Corporate sustainability reporting: Towards an understanding of reporting quality

Corporate sustainability reporting quality has been criticised as being unbalanced, presenting an overly positive view of the company or failing to address material issues. The purpose of this study is to provide an understanding of sustainability reporting, to observe the evolution of the quality of Greenhouse Gas (GHG) reporting and to propose how reporting quality issues may be addressed in future. A theoretical framework is developed which combines the legitimacy and accountability perspectives using Akerlof’s (1970) Market for Lemons theory. Akerlof’s approach is extended by differentiating between three types of information in sustainability reports namely search, experience and credence with each type of information having a different quality. Using this typology, sustainability reports cannot be considered as being of uniform quality but are more likely to be a mixture of qualities. Results of the empirical study shows that GHG reporting quality remains low but steady and has not developed significantly between 1998 and 2010. The study also shows that quality does not evolve in the same way in each quality dimension. This is linked with the search, experience and credence information typology. Factors such as firm size, regulation and reporting according to international guidelines are found to be determinants of GHG reporting quality. While companies do not increase reporting quality in response to media pressure, companies highlighted in the media on the issue of climate change have a higher quantity of reporting. The results support the view that reporting is being used as a legitimising exercise by companies but that regulation of the entire sustainability report may not be necessary to improve quality. Stakeholder pressure and voluntary guidelines will be adequate to improve the quality of search and experience information while regulation or mandatory assurance of reports will be required to improve the quality of credence information.