Companies, regulators and stakeholders shape sustainability reporting, says researcher

Sustainability reporting is influenced by a range of factors, according to researcher Piia Korri's doctoral thesis. While it may initially seem like a compliance requirement or communication practice, the process of developing and institutionalizing reporting practices is complex. Political priorities, corporate culture, cross-border regulatory spillovers, and stakeholder interactions all play a role in shaping reporting practices over time.

In the United States, sustainability reporting is less regulated at the federal level compared to the European Union. This lack of standardization provides more room for corporate culture to influence disclosure practices and ESG ratings, which can impact investors and others who rely on this information. However, regulatory differences between jurisdictions do not mean that firms are solely influenced by their home country's rules.

In fact, when the EU's Non-Financial Reporting Directive was implemented, U.S. firms with subsidiaries in the EU exhibited greater improvements in sustainability transparency and performance compared to non-comparison firms.

Even within the EU, where sustainability reporting has become increasingly regulated, standardization involves trade-offs. Stakeholders involved in developing reporting standards have different priorities and perspectives, which can create tensions between broader change goals and established practices, as well as between flexibility and prescriptive requirements. These trade-offs can benefit some stakeholder groups while imposing costs or constraints on others.

Overall, sustainability reporting is shaped by a complex interplay of corporate culture, regulatory environments, cross-border regulatory effects, and stakeholder interactions in standard-setting. Less standardized regimes allow for greater variation in disclosure practices, while EU regulation has been shown to improve transparency and performance among U.S. firms with EU subsidiaries.

The balance between flexibility, prescriptiveness, and stakeholder priorities remains a key consideration in the evolution of sustainability reporting practices.