Sound Corporate Governance (CG) requires business entities to take responsible regard for the equitable interests of all stakeholders and appropriately align their individual concerns. Given that society generally is one significant stakeholder, it then becomes relevant to determine how such entities take regard for and report upon the social and environmental issues that currently threaten the sustainability of our globe. Accordingly, this research focuses on such sustainability issues and how they are reported, through Sustainability Reporting (SR). Verifying corporate social and environmental activities to stakeholders through Sustainability Reporting (SR) tends to gain and maintain corporate social Legitimacy and continuity in the market. This is because, SR is an effective and efficient tool for measuring and communicating the corporate social and environmental performance, in conjunction with its economic performance to stakeholders.
Despite the critical importance of Sustainability Reporting, academics and professionals claim that the Quality of Sustainability Reporting is poor. Given this poor quality, it is recognized that several Sustainability Reports do not fulfill the needs of stakeholders. Consequently, based on the theoretical foundation of Legitimacy Theory and relevant literature, this research aims at hypothesizing and testing the effect of four features on the Quality of Sustainability Reporting (QSR). These features are Adherence to Regulation (ATR), External Assurance of Report (ASR), Independence of Board (IOB) and Type of Information (TOI). QSR is determined via the Index of the Global Reporting Initiatives (GRI). The GRI is regarded as the international proxy for Sustainability Reporting. Its Index identifies the performance indicators that should be included within the Sustainability Report, in order to fulfill the needs of stakeholders. The relationship between these features and QSR are tested/evaluated within 500 reports. These 500 are the Sustainability Reports of the Global Fortune 100 (G100) companies over the five-year period 2011-2015. Employing an ordinal dependent variable (QSR), the research applies an Ordinal, Logistic Regression (OLS) to statistically test hypothesized relationships. The SPSS statistical software package is used to implement that regression and to statistically analyze the collected data.
The research concludes that Adherence To Regulations, External Assurance of Report, Independence of Board and Type of Information significantly affect, (representing 37.1% - 41% of the change in) the Quality of Sustainability Reporting. It also concludes that, Adherence to Regulations and External Assurance of Report have an Extremely Significant and Positive, relationship with the Quality of Sustainability Reporting. Moreover; there is a Significant and Positive, relationship between the Type of Information and Quality of Sustainability Reporting. Regarding the Independence of Board, two main phenomena are identified from the empirical results. The results identify that, there is a Non-significant relationship between Independence of Board Members and the Quality of Sustainability Reporting. However; there is a Significant, Positive, relationship between the Independence of Board Chair and the Quality of Sustainability Reporting. Therefore, Adherence to Regulations, External Assurance of Report, Independence of Board Chair and Type of Information are significant influencing factors that should be seriously considered by reporting firms in order to improve the Quality of Sustainability Reporting.