Accepted Manuscript

Sustainability management and reporting: The role of integrated reporting for

communicating corporate sustainability management

Riccardo Stacchezzini, Associate Professor of Accounting, Gaia Melloni, Postdoctoral

Researcher in Accounting, Alessandro Lai, Professor of Accounting

PII: S0959-6526(16)00200-6
DOI: 10.1016/j.jclepro.2016.01.109
Reference: JCLP 6739

To appear in: Journal of Cleaner Production

Received Date: 8 August 2014

Revised Date: 6 October 2015
Accepted Date: 27 January 2016

Please cite this article as: Stacchezzini R, Melloni G, Lai A, Sustainability management and reporting:
The role of integrated reporting for communicating corporate sustainability management, Journal of
Cleaner Production (2016), doi: 10.1016/j.jclepro.2016.01.109.

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 ACCEPTED MANUSCRIPT
Sustainability management and reporting: The role of integrated reporting for
communicating corporate sustainability management

Abstract

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According to the International Integrated Reporting Council (IIRC), integrated reporting (IR)
should disclose the leading indicators that managers use in their sustainability decision

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processes and thus overcome traditional silo thinking. In this respect, IR could favor the
integrative management of sustainability. Yet some scholars are more critical and argue that IR
cannot contribute to sustainability management.

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This article contributes to the debate by analyzing how IR adopters communicate managerial
aspects of corporate sustainability. Drawing on impression management studies, this study seeks
to detect manipulations in this disclosure practice. A manual content analysis of reports

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available on the IIRC website and a multivariate statistical analysis reveal that firms offer biased
IR disclosures. Firms not only provide limited forward-looking and quantitative disclosure of
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their actions to achieve sustainability outcomes but also avoid providing information about their
sustainability performance when their social and environmental results are poor. The evidence
suggests pessimistic conclusions about the capability of this reporting process to encourage the
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integrative management of corporate sustainability.

Keywords: Integrated reporting; sustainability management; sustainability reporting;

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sustainability accounting; leading indicators; impression management.

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1. Introduction
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Firms encounter strong pressures to behave in sustainable ways and be transparent about their
sustainability practices (Lozano and Huisingh, 2011), by communicating about the actions they
have taken and results achieved in terms of the economic, social, and environmental dimensions of
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sustainability (Elkington, 1998). In response, companies may conveniently adopt an integrative

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management to measure, manage, and report on their sustainability performance (Schaltegger and
Wagner, 2006a). Specifically, firms may rely on sustainability accounting, a comprehensive
«process of the collection, analysis and communication of sustainability-related information»
(Bennett et at., 2013, p. 3) and integrate sustainability management accounting (SMA, defined as
internal performance measurement tools and information that help managers address sustainability
issues) with external sustainability reporting (SR), which communicates information about how the
company acts to improve its economic, environmental, and social effectiveness and efficiency
(Daub, 2007). These efforts should contribute to corporate sustainability (Lozano and Huisingh,
2011), though for SR to have an impact on sustainability attitudes, practices, and culture

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(Bebbington, 2007), firms cannot perceive it as a mere tool to advance their image or detract
attention from their actual poor engagement in sustainability issues (O’Dwyer, 2003). That is, SR
needs to be strictly linked to SMA and provide information about sustainable value creation in a
way that enables external stakeholders to realize the actual achievements and potentials of corporate
sustainability management (SM). Because information disclosed to external actors is «inherently
judgmental» (Bennett et al., 2013, p. 4), both the integration of SR and SMA and the integrative

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management of corporate sustainability are contested grounds.
Accounting scholars accordingly express concerns about the ability of various SR initiatives

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to promote such integration. Integrated reporting (IR), as defined by the International Integrated
Reporting Council (IIRC), seeks to overcome such limitations by integrating information systems

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and data that support both internal and external reporting. Adopters are required to disclose the
information that managers use in their decision making (IIRC, 2013a) and embrace the notion of
integrated thinking, to avoid traditional forms of silo thinking in their performance measurement

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and reporting efforts (Giovannoni and Fabietti, 2013). The IIRC also requires firms to describe how
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they deal with different dimensions of sustainability, including not just their performance but also
the actions taken to achieve it (IIRC, 2013a). Companies should disclose information about leading
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indicators of sustainability, including the performance drivers with the greatest influence on their
achievement of core strategic objectives (Figge et al., 2002; Kaplan and Norton, 1996).
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However, even in the face of the emerging debate about whether and how IR creates
transparency about firms’ sustainability commitment (Adams, 2015; Adams et al., 2011; Burritt,
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2012; Flower, 2015; Milne and Gray, 2013; Thomson, 2015), we lack empirical evidence about
whether IR supports the integration of SMA and SR or, more generally, how IR can enhance
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integrative management for sustainability. To address this research gap, we investigate how IR
adopters actually communicate about their SM. Among the different perspectives available for
studying corporate discretionary disclosure strategies (Merkl-Davies and Brennan, 2007), we
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choose impression management (IM) as a foundation (Hooghiemstra, 2000; Neu et al., 1998) to
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identify biases between corporate disclosure and corporate behavior, such that firms might use IR
disclosures to distract attention away from their poor sustainability achievements. We thus aim to
answer a central research question: Does IR favor the integrative management of sustainability by
conveying unmanipulated sustainability disclosures? A negative answer would support the IM
perspective but also lead us to reject the competing perspective of incremental information (Merkl-
Davies and Brennan, 2007), which suggests that discretionary disclosures help limit reporting
asymmetries, because they are unmanipulated (Baginski et al., 2000).
In a first level of analysis, we examine the SM disclosure provided in the IR. With an in-
depth, manual content analysis of the single text units of the reports available on the IIRC website,
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we gather evidence about how IR adopters incorporate information about their sustainability actions
and performance in their disclosures, related to economic, social, and environmental dimensions.
The economic dimension typically refers to financial resources and returns, the social one deals
with how a company takes care of the diversity of social and human demands, and the
environmental dimension refers to interactions with the natural environment (Daub, 2007). This
content analysis distinguishes between disclosures of sustainability actions and sustainability

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performance, while also considering the type of measure (quantitative or not) and time orientation
(forward-looking or not). At a second level of analysis, we verify the presence of biases between

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what is (formally) reported in corporate disclosures and (actual) corporate behavior. To evaluate the
relation between IR sustainability disclosures and variables that proxy for sustainability

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performance, corporate governance, and industry, we use the mean of a multivariate statistical
analysis.
We start by describing IR as the analysis context, the IIRC project, the requirements of its

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framework for disclosing sustainability issues, and how IR seeks to encourage the integrative
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management of sustainability. Then we present previous research on sustainability accounting and
emerging literature on IR, and specify the perspective on which we base our research design. After
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we introduce our theoretical framework and research hypotheses, we outline the methodology for
our content and multivariate statistical analyses, then present their results. Finally, we discuss the
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results and highlight both the contributions and limitations of this study.
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2. Analysis context
IR is the process of communicating about sustainable value creation over time, which
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provides insights into the resources and relationships used or affected by the organization, as well as
the interaction between the organization and its external environment (IIRC, 2013a). Despite its
voluntary nature, IR has gained considerable prominence since the formation of the IIRC in 2010
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(de Villiers et al., 2014). Approximately 100 firms have taken part in the IIRC pilot program since
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its launch in October 2011; 75 business firms uploaded their reports to the Emerging Integrated
Reporting Database as of 30 April 2014 (http://examples.theiirc.org/home). Evidence about the
development of IR at the organizational level is not yet available, but indications suggest notable
movements in some countries (e.g., United Kingdom, the Netherlands, Spain, Australia, Singapore,
Japan, United States); South Africa pioneered mandatory adoption of IR in 2010. The IIRC also has
signed important agreements with international standard setters (e.g., Memoranda of Understanding
with the International Accounting Standard Board and Global Reporting Initiative, both in 2013).
More generally, global players devote attention and resources to the IR project, including

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international accounting firms (e.g., EY, 2013; KPMG, 2013; PWC, 2013) and national and
international professional organizations (e.g., ACCA, 2012; ICAEW, 2013).
Although IR is not intended to be a sustainability report, its focus on sustainability issues and
purpose of stimulating integrated thinking are clear; as the CEO of the IIRC explains, “IR promotes
a more cohesive and efficient approach to corporate reporting that draws on different reporting
strands. Here, our innovators focus in on the sustainability perspective. They tell their journey, how

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they are connecting departments across their business, how they are developing their strategies for
longer term value creation” (IIRC, 2013b, p. 2). Therefore, IR should favor an integrated approach

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to sustainability and extend “the traditional corporate focus on short term financial performance to
the inclusions of the resources and relationships that are essential to the company’s long-term

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success and viability. It is the integration of the social, economic and environmental dependencies
and issues pertinent to the company’s business” (King and Roberts, 2013, pp. 40-41).
The International Integrated Reporting Framework (IIRF) seeks to foster integration across

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information systems that support internal and external reporting (Giovannoni and Fabietti, 2013); it
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assigns great importance to disclosing information used internally by managers. Firms should reveal
not only their performance but also how they achieve these results, that is, through which resources
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and processes. An IR adopter therefore should provide information about the firm inputs (resources,
relationships), business activities, outputs (products, services), and outcomes (impacts on resources,
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relationships). The IIRF also requires a forward-looking focus (targets, forecasts, projections) and
quantitative information (key performance indicators, monetized metrics). The United Nations
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Global Compact LEAD anticipates that adopting such reporting practices “encourages and supports
the integration of sustainability in strategic planning, decision-making and operations” (LEAD,
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2013, p. 3). The disclosures through IR should encourage communication about leading
sustainability indicators, as well as greater understanding of corporate engagement across different
dimensions of sustainability (Busco et al., 2013). Although companies also might offer SM
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disclosures in other corporate reports, firms that adopt the IIRF all should provide this information
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in their IR. Therefore, we investigate IR as a vehicle for disclosing information on sustainability

actions and performance, favoring integrative SM.

3. Previous research
The ability of sustainability accounting to reflect corporate engagement in sustainability and
determine corporate SM is an increasingly relevant concern for business and academia (Daub 2007;
Fernandez-Feijoo et al., 2014; Hahn and Kühnen, 2013; Lozano and Huisingh, 2011; Schaltegger
and Zvevzdov, 2015). On one side, the «management oriented path to sustainability accounting»
(Burritt and Schaltegger, 2010, p. 831) recognizes sets of tools that managers use to make decisions,
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highlighting the potentials of SMA and SR to be managed in an «integrated manner» and the role
that SMA can play in «linking» corporate SM and SR (Schaltegger and Wagner, 2006b). By
integrating corporate sustainability indicators, the reporting corporation can better manage its
sustainability (Daub, 2007; Roca and Searcy, 2012). Lodhia and Martin (2014) also highlight the
use of corporate sustainability indicators to manage the company and inform stakeholders. Firms
that identify, measure, and disclose sustainability indicators enhance internal and external

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understanding of their corporate performance on economic, social, and environmental issues. The
process of developing key performance indicators for SR also favors the integration of sustainable

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performance data into decision making, risk management, and performance management (Adams
and Frost, 2008).

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On the other side, research focused on the «critical path of sustainability accounting
development» (Burritt and Schaltegger, 2010, p.830) highlights the limits of SR for representing
actual corporate engagement (Tregidga et al., 2014). Sustainability reporting thus may be a mere

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communication strategy, designed to repair organizational legitimacy (Deegan, 2007) or conform
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with institutionalized norms (Larrinaga-Gonzáles, 2007). Moreover, it may act as a corporate veil to
protect the firm’s inner workings from external view (Hopwood, 2009). Symbolic uses of SR might
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advance the corporate image, in the absence of corresponding engagement (Neu et al., 1998;
O’Dwyer, 2003). In this case, SR and SMA are not concomitant, which limits the implementation
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of integrative management for sustainability.

In summarizing these two sides, we acknowledge that «external reporting … frequently
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corresponds (as it should) with what is measured and reported internally.… However, the decision
on the actual information to be disclosed is inherently judgmental so that the selection of the
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information to be reported is inevitably up to the discretion of the directors of each company»

(Bennett et al., 2013, p. 4). By coming within the observational lens of both research perspectives,
the sustainability-related nature of IR has prompted a primarily conceptual debate (Adams, 2015;
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Burritt, 2012; Flower, 2015; Milne and Gray, 2013). That is, IR may offer rich grounds for
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sustainability disclosures and favor the integration of sustainability accounting and SR (Adams et
al., 2011; Busco et al., 2013), but these questions remain empirically unexplored. Existing empirical
studies of IR focus on the determinants of IR adoption, in relation to institutional factors (Jensen
and Berg; 2012; Frías-Aceituno et al., 2013), governance characteristics (Frías-Aceituno et al.,
2012), SR assurance (Sierra-García et al., 2013), industry concentration (Frías-Aceituno et al.,
2014), or legitimacy needs (Lai et al., 2014).
Investigating the integrative management of sustainability from the viewpoint of discretionary
disclosure instead reflects two main competing schools of thought (Merkl-Davies and Brennan,
2007): incremental information and IM. The first one assumes that disclosure helps overcoming
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information asymmetries between corporate reporting preparers and users. It predominantly adopts
an user perspective, and the main concerns relate to detecting the ways investors respond to
discretionary disclosures. The latter questions the idea of an inherently unbiased disclosure and
focuses on detecting manipulations in reporting sustainability achievements. IM studies take a
preparer perspective, aimed at detecting circumstances in which firms use impression management
strategies. Despite some distinctive rationales, accounting scholars explicitly develop competing

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hypotheses (Cho et al., 2012; Mahoney et al., 2013) or comply with only one school of thought (e.g.
García Osma and Guillamón-Saorín, 2011), with the implicit assumption that a rejection of related

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hypotheses constitutes an affirmation of the contrasting school’s ideas. We are thus pushed to
investigate opportunistic managerial behavior with regard to sustainability disclosure and privilege

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a preparer perspective, such that we base our research hypotheses on the impression management
framework.

4.
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Theoretical framework and research hypotheses
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The IM framework offers a theoretical and methodological means to address managers’ use of
SR to distract from their poor sustainability results. In this process, one entity attempts to control
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others’ impressions (Leary and Kowalski, 1990) by presenting information in a manner that distorts
recipients’ perceptions, motivated by a desire to present a self-serving image (Neu et al., 1998;
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Hooghiemstra, 2000). To derive conclusions about the potential presence of IM strategies, we

investigate the association between disclosures that might be manipulated and specific corporate
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characteristics that favor manipulation. For this assessment, we focus on thematic manipulation
(Merkl-Davies and Brennan, 2007) and investigate whether the choice to provide disclosures about
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actions taken to support SM processes, rather than disclosures about sustainability results,
constitutes a manipulation strategy by a company that prefers to highlight the resources it has used
and activities implemented, rather than its actual sustainability achievements.
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Corporate sustainability results likely affect the use of thematic manipulation, such that poor
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economic performance incentivizes firms to manipulate their disclosures and «balance out» the
negative perceptions that might arise from their poor results (Clatworthy and Jones, 2003;
Schleicher and Walker, 2010). Cho et al. (2010) demonstrate that firms with the worst
environmental performance are more likely to disclose about environmental issues than firms with
better performance; Mahoney et al. (2013) posit that firms with weaker social performance use
disclosure strategies to alter public perceptions of their corporate behavior, but they fail to find
support for this hypothesis. We similarly argue that weak sustainability performance (poor
economic and social performance, high environmental impacts) leads managers to try to balance

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negative perceptions of the firm by increasing the amount they disclose about sustainability actions
but avoiding disclosures about their sustainability performance. Formally,
H1: Firms with (a) poorer social performance, (b) greater environmental impacts, and (c) poorer
economic performance are more likely to provide disclosures about sustainability actions
rather than sustainability performance in their IR.
Weak corporate governance also might favor the use of manipulative disclosures. For

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example, a less independent board grants managers greater discretion to present information in a
self-serving way. Previous studies rely on the proportion of independent directors on the board to

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represent a factor that likely mitigates IM strategies, by improving transparency and reducing self-
serving disclosures (García Osma and Guillamón-Saorín, 2011; Mather and Ramsay, 2007).

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Because disclosures about actions are harder to verify by external stakeholders than disclosures
about performance, we predict:
H2: Firms with less independent boards are more likely to provide disclosures about

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sustainability actions rather than sustainability performance in their IR.
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Finally, industry traits should affect IM, in that some industries are exposed to more public
scrutiny than others. Firms in environmentally sensitive industries are more likely to use these
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strategies (Cho et al., 2010), so membership in such industry groups should increase the use of
sustainability action disclosures. Formally,
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H3: Firms in environmentally sensitive industries are more likely to provide disclosures about
sustainability actions rather than sustainability performance in their IR.
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5. Methodology
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5.1. Sample selection and data collection

We gathered IR by all firms that made their reports available on the IIRC website before 30
April 2014 and that included a section (usually entitled «Business Model») with information about
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their sustainable value creation process. This section generally includes information about different
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dimensions of sustainability performance (i.e., environmental, social, and economic), actions taken,
and performance achieved. Of the 79 reports available, we excluded 25 that did not provide a
specific section about value creation processes. The 54 remaining firms belonged to ten industry
sectors: 46% in environmentally sensitive industries (Oil & Gas; Basic Materials; Industrials;
Utilities) and 54% representing non-environmentally sensitive industries (Consumer Goods;
Consumer Services; Health Care; Technology; Telecommunication; Financials).
We manually collected data from these firms’ IR, available in the Integrated Reporting
Emerging Practice Examples Database. These reports belong to businesses from around the world
and are publicly accessible through the IIRC’s official website. We also collected data about
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corporate characteristics, for the multivariate analysis, from the Bloomberg database for 2011,
2012, and 2013, parallel with the release years of the IR.

5.2. Data analysis

The analysis consists of two steps. First, we developed a manual content analysis to assess
disclosure quality. Second, we used this evidence in a multivariate statistical analysis to test the

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relation between disclosures and specific corporate characteristics.

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5.2.1. Manual content analysis
For the in-depth, manual content analysis, we chose text units as recording units (Beattie et

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al., 2004), such that we highlighted and coded every sentence in the IR value creation process
section. If a sentence featured more than one statement, we considered each statement (i.e., text
unit) separately. We also included figures and diagrams that reported on value creation processes,

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because the IIRF recommends graphic depictions. Therefore, we analyzed 4,426 text units from the
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54 different reports.
To begin, we classified each text unit according to its thematic content: If the disclosure
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referred to outcomes of the firm value creation process, it constituted a sustainability performance
disclosure (SPD), whereas if it pertained to resources used or actions taken to drive sustainability
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performance, it was a sustainability action disclosure (SAD). Next, we classified the text units
according to sustainability dimensions: economic, social, or environmental, where the economic
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dimension refers to financial resources and returns, the social one deals with how a company takes
care of diverse social and human demands, and the environmental dimension pertains to interactions
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with the natural environment. Drawing on previous studies that assessed disclosure quality (Beattie
et al., 2004), we also consider linguistic attributes, that is, the semantic properties of the information
provided, which distinguish the text units by type of measure (quantitative or non-quantitative) and
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time orientation (forward-looking or non–forward-looking). Table 1 contains disclosure examples.

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To ensure a clear, complete understanding of our classification process, we provide examples of the
types of measures and time orientations and specify the three dimensions of sustainability
(economic, social, and environmental).
To ensure the reliability of the classification procedure, we applied a pretest, to clarify the
coding rules and standardize the coders’ classification capabilities. Two authors then independently
coded each IR and repeated the analysis on a sample of 21 reports at different time periods. In
support of the reliability of the process, the coefficient of agreement (i.e., ratio of pairwise
interjudge agreements to total pairwise judgments) was above acceptable levels.

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Table 1 Examples of IR disclosures
Sustainability Actions Sustainability Performance
Quantitative and «We plan to start-up 26 new major fields «Target 2012: 1.2 to 1.5 times dividend cover;…
forward-looking in the next four years, mainly Goliat in Gross debit/Ebitda < 3»*
theBarents Sea, the Block 15/06 West Hub
in Angola, the heavy oil and gas
Venezuelan assets and Jangkrik in
Indonesia, which will add more than 500
kboe/d by 2017, supporting production

growth and the replacement of mature
production»*
Quantitative and «Improve service quality and safety
non–forward- through the completion of investment
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«[Company] assisted 37,415 families by paying out
R299 million in funeral claims during 2011»**

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looking commitments underwritten in the
Convention (actions envisaged worth over
Euro 20Bn)»**

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Non-quantitative «We will continue to implement energy «We will halve the environmental footprint of our
and forward- efficiency projects to decrease our usage products»***
looking so that we comply with the South African
Government’s power conservation

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programme when it is implemented»***
Non-quantitative «Key drivers of profitability: Global «Outcomes: Forest residues; Solid waste; Impact
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and non– growth of engineering plastics; Exposure on water resources; Impact on the soil; Impact on
forward-looking to high growth Asian markets; High biodiversity; Impact on community»***
utilization rates»*
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* Economic dimension of sustainability. ** Social dimension of sustainability. *** Environmental

dimension of sustainability.
Source: Extracts of IR available on the IIRC website.
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5.2.2. Multivariate statistical analysis

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For the multivariate analysis, we estimated a logit regression model, using data for 2011,
2012, or 2013, depending on the IR release year. We investigated whether disclosures of
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sustainability activity, rather than sustainability performance, were associated with worse social,
environmental, and economic sustainability performance (Models 1–3). We also tested if firms
offered more SAD when they had weak corporate governance (Model 4) or functioned in an
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environmentally sensitive industry (Model 5). All the models included the linguistic attributes (type
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and time orientation) as control variables, to verify if disclosures tend to be quantitative and forward
looking or not. Specifically, the regression models were:
SM_DISC=α0+α1SOC_PERF+α2DISC_TYPE+α3DISC_TIME+Ɛ. (Model 1)
SM_DISC =α0+α1ENV_IMPACT +α2DISC_TYPE+α3DISC_TIME+Ɛ. (Model 2)
SM_DISC =α0+α1ECO_PERF +α2DISC_TYPE+α3DISC_TIME+Ɛ. (Model 3)
SM_DISC=α0+α1BOARD_INDEP+α2DISC_TYPE+α3DISC_TIME+Ɛ. (Model 4)
SM_DISC=α0+α1ENV_SENS_IND+α2DISC_TYPE+α3DISC_TIME+Ɛ. (Model 5)

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The dependent variable is SM_DISC, a dummy variable equal to 1 if the IR text unit offers
SAD and 0 otherwise (i.e., if it offers SPD). The explanatory variables are social performance
(SOC_PERF), which is the amount of yearly community spending, and environmental impact
(ENV_IMPACT), which is the amount of greenhouse gas emissions. Markets rely on such data to
assess social and environmental performance (Eccles et al., 2011). For economic performance, we
used the return on equity (ECO_PERF). Board independence (BOARD_INDEP) was the proportion

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of board-independent directors. Finally, we considered an industry dummy (ENV_SENS_IND),
equal to 1 if firms work in environmentally sensitive industries and 0 otherwise. For the linguistic

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attributes, we measured disclosure type (DISC_TYPE) as a dummy variable, equal to 1 if the text
unit was non-quantitative and 0 otherwise. The disclosure time orientation (DISC_TIME) was

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another dummy variable, equal to 1 if the text unit was non-forward looking and 0 otherwise.
To confirm the robustness of the results, we ran five sensitivity tests, such that we performed
the multivariate analysis (Models 1–5) but also included a control variable for disclosure length

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(DISC_LENGTH), measured as the amount of text units about both sustainability actions and
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performance. The entire set of dependent, independent, and control variables appears in Table 2.
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Table 2 Variable definitions and measures

Definition Measurement
Dependent
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Sustainability management disclosure (SM_DISC) Dummy variable, =1 if the text unit offers SAD, =0 otherwise
(i.e., offers SPD)
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Performance
Social performance (SOC_PERF) Amount of money spent by the company on community-building
activities, in thousands of US$
Environmental impact (ENV_IMPACT) Amount of Scope 1 and Scope 2 greenhouse gas emissions in
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thousands of metric tons (divided by 1,000,000)

Economic performance (ECO_PERF) Return on equity capital in thousands of US$
Governance
Board independent directors (B_IND) Percentage of board-independent directors
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Industry
Environmentally sensitive industry Dummy variable, =1 if firm belongs to an environmentally
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(ENV_SENS_IND) sensitive industry, =0 otherwise

Linguistic attributes
Disclosure type (DISC_TYPE)
Disclosure time (DISC_TIME)
Additional variable for sensitivity tests
Disclosure length (DISC_LENGTH)
Dummy variable, =1 if the text unit is non-quantitative, =0
otherwise
Dummy variable, =1 if the text unit is non-forward looking, =0
otherwise
Number of text units in each report section providing
sustainability management disclosure (SAD and SPD)

6. Results
6.1. Manual content analysis
Of the 4,426 text units analyzed, 2,611 (58.99%) offer SAD, and the remaining 1,815
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(41.01%) include SPD. These two types of information refer similarly to the three dimensions of
sustainability (economic, social, and environmental): 38.64% to economic dimensions, 40.60% to
social issues, and 20.76% to environmental dimensions, overall. However, the amount of SAD
focused on the economic dimension is lower than the amount of SPD, and the SAD is centered
more on environmental dimensions than the SPD (Table 3).

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Table 3 Disclosures of sustainability actions and performance in IRs by sustainability dimensions
Total Economic Social Environmental
Text Text
% Text units % % Text units %

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units units
SAD 2,611 58.99 938 35.93 1,050 40.21 623 23.86
SPD 1,815 41.01 772 42.53 747 41.16 296 16.31

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Total text units 4,426 100.00 1,710 38.64 1,797 40.60 919 20.76

In terms of the linguistic attributes, quantitative information appeared in 25.58% of the text

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units, whereas 74.42% were non-quantitative. Only 12.11% of the text units included forward-
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looking information, and the remaining 87.89% were not forward looking. The SAD embeds fewer
quantitative indicators (17.58%) than the SPD (37.08%), and the amount of forward-looking
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information is lower in SAD than in SPD (10.99% and 13.72%, respectively) (Table 4). Pearson
chi-square tests indicated significant differences between SAD and SPD in both the type of
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information and the time orientation they displayed (Pearson chi-square probabilities < 0.05).
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Table 4 Disclosures of sustainability actions and performance in IRs by linguistic attributes

Quantitative Non-quantitative
Text units % Text units %
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SAD 459 17.58 2,152 82.42

SPD 673 37.08 1,142 62.92
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Total disclosure 1,132 25.58 3,294 74.42

Pearson χ (1) = 213.901, Pr = 0.000
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Forward looking Non-forward looking

Text units % Text units %
SAD 287 10.99 2,324 89.01
SPD 249 13.72 1,566 86.28
Total disclosure 536 12.11 3,890 87.89
Pearson χ (1) = 7.481, Pr = 0.006
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We considered the possible combinations of the two linguistic attributes, as detailed in Table
5.

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Table 5 Disclosures of sustainability actions and performance in IRs: Combination of linguistic
attributes
Forward looking Non-forward looking
Quantitative Non-quantitative Quantitative Non-quantitative Total
SAD 0.72% 5.76% 9.65% 42.86% 58.99%
SPD 1.36% 4.27% 13.85% 21.53% 41.01%
Total disclosure 2.08% 10.03% 23.50% 64.39% 100.00%

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These results indicate that forward-looking SAD represents 6.48% of all disclosures. There is thus
little space for the disclosure of the so-called leading indicators of sustainability. Even though
companies provide 58.99% of their disclosures about sustainability actions, it is mainly non-forward

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looking, so IR readers gain limited insights into how the firm plans to manage its sustainability in
the future. Quantitative, forward-looking SAD represents 0.72% of the whole disclosure universe,

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whereas non-quantitative, non–forward-looking SAD represents 42.86%. We similarly find a
limited volume of forward-looking SPD (5.63%). Quantitative SPD is 15.21% of the total, but

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forward-looking quantitative disclosures constitute only 1.36% of the whole universe.
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6.2. Multivariate statistical analysis
6.2.1. Descriptive statistics
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As we show in Table 6, firm social performance, measured as the amount of community

spending, is equal to US$116,257 on average. The mean environmental impact of the firms in our
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sample is 0.144 million greenhouse gas emissions. Their average economic performance is equal to
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US$23,472. In terms of governance, 63% of board members are independent. The control variables
in the sensitivity tests showed that the report section contained an average of 82 text units, with a
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minimum of 5 and a maximum of 465.

Table 6 Descriptive statistics: selected variables

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Obs. Mean Std. Dev. Min Max

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SOC_PERF 44 116,257 329,598 109 1,814,000

ENV_IMPACT 31 0.144 0.287 0.000 1.282

ECO_PERF 54 23.472 31.115 -5.838 197.158

BOARD_INDEP 43 63.155 20.031 22.222 100

D_LENGTH 54 81.963 97.464 5 465

We present the pairwise correlations among the same variables in Table 7. No statistically
significant correlations arose between the continuous variables across the sample firms, with the
exception of ECO_PERF and BOARD_INDEP.
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Table 7 Pairwise correlations of selected variables
SOC_PERF ENV_IMPACT ECO_PERF BOARD_INDEP D_LENGTH

SOC_PERF 1.000

ENV_IMPACT -0.045 1.000

ECO_PERF -0.062 -0.236 1.000

BOARD_INDEP 0.030 0.114 -0.344* 1.000

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D_LENGTH -0.150 -0.149 -0.058 0.236 1.000

6.2.2. Multivariate analysis

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With Model 1, we test H1a and confirm that poorer social performance increases the

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probability that a firm will provide SAD, in that SOC_PERF exhibits a negative coefficient that is
statistically significant at 5%. Similarly, firms with higher environmental impacts provide more
SAD than SPD, according to the positive, significant coefficient of ENV_IMPACT in Model 2, in

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support of H1b. However, we find no significant association between firms’ economic performance
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(ECO_PERF) and SAD in Model 3, so we cannot confirm H1c.
Model 4 supports our predictions about the governance variable in H2. The negative,
statistically significant coefficient of BOARD_INDEP (-0.004, significant at 5%) indicates that
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lower independence of the board increases the provision of SAD. The positive, statistically
significant coefficient of ENV_SENS_IND (Model 5) is consistent with H3; when firms are in
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environmentally sensitive industries, they tend to provide more SAD than SPD (5% significance
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level). In all the models, the supply of SAD is significantly associated with the presence of
information that features non-quantitative, non–forward-looking attributes. That is, we uncover
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positive coefficients of DISC_TYPE and DISC_TIME (both significant at 1% in Models 1–5). We

summarize the multivariate analysis results in Table 8.
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6.3 Sensitivity tests

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The sensitivity tests control for the effect of DISC_LENGTH in Models 1–5, which also might
affect the supply of SAD (Table 8). These results reveal a negative association between disclosure
length and SAD (significant in Models 1–3 and 5 but not Model 4): When the IR section is shorter,
the information features SAD rather than SPD. Both SOC_PER and BOARD_INDEP negatively
affect the supply of SAD. Similarly, a higher ENV_IMPACT is associated with increased SAD.
However, we did not find a significant relationship between ECO_PERF and SM_DISC.
Membership in ENV_SENS_IND, as highlighted in the previous analysis, significantly affected the
amount of SAD. Finally, we provide confirmatory evidence of the significant and positive relation
between non-quantitative and non–forward-looking disclosure attributes and the supply of SAD.
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Thus, the sensitivity tests support the results of the logistic regression models.

Table 8 Multivariate analysis: Main logistic regression and sensitivity tests

Model 1 Main Model Sensitivity Tests
Dependent variable: SM_DISC Coefficient Std. Err. Coefficient Std. Err.
SOC_PERF -0.000** 0.000 -0.000** 0.000
DISC_TYPE 1.118*** 0.085 1.184*** 0.085
DISC_TIME 0.360*** 0.105 0.347*** 0.105

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DISC_LENGTH -0.005* 0.000
_cons -0.814 0.120 -0.731 0.130
Number of observations 3,343 3,343
Prob > χ2 0.000 0.000

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Pseudo R2 0.047 0.047
Model 2
Dependent variable: SM _DISC Coefficient Std. Err. Coefficient Std. Err.
ENV_IMPACT 0.545** 0.227 0.427* 0.235

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DISC_TYPE 1.244*** 0.103 1.252*** 0.103
DISC_TIME 0.324*** 0.125 0.299** 0.126
DISC_LENGTH -0.001*** 0.000
_cons -0.840 0.145 -0.699 0.161

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Number of observations 2,389 2,389
Prob > χ2 0.000 0.000
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Pseudo R2 0.052 0.053
Model 3
Dependent variable: SM _DISC Coefficient Std. Err. Coefficient Std. Err.
ECO_PERF 0.001 0.001 0.001 0.001
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DISC_TYPE 1.041*** 0.071 1.038*** 0.071

DISC_TIME 0.369*** 0.095 0.353*** 0.095
DISC_LENGTH -0.001*** 0.000
_cons -0.749 0.110 -0.604 0.120
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Number of observations 4,426 4,426

Prob > χ2 0.000 0.000
Pseudo R2
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0.038 0.039
Model 4
Dependent variable: SM_DISC Coefficient Std. Err. Coefficient Std. Err.
BOARD_INDEP -0.004** 0.002 -0.004** 0.002
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DISC_TYPE 1.334*** 0.092 1.338*** 0.093

DISC_TIME 0.286*** 0.108 0.286*** 0.108
DISC_LENGTH 0.000 0.000
_cons -0.629 0.170 -0.629 0.170
Number of observations 3,206 3,206
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Prob > χ2 0.000 0.000

Pseudo R2 0.052 0.052
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Model 5
Dependent variable: SM_DISC Coefficient Std. Err. Coefficient Std. Err.
ENV_SENS_IND 0.157** 0.063 0.157** 0.063
DISC_TYPE 1.037*** 0.071 1.035*** 0.071
DISC_TIME 0.376*** 0.095 0.360*** 0.095
DISC_LENGTH -0.000*** 0.000
_cons -0.807 0.112 -0.670 0.121
Number of observations 4,426 4,426
Prob > χ2 0.000 0.000
Pseudo R2 0.040 0.040
***, **, * The estimated coefficient is statistically significant at the 1%, 5%, and 10% level, respectively.

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7. Conclusions
7.1 Discussion of the results and limitations
We sought to investigate how IR adopters communicate their SM and thus offer empirical
evidence about the role of IR in supporting integrative management of sustainability by conveying
unmanipulated disclosures. Our content analysis reveals first that firms offer not only limited
quantitative indicators but also little forward-looking information about their sustainability actions

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and performance. Thus, IR adopters are not informing external stakeholders about the leading
indicators they used to make decisions, despite the IIRC’s emphasis on integrating information

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systems to support internal and external reporting (Giovannoni and Fabietti, 2013). Although some
companies may simply be in the initial stages of SM, and lack quantifiable performance indicators

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(Bennett et al., 2013), in general firms offer minimal information about actions they plan to
implement to achieve better sustainability performance in the future. The reasons of these
deficiencies could be track down in the managers’ concerns to release internal strategic information

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to competitors and threaten corporate legitimacy by disclosing poor achievements in terms of
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sustainability: they cannot only be explained by data unavailability.
The multivariate statistical analysis indeed reveals opportunistic behaviors in selecting the
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sustainability information to disclose. In line with previous critical studies (e.g., Milne and Gray,
2013), our findings suggest that IR disclosures draw a corporate veil (Hopwood, 2009) over the
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limited achievements of sustainability practices. Firms prefer to provide disclosures about their
actions rather than their performance when their social and environmental performance is poor (H1a
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and H1b). We found no evidence of a significant association between SAD and economic
performance, so managers apparently do not manipulate their IR disclosures to deal with poor
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economic performance. That is, managers choose IR as an IM vehicle when social and
environmental performances are low, but not for economic performance. Our results are consistent
with IM arguments; firms with weak social and environmental records use IR disclosure to detract
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attention from these results. These findings strengthen the idea of the use of the IR as a mean to
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opportunistically manage public impression on corporate behavior.

In further support of the presence of IM, when firms have weaker governance, managers take
advantage of their high discretion and report more SAD, which is less verifiable by external
stakeholders. In other words, a board that is less independent is not able to mitigate managerial
opportunism in presenting information in a self-serving view. Similarly, firms belonging to an
environmentally sensitive industry provide more SAD, likely because they are subject to more
public pressure than other industry groups (Cho et al., 2010). This finding confirms the role of
external pressures in driving sustainability reporting practices (Fernandez-Feijoo et al., 2014).
In turn, it is conceivable that firms consider IR a communication vehicle they can use to alter
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perceptions of their sustainability achievements, and managers employ the discretion associated
with which information to disclose (Bennett et al., 2013). The findings demonstrate the use of IR
for managing corporate image. Being IM a plausible explanation of IR adoption, unlikely IR is
favoring the integration among the departments involved in the processes of (external) sustainability
reporting and the departments that are daily engaged in (internal) sustainability measurement and
management processes (Adams and Frost, 2008; Bennett et al. 2013). Thus, pessimism about the

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capability of this reporting process to encourage integrative management of sustainability is
warranted, and we answer our focal research question in the negative. In this respect, we contribute

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to the debate on the role of sustainability reporting for the management of sustainability issues
(Adams and Frost, 2008; Bebbington, 2007; Daub, 2007; Fernandez-Feijoo et al., 2014; Lozano and

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Huisingh, 2011; Roca and Searcy, 2012), revealing that IR is not a condition for enhancing
corporate sustainability.
This research also contains several limitations that suggest directions for further research. We

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manually analyzed the section of the IR dedicated to sustainable value creation; additional research
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should extend this analysis to other parts of the report, such as the strategy or governance sections,
or in other corporate reports, such as the financial ones, to determine whether and how
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sustainability is embedded in them. Further research also could examine corporate communications
that detail how sustainability actions link to particular performance indicators. We focused on
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particular measures of corporate sustainability achievements, so our findings might be augmented

by choosing different proxies for economic, social, and environmental performance, then
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investigating the links among the three dimensions (Lozano, 2013; Lozano and Huisingh, 2011), or
considering other explanatory variables to represent corporate governance. Furthermore, the path
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toward IR is just starting, and these findings constitute a first contribution. By highlighting the
shortcomings of disclosure practices by early IR adopters, we hope to spark further research that
tracks the evolution of IR over time and compares these practices with those achieved in other
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forms of corporate reporting. Finally, the use of content analysis as a research approach has
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limitations; a triangulation with interviews and field studies would strengthen the analysis.
Consistent with recommendations for a «practice turn» in disclosure studies (Lodhia and Jacobs,
2013), additional research should analyze interactions among different corporate departments to
determine their role in achieving (or not) integration between SMA and SR.

7.2. Research implications

For both managerial practices and research related to sustainability (Burritt and Schaltegger,
2010), the findings offer several implications. First, this study contributes to research into how
companies can integrate sustainability performance management, measurement, and reporting
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efforts (Adams and Frost, 2008; Burritt, 2012; Schaltegger and Wagner, 2006a and 2006b). In this
respect, we answer calls for research that crosses the boundaries of accounting and management
disciplines to explicate sustainable development (Bebbington and Thomson, 2013). This empirical
evidence details how firms commit, in terms of communicating their sustainable value creation
processes. Despite the expectation that IR should favor integrated thinking (Adams, 2013), we show
that IR adopters do not actually integrate SMA and SR. To our knowledge, this study is the first

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work to analyze IR in an effort to detect disclosures of SM. Accordingly, the findings enrich
research into the disclosure of sustainability indicators (Lodhia and Martin, 2014; Lozano, 2013;

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Roca and Searcy, 2012) by highlighting the limited disclosure of quantitative and forward-looking
indicators in IR.

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Second, this article contributes to the growing body of IR literature with an empirical addition
to the conceptual debate about the sustainability-related nature of IR (Adams, 2015; Burritt, 2012;
Flower, 2015; Milne and Gray, 2013). Although the IIRF provides a reference point for informative

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descriptions of corporate engagement in sustainability issues, disclosures by IR adopters appear
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inadequate to represent actual commitment to managing sustainability. Our work thus raises
concerns about the ability of IR to overcome the limits of other SR initiatives and encourage
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genuine business involvement with sustainability (Milne and Gray, 2013).

Third, we provide empirical support for the IM framework and confirm the influences of poor
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social and environmental performance, weak corporate governance, and membership in

environmentally sensitive industries on disclosure strategies (Cho et al., 2010; García Osma and
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Guillamón-Saorín, 2011; Mahoney et al., 2013). We know of no other research that has applied an
IM framework to investigate IR disclosure practices related to different dimensions of
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sustainability. Similar to other reporting formats, IR is subject to thematic manipulations. In this

respect, we widen the context of research on IM strategies; previous studies adopting this
framework have focused solely on sustainability reports, financial reports, letters from the president
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and CEO, or press releases.

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Fourth, for practitioners, this study highlights the state of the IR art: IR adopters are not
following the IIRF in terms of communicating quantitative, forward-looking indicators of
sustainability. The IIRC may need to offer additional guidelines about how companies should
describe their sustainable value creation process, especially to include quantitative indicators and
forward-looking information. For managers who have adopted or are about to adopt IR, our results
caution that a lack of sound commitment to providing SM information will lead to a sense that their
IR is a vehicle for IM strategies, not a tool to manage sustainability in an integrated manner.
Finally, for investors and stakeholders, our results show that in the current state, they cannot assume
IR provide accounts of the internal information that managers use to make decisions about
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sustainability processes.

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