating the European Financial Reporting Advisory Group (EFRAG) to undertake preparatory work for possible EU non-financial reporting standards. The most recent regulatory results contain a state-of-the-art target sustainability architecture (EFRAG 2021).

International Financial Reporting Standards (IFRS) are applied in 144 different jurisdictions across the globe, and they represent a well-known global accounting standard, based on relevant and reliable financial information provided to investors. In comparison, sustainability reporting belongs to a so-called: Environmental, Social, and Governance (ESG) reporting. This new reporting is driven by investors' expectations related to corporate performance. Sustainability reporting is a good representation, where currently no global standard is agreed yet; as a result, it is not possible to give a universally accepted definition on this reporting. It is better to define the purposes of such reports, which is to inform readers about the material, resource, and service flow between entities, markets, or within the society. It assumes that the economy and the environment affect the ability of corporate, economic, social, and environmental systems to operate in the long term.

In the case of the automotive industry, companies’ publicly expressed emphasis on operational sustainability puts an increased relevance on the question of reporting disclosure. Original equipment manufacturers (OEMs) bear the unethical possibility of using these sustainability elements (in the form of words, phrases) in their publications as key arguments to gain market share. This study analyses a specific market on European-based car manufacturing companies, to map and traceback sustainability report information to their respective financial statements, where sustainability plays a vital role in the industry operation because investors are making primary decisions based on how those companies are operated according to sustainability standards. Using the mapping system of Guthrie et al. (2017), the reporting requirements and reporting contents are analysed for this industry. At the same time, corporate reporting’s regulatory environment is shifting towards a standardized, electronic format, which makes it possible to apply certain new techniques for qualitative, text-based data analysis (Pejić Bach et al. 2019). This certain type of analysis will become more relevant to practice as the financial and non-financial reporting of European companies is approaching the goal of standardization and digitalization, with which textual information gains enhanced comparability (Busco et al. 2020).

Literature review and the importance of the mapping between sustainability and financial reporting standards

There are several studies in different fields dealing with the mapping of corporate and sustainability reporting, such as Kannenberg and Schreck (2019), or Guthrie et al. (2017). Others review the entities' sustainable operations as Geissinger et al. (2019), who questioned how sustainable a particular market is. According to Hoogervorst (2019), IASB chairman, a need for change is assessed as “sustainability issues can already have an impact that needs to be reflected in financial reporting”. Mohin (2019), GRI key executive commented as “Mr. Hoogervorst’s arguments misrepresent the role of standard-setters such as GRI, and indeed his own organization, the IASB. Standard-setters—GRI, IASB, or others—cannot be responsible for the disclosures made by companies. Our role is to establish the best practice for such disclosure”. These were one of the first published documents, which initiated an international debate among the financial and sustainability standard setters. Since 2019 significant efforts taken to standardize and harmonize sustainability reporting. The key milestones of these ongoing changes were highlighted in the next section. From the literature review perspective, the primary importance is on the fact that the mapping of financial statements to sustainability reports exists; however voluntary disclosure of companies might not provide sufficient information for stakeholders.

According to empirical results of Kannenberg and Schreck (2019) on sustainability reporting, disclosure, and corporate decisions, some positive implications can be made, but overall, the two reporting systems’ integration shows yet inconclusive results. From an accounting aspect, a clear connection exists between GRI and the IFRS disclosure requirements. With the use of the IFRS standards, at least seven areas can be identified where concrete reconciliation should be available, as presented in Table 1.

Table 1 IFRS’ connection to sustainability reporting
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The abovementioned seven areas in Table 1 are representing financial accounting areas, where the sustainability-related impacts if relevant and material should be quantified and reported in the financial reports. It was initially reported in 2019 and later updated in 2020. Any of these categories can be disclosed, however, in relation to climate-related effect within the automotive industry in the European Union, there is the carbon-emission specific topic, which must be addressed. It relates to the last category of the table, IAS37 (provisions, contingent liabilities). It does mean in case if an automotive company is knowingly above the CO2 emission limits already in their 2020 financial statement the material and relevant provision should be recognized. A detailed review of this area is reported in the result section.

Standardization of financial and sustainability reporting and developments in the EU

Within this research topic, there are two relevant areas connected to EU implementation, the first being a common format of electronic reporting, and the second being the standardization of the content of reports, both sustainability and financial. Regarding sustainability: cooperation between the biggest standard-setting organizations, namely GRI, the Sustainability Accounting Standards Board (SASB), and the IFRS Foundation was seen in 2020. This way a joint pursuit of quality information can be assumed, as GRI is known as the provider of the most widely used framework, while SASB focuses on material sustainability factors affecting financial performance (SASB 2017). Besides, the IFRS Foundation, which designs IFRS standards used by over 29 thousand public listed companies (roughly 60% of its total population), calls for standardization and comparability of reporting. These institutions declare that sustainability and climate change issues are becoming increasingly important to capital markets (IFRS Foundation 2020). In Fig. 1, out of the mentioned sustainability frameworks in all regions, GRI was the leading establisher, in the case of Europe followed by the International Integrated Reporting Council (IIRC)—recently conducting a merger with SASB (Deloitte 2020).

Fig. 1
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Source: Calace (2016) based on the database of datamaran.com

Global coverage of the sustainability standards (2015)

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To review the status of reporting standardization in automotive, we used the database of Statista (2018). As seen in Table 2, from the top 200 automotive companies (based on aggregate revenue) the top 10 were selected, where three automotive groups are registered and located from financial reporting perspectives in the EU. All three key companies—Volkswagen AG, Daimler AG, and the Bayerische Motoren Werke AG (BMW)—applied the same financial and sustainability reporting standards. From an accounting perspective, all three European manufacturers use IFRS. Regarding sustainability standards, the Global Reporting Initiative (GRI) standards are a commonality of all ten car manufacturing companies (except for the Chinese-based SAIC), which demonstrated the significance of these standards. Therefore, European car manufacturers, despite the locations of their administrative and production sites, are fully comparable in the question of information disclosure.

Table 2 Top 10 global automotive companies based on annual revenue
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Despite 2020’s exceptional global progress in sustainability framework propositions by organizations, a regulatory implementation is also in progress regarding the accounting obligations of EU companies. It is important to highlight that corporate reporting is greatly affected by technological change since it is a data processing procedure, a form of supplementing and automating human interpretation. Each stakeholder is affected by the fact that previously hectic and unstructured data become structured and machine-readable (Radzimski et al. 2014).

Hence the technology-reliant process, adaptation for bureaucratic organizations such as governments, faces implementational difficulties. At the same time, XBRL gained traction with regulators because the format supports the analysis and dissemination of large amounts of information. In business uses, it is widely accepted as a reporting alternative (Wenger et al. 2013). In the USA, it is also obligatory for public listed companies (XBRL International 2020). In the service sector, XBRL content analysis is used by audit and consulting firms, but these methods remain hidden business practices. On the supplier side, there is a wide range of software vendors offering solutions for qualitative analysis. These are also commonly used by academics in data-heavy researches. Generally, nowadays there is much bigger ground for exploratory data analysis such as text mining for this cause (Debreceny 2007). After successful first-time adoption of electronic financial reporting, it can make external and internal processes more transparent. Implementation reduces financial data collection, processing, and analysis time in both the business and academic sectors. In the past years, the European Securities and Markets Authority which supervises European stock markets has advocated the implementation of the European Single Electronic Format (ESEF)–which is an inline XBRL format of financial statements. There was a successful pilot project carried out in 2017 with 25 participants (ESMA 2020), and the financial statements published next year will arrive in this standardized format as an obligation for European listed companies. The ESEF format in the first period only contains financial statements, but in the following years, the format will expand on the notes to financial statements and possibly non-financial information as well. Currently, there are ongoing consultations on the details of this introduction, such as a common platform to present information for all companies under the definition of the European Single Access Point (ESAP) (European Commission 2020).

Methodology

Since the application of the ESEF format in European sustainability and financial reports, two research questions arise, as follows: Due to the unavailability of a standardized reporting system, are sustainability reports unable to be automatically reviewed? What are the true information content and the perceived reason for publishing sustainability reports? As a test for the potential of automation and thus creating the methodological foundations for the automated qualitative review of upcoming ESEF reports, a pilot analysis was carried out using the most recent sustainability reports (as unstructured pdf files) of the three leading car manufacturers (BMW, Daimler, and Volkswagen, business year 2019) as the sample. More studies exist in the literature in which topics that appear in sustainability reports are reviewed and evaluated with modern, text-mining-based methods (Rivera et al. 2014; Te Liew et al. 2014). We adopted a framework introducing a sustainability spectrum with 5 stages following the work of Landrum and Ohsowski (2018). The study also supported automated content analysis by linking keywords (as in Table 3) to each stage, which is ideal in the algorithm of natural language processing (NLP).

Table 3 Keywords for content analysis
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The stages differ greatly in terms of reporting elements and the reasoning behind sustainability activities. Stage one represents activities that are externally enforced (therefore require compliance), while stage two is internally focused, yet motivated by the result in benefits. Stage three shows an intermediate level, that indicates some form of cooperation between stakeholders in true environmental/economic or social activities to address systemic change. The fourth and fifth stages represent the regenerative and coevolutionary activities that are closed to understanding sustainability science and seeking to maintain balance with other systems (humans, corporations, societies, and the natural world). For the analytical NLP tasks, we used the Provalis WordStat 8.0.33 software (Provalis Research, 2020) and as methodological guidelines the prior works of Shin et al. (2018) and Valverde-Berrocoso et al. (2020). The content analysis steps included (1) textual data retrieval from reports, (2) exploratory quantitative analysis (word and phrase frequency calculation; topic formation with factor analysis; segmentation by paragraph), (3) categorization of keywords by the five sustainability stages, and (4) stage categorization of companies by the disclosed sustainability elements.

Results

Although there are no standardized reporting requirements of sustainability reports, and there is no obligation to prepare these reports in a machine-readable format, NLP has reached a technological level where automated topic evaluation on unstructured datasets becomes possible. Based on the automated content analysis of the main 3 automotive reports, we concluded that the higher the stage of sustainability, the lower the frequency of keywords. In Fig. 2, the pre-coded corporate sustainability stages showed different results between the analysed three reports. Significant independence was determined using Chi-square testing between the three companies in disclosed information. Keywords from the first three stages were the most frequently used, while keywords from stage five were hardly even mentioned.

Fig. 2
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Source: Own editing based on sustainability reports

Corporate stages of sustainability elements

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At the same time, the analysed automotive companies addressed relatively similar frequencies on the first three stages. This predicts a positive trend where companies not only focus on compliance with regulations and achieving internal benefits, but work with other stakeholders on sustainability activities, to address environmental, economic, and social systemic change. On a note, out of the 3 companies, Daimler disclosed the biggest volume of information on all stages other than stage five. With the given results on sustainability information disclosure, a further quality check is needed to determine whether keywords on stage three and above (including the real endeavours towards environmental sustainability, e.g. self-regulation of carbon emission) are connected to any measurable financial data. The identified disclosure constraints for the reviewed automotive companies are the following.

There is no clear reported connection between sustainability and their financial reporting, and it was not possible to reconcile the sustainability reports to the financial statements, despite the representation of the word CO2 several, as quantified, 54 (Volkswagen), 169 (BMW), and 297 (Daimler) times. The CO2 emission regulation within the EU provided a solid reference point, where we could validate, whether the reviewed companies should or should not report climate-related financial and sustainability elements. Based on publicly available studies and statistical reports, according to 2020 effective 2019/631 defined emission performance standards (European Commission 2019) the produced companies' CO2 limits should not exceed the 95 g of CO2 per km for passenger cars and 147 g of CO2 per km for light commercial vehicles registered in the Union as an average in 2020 and individually from 2021. Car manufacturers should calculate and present their assumptions in their financial/sustainability reports. In Table 4, based on public information these deviations and penalties were estimated.

Table 4 Overview of potential CO2 penalties per car manufacturer
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Of the three European car manufacturer groups, Volkswagen bears an especially high penalty percentage in comparison to its earnings. Long-term perspectives within 5 years these emission requirements are going to be even stricter, and therefore, financial impacts are expected to be more significant.

Conclusion and discussion

Based on the reviewed financial and sustainability reports, the following conclusion can be made. European automotive car manufacturers do have dominant financial and sustainability reporting standards. From a financial perspective, it is the International Financial Reporting Standard (IFRS) and from a sustainability standard perspective, it is the Global Reporting Initiative (GRI) standard. According to the comparison between the dominant IFRS and GRI standards, it was possible to establish a clear mapping from disclosure perspectives. In other words, it does mean that in theory financial and sustainability reports should be able to be reconciled to one another. From financial reporting perspectives, an environmental fine (CO2 emission penalty) related provision disclosure is identified as an area, where all the reviewed companies should report on their status. For the selected samples in the reviewed past year, these provisions were not disclosed in either report.

Based on international cooperation, a new approach is coming between regulating bodies of GRI, SASB, and the IFRS Foundation. It should build on the existing initiatives with a climate-first approach and build on existing standard works. To achieve higher effectiveness of sustainability reports, a requirement that is not yet fulfilled is a standardized categorization of the reported information, with which all essential sustainability issues would be addressed. A formal requirement of these disclosure categories should ensure that financial information is assigned to each item. For the quantification of this financial information, we recommend using scales instead of including specific financial data. This way, unfavourable judgement against the company, and possible negative impact on share prices could be avoided, while companies could maintain correspondence with information obligations.

The third conclusion involves the future direction in the reported data structure, as during our content analysis, natural language processing (NLP) was possible to be used on unstructured datasets of sustainability reports. With the expected arrival of structured ESEF financial datasets in 2021 and notes to financial statements in 2022, this technology will provide ground for an even higher quality of automated analysis in many fields, including the increasingly corporate value-shaping sustainability (EFRAG 2021). This design of standardized sustainability reports with high-quality (and not just compliance- or business-centered) information also benefits further research using tools of text-mining in content analysis. As an ultimate goal of standard-setting organizations, integrated reports, linking interrelations between financial and sustainability data will be able to be achieved.

This study aimed to provide evidence of the determinants of corporate non-financial reporting as an implementation of the 5-stage sustainability model of Landrum and Ohsowski (2018). It is apparent that as part of non-financial reports, sustainability information content and also context are capable of affecting investor decisions (Striukova et al. 2008). Beretta et al. (2021) concluded that in the automotive industry positive and negative toning differences occur even between pillars of the ESG (Environmental, Governance, and Social) reporting framework. Therefore, even with assumed regulatory advances (EFRAG 2021) companies can exploit certain practices to falsify, for instance, an automated sentiment analysis (Hajek and Henriques 2017). The possible tightening of future sustainability disclosure requirements could further increase skewness in the direction of the compliance sustainability stage represented in the current study; however, it is questionable how stakeholder decision-making is affected by such information. In terms of the ability of quantification, indicators included in sustainability stages 1 and 2 contribute the most to traditional firm performance measures such as the economic value added (Shad et al. 2019). To be able to provide so, it also needs to be taken into consideration the need for a specific sustainability enterprise resource planning (S-ERP) system in order to make the process of tracking business resources, operations, and status feasible (Chofreh et al. 2020).