- 17 May 2011
- Working Paper Summaries
The Consequences of Mandatory Corporate Sustainability Reporting
Executive Summary — The number of firms reporting sustainability information has grown significantly in the past decade, both due to voluntary actions and to mandates from several national governments and stock exchange authorities. In this paper, London Business School's Ioannis Ioannou and Harvard Business School's George Serafeim investigate whether mandatory sustainability reporting has any effect on a company's tendency to engage in socially responsible management practices. Key concepts include:
- The researchers show that mandatory sustainability reporting effectively promotes socially responsible managerial practices. Overall, supervision of managers by boards of directors improves, bribery and corruption decreases, and credibility of managers in society increases.
- In companies where sustainability reporting is a requirement, employee training becomes a higher priority, and corporate boards supervise management more effectively.
- These positive results are more pronounced in countries that have stronger law enforcement, countries where assurance of sustainability data is more frequent, and countries that are generally more developed.
We examine the effect of mandatory sustainability reporting on several measures of socially responsible management practices. Using data for 58 countries, we show that after the adoption of mandatory sustainability reporting laws and regulations, the social responsibility of business leaders increases. We also document that both sustainable development and employee training become a higher priority for companies and that corporate governance improves. Furthermore, we find that companies implement more ethical practices, including reducing bribery and corruption, which increases managerial credibility. These effects are larger for countries with stronger law enforcement and more widespread assurance of sustainability reports. We conclude with thoughts about mandatory sustainability and integrated reporting.