Is Integrated Reporting Really the Superior Mechanism for the Integration of Ethics into the Core Business Model? An Empirical Analysis
- 3.1k Downloads
This paper examines the impact of integrated reporting (IR) on the integration of environmental, social, and governance (ESG) issues into the business model and the related economic and ESG performance changes. To investigate these internal and external transformational effects of IR, important differences between IR and alternative ESG reporting strategies are worked out. Using three matched samples of companies from around the world for the sample period 2002–2011, IR companies are matched with companies applying (a) no ESG reporting, (b) stand-alone ESG reporting, or (c) ESG reporting in the annual report. The results suggest that IR is a superior mechanism only for the integration of ESG issues into the core business model when comparing IR with the ESG reporting strategies of (a) no ESG reporting and (c) ESG reporting in annual reports. In comparison with (b), stand-alone ESG reporting, the results indicate that IR is negatively associated with the ESG integration level and with the economic and ESG performance. Moreover, this negative impact is lower for companies that have already implemented ESG management tools prior to the initiation of IR and is stronger for companies residing in countries with legal requirements for the disclosure of ESG information. A separate change analysis reveals that companies do not benefit from a switch from stand-alone ESG reporting to IR. Thus, this paper provides empirical evidence that contradicts the general notion of IR as a superior reporting mechanism, as the benefits of IR are driven by several factors.
KeywordsBusiness model Corporate social responsibility ESG performance Ethical accounting Ethics Integrated reporting Integrated thinking Integration of ESG issues Non-financial disclosure Reporting strategies Sustainability reporting
The author thanks the editors and the anonymous referees for helpful comments and suggestions. The paper has mainly benefited from the 18th International Symposium on Ethics, Business and Society at the IESE Business School in Barcelona, Spain, 2014. Thanks also go to the 2015 International Accounting Section Mid-year Meeting of the American Accounting Association.
- Adams, C. A. (2013). Understanding integrated reporting: The concise guide to integrated thinking and the future of corporate reporting (pp. 5–80). Oxford: Dō Sustainability.Google Scholar
- Arnold, M. C., Bassen, A. & Frank, R. (2012), Integrating Sustainability Reports into Financial Statements: An Experimental Study, Working Paper, Hamburg: University of Hamburg.Google Scholar
- Barth, M. E., Landsman, W. R., Lang, M. H. & Williams C. D. (2006) Accounting quality: International accounting standards and US GAAP, Working Paper, Stanford, CA: Stanford University.Google Scholar
- Berger, P. L., & Luckmann, T. (1966). The social construction of reality: A treatise in the sociology of knowledge (pp. 13–233). Garden City, NY: Doubleday.Google Scholar
- Braaksma, S. (2010). Six reasons why CFOs should be interested in sustainability. In R. G. Eccles, B. Cheng, & D. Saltzman (Eds.), The landscape of integrated reporting: Reflections and next steps (pp. 88–90). Cambridge, MA: The President and Fellows of Harvard College.Google Scholar
- Churet, C., & Eccles, R. G. (2014). Integrated reporting, quality of management, and financial performance. Journal of Applied Corporate Finance, 26(1), 56–64.Google Scholar
- Daske, H., Hail, L., Leuz, C., & Verdi, R. (2008). Mandatory IFRS reporting around the world: early evidence on the economic consequences. Journal of Accounting Research, 46, 1085–1142.Google Scholar
- Druckman P. (2014) The journey towards IR – insight, examples, benefits. Audit Committee Quarterly I, 18–21.Google Scholar
- Eccles, R. G., Herz, R., Keegan, E. M., & Phillips, D. M. H. (2001). The value reporting revolution: Moving beyond the earnings game (pp. 1–319). New York, NY: Wiley.Google Scholar
- Eccles, R. G., Ioannou, I., & Serafeim G. (2013). The Impact of Corporate Sustainability on Organizational Processes and Performance, Working Paper, Cambridge, ME: Harvard Business School.Google Scholar
- Eccles, R. G., & Krzus, M. (2010). One report: Integrated reporting for a sustainable strategy (pp. 1–224). New York, NY: Wiley.Google Scholar
- Eccles, R. G., & Serafeim, G. (2011). Accelerating the adoption of integrated reporting. In F. de Leo & M. Vollbracht (Eds.), CSR Index (pp. 70–92). Boston: InnoVatio Publishing Ltd.Google Scholar
- Eccles, R. G., & Serafeim, G. (2014). Corporate and integrated reporting: A functional perspective, Working Paper, Cambridge, ME: Harvard Business School.Google Scholar
- Ethical Corporation (EC) Newsdesk (2010). The future of corporate responsibility and sustainability reporting: Integration. Available at http://www.ethicalcorp.com/communications-reporting/future-corporate-responsibility-and-sustainability-reporting-integration.
- Graafland, J. J., & Smid, H. (2013). Impact measurement and performance analysis of CSR (IMPACT), WP 2 Econometric analysis, IMPACT Working Paper 10. Available at http://www.csr-impact.eu.
- Griffin, P. A., & Sun, Y. (2013) Going green: Market reaction to CSR newswire releases, Working Paper, Davis, CA: University of California.Google Scholar
- Heckman, J. J. (1976). The common structure of statistical models of truncation, sample selection and limited dependent variables and a simple estimator for such models. Annals of Economic and Social Measurement, 5, 475–492.Google Scholar
- Hofstede, G. H. (2001). Culture’s consequences, comparing values, behaviors, institutions, and organizations across nations (2nd ed., pp. 1–415). Thousand Oaks, CA: Sage Publications.Google Scholar
- Hung, M., Shi, J. & Wang, Y. (2013). The Effect of Mandatory CSR Disclosure on Information Asymmetry: Evidence from a Quasi-Natural Experiment in China’, Asian Finance Association (AsFA) 2013 Conference.Google Scholar
- Integrated Reporting Committee (IRC) (2010). An integrated report is a new requirement, Press Release available at: http://www.sustainabilitysa.org/PressReleases/PressReleases2010/Anintegratedreportisanewrequirement.aspx.
- Integrated Reporting Committee (IRC) of South Africa (2011). Framework for Integrated Reporting and the Integrated Report, Discussion Paper, Integrated Reporting Committee (IRC) of South Africa.Google Scholar
- International Integrated Reporting Council (IIRC) (2010). Formation of the International Integrated Reporting Committee (IIRC). Available at http://www.theiirc.org/2010/08/02/formation-of-the-international-integrated-reporting-committee-iirc/.
- International Integrated Reporting Council (IIRC) (2012). Understanding transformation - Building the Business Case for Integrated Reporting, International Integrated Reporting Council (IIRC).Google Scholar
- International Integrated Reporting Council (IIRC) (2013a). Integrated Reporting – The Pilot Programme 2013 Yearbook: Business and Investors explore the sustainability perspective of Integrated Reporting, International Integrated Reporting Council (IIRC).Google Scholar
- International Integrated Reporting Council (IIRC) (2013b). The international Integrated Reporting Framework, International Integrated Reporting Council (IIRC).Google Scholar
- International Integrated Reporting Council (IIRC) (2014). The IIRC Available at: http://www.theiirc.org/the-iirc/.
- Ioannou, I., & Serafeim, G. (2012). The consequences of mandatory corporate sustainability reporting, Working Paper 11-100, Cambridge, ME: Harvard Business School.Google Scholar
- Ioannou, I., & Serafeim, G. (2014). The impact of corporate social responsibility on investment recommendations, Working Paper 11-017, Cambridge, ME: Harvard Business School.Google Scholar
- Kolk, A., & Perego, P. (2010). Determinants of the adoption of sustainability assurance statements: an international investigation. Business Strategy and the Environment, 19(3), 182–198.Google Scholar
- KPMG (2011). KPMG International Survey of Corporate Responsibility Reporting 2011. Available at https://www.kpmg.com/DE/de/Documents/Survey-corporate-responsibility-reporting-2011.pdf.
- KPMG (2012). Integrated Reporting: Performance insight through better business reporting, Issue 2, KPMG.Google Scholar
- KPMG (2013). Carrots and sticks: sustainability reporting policies worldwide - today’s best practice, tomorrow’s trends, KPMG.Google Scholar
- Krippendorff, K. (1995). Internalization. In F. Heylighen, C. Joslyn, & V. Turchin (Eds.), Principia cybernetica web. Brussels: Free University of Brussels.Google Scholar
- Larrinaga-Gonzalez, C., Carrasco-Fenech, F., Caro-Gonzalez, F. J., Correa-Ruiz, C., & Paez-Sandubete, J. M. (2001). The role of environmental accounting in organizational change: An exploration of Spanish companies. Accounting, Auditing & Accountability Journal, 14(2), 213–239.CrossRefGoogle Scholar
- Lev, B. (2003). Remarks on the measurement, valuation, and reporting of intangible assets. Economic Policy Review, 9(3), 17–22.Google Scholar
- Marquis, C., & Toffel, M. (2011). The globalization of corporate environmental disclosure: Accountability or greenwashing?’, Working Paper, Cambridge, ME: Harvard Business School.Google Scholar
- Marquis, C., & Toffel, M. (2014). Scrutiny, norms, and selective disclosure: A global study of greenwashing, Working Paper, Cambridge, ME: Harvard Business School.Google Scholar
- Plumlee, M., Brown, D., & Marshall, S. (2008). The impact of voluntary environmental disclosure quality on firm value, Working Paper, Salt Lake City, UT: University of Utah.Google Scholar
- Rochlin, S., & Grant, B. (2010) Integrating Integrated Reporting. In R. G. Eccles, B. Cheng, & D. Saltzman (Eds.), The landscape of integrated reporting: Reflections and next steps (pp. 76–80). Massachusetts: The President and Fellows of Harvard College Cambridge, 02138.Google Scholar
- Serafeim, G.: 2014, ‘Integrated Reporting and Investor Clientele’, Working Paper, Cambridge, ME: Harvard Business School.Google Scholar
- The Institute of Directors in Southern Africa (IoDSA) and the King Committee (2009). King Code of Governance for South Africa 2009 (King III), The Institute of Directors in Southern Africa (IoDSA) and the King Committee.Google Scholar
- Tucker, J. W. (2011). Selection Bias and Econometric Remedies in Accounting and Finance Research. Journal of Accounting Literature, Winter 2010.Google Scholar
- Watts, R. L., & Zimmermann, J. L. (1978). Towards a positive theory of the determination of accounting standards. The Accounting Review, 53(1), 112–134.Google Scholar