Page 177 - Sustainability Communication Interdisciplinary Perspectives and Theoritical Foundations

160 C. Herzig and S. Schaltegger

has forced shareholder companies to include non-financial performance indicators,
specifically also environmental and labour-related indicators, in the prognosis
reports included in their annual reports. Mandatory regulations with an obligation to
publish sustainability reports (e.g. Denmark, Sweden) or integrated annual reports
(e.g. France) provide further evidence for the heightened attention given to the regu-
lation of sustainability reporting in Europe (for a review of such legislation showing
that for a number of European countries it is not a recent phenomenon, see IIIEE
2002). Also other parts of the world have been experiencing a move towards manda-
tory sustainability reporting in recent years (e.g. South Africa). According to the
UNEP et al. (2010) study, out of 142 country standards identified in 30 selected
countries that are related to some form of sustainability reporting, approximately
two thirds can be classified as mandatory. These regulations however are mostly
limited to companies of a certain size, state-owned or listed companies, or compa-
nies that are significant emitters.
For many years, there has been a lively debate about the role governments should
play in sustainability reporting. Some researchers have called for governments to
put in place at least a minimal regulatory framework in order to overcome the
incompleteness of voluntary non-financial reporting and the reluctance of a vast
majority of companies to making any kind of sustainability disclosure. This would
prevent companies from conveying a misleading view of their activities and seeking
to manage public impressions in their own interest through the provision of false
information (Adams and Narayanan 2007; Gray 2006). While the proponents of
mandatory reporting note that “waiting for voluntary reporting standards or the mer-
its of peer pressure to raise the bar for everyone is overly optimistic and naive”
(Buhr 2007) and no longer an adequate option given the importance of corporate
impacts on the environment and society as a whole, sceptics have often questioned
that regulations (alone) can have a significant impact on both corporate account-
ability and the quality of sustainability information published in reports (Owen
et al. 1997; Schaltegger 1997) or stressed that command and control regulation may
not only be costly but also stifle innovation (Buhr 2007). Rather than advancing
voluntary reporting to the detriment of the regulation of disclosures, concern has
been raised about a too “simplistic view, according to which the regulation of envi-
ronmental reporting would prevent all the shortcomings of voluntary environmental
disclosures” (Larrinaga at al. 2002: 737). Using the theoretical distinction made by
Owen et al. (1997) between administrative and institutional reform, Larrinaga et al.
(2002) conclude in their analysis of the Spanish environmental disclosure standard
that at a minimum more participation in the form of discursive dialogue is needed in
the development of regulation and the effective enforcement of legislation (see also
Owen and O’Dwyer 2008). Using an information econometrics perspective,
Schaltegger (1997) argues that reporting regulations do not necessarily improve the
information situation for stakeholders as companies with passive or indifferent envi-
ronmental strategies may focus on reducing their reporting costs to meet the regula-
tory requirements by neglecting the quality of information in their information
management procedures. This can lead to an adverse selection in reports whereby
bad information quality drives out good information quality (Schaltegger 1997).