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30 June 2021
Special Issue Editor(s)
Essex Business School, University of Essex
Essex Business School, University of Essex
Gordon S. Lang School of Business and Economics, University of Guelph
Essex Business School, University of Essex
Non-financial Reporting Regulation: Role, Process and Consequences
Non-Financial Reporting (NFR) broadly refers to the formal communication of organisational policies, practices and performance information that are not captured or emphasised within the mainstream framework of financial accounting and reporting (Jackson, Bartosch, Avetisyan, Kinderman, & Knudsen, 2019; Stolowy & Paugam, 2018). Admittedly, there are numerous existing practitioner-, user-, regulator- and academic-led terminologies associated to a holistic or discrete representation of NFR practice e.g. Corporate Social Responsibility (CSR) reporting, Environmental, Social and Governance (ESG) disclosure, Global Reporting Initiative (GRI), Intellectual Capital Reporting (ICR), Human Capital Measurement and Reporting. Of recent interest however, has been the increased involvement of governments, regulatory bodies and even some supranational organisations (e.g. United Nations, European Union, Organisation for Economic Cooperation and Development, World Bank, Financial Stability Board) in developing recommendations on non-financial reporting, particularly in relation to the social and environmental impact of corporate activities. This leads to the focus of this call on the role, processes and consequences of NFR Regulation.
NFR regulation has been subject to several developments in recent years, with several countries around the world issuing regulations aimed at imposing mandatory reporting of non-financial information on, primarily, large corporations (Jackson et al., 2019; La Torre, Sabelfeld, Blomkvist, Tarquinio & Dumay, 2018). These NFR regulations usually specify the information that companies are required to disclose, but do not impose any specific reporting format or require verification by external auditors (Jackson et al., 2019). The overarching motivation behind these initiatives appears to be associated to (i) a growing interest of capital markets in NFR as it appears to provide relevant information for valuation purposes; (ii) the need of increasing the information available to stakeholders about CSR with the intention that they will rely on this information to discipline corporations through their market choices and (iii) the intention to promote the adoption of socially and ecologically responsible activities (Jackson et al., 2019). For instance, the European Union (EU) NFR Directive (2014/95/EU) appears to be considerably reforming the corporate NFR landscape, with an express requirement for companies to report on environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters. The Directive, which came into effect in 2018, applies to all large firms in the EU regardless of their status as publicly traded or not.
Such regulatory growth has been observed in many developed, developing and emerging countries with an increased diffusion of the ‘comply or explain’ reporting approach and regulation issued by governments, financial market regulators and stock exchanges (KPMG, 2016), particularly on the back of implementing corporate governance codes worldwide. For instance, the mandatory adoption corporate governance codes in South Africa (so-called King Reports) has arguably been instrumental in the development of many stakeholder-oriented social and environmental reporting practices in developing countries (Baboukardos & Rimmel, 2016; Dumay, Bernardi, Guthrie & Demartini, 2016; Ntim & Soobaroyen, 2013; Mahadeo, Oogarah-Hanuman & Soobaroyen, 2011). Furthermore, in Asia-Pacific countries, similar NFR regulations have been introduced. In India for instance, since 2012, the Securities and Exchange Board of India (SEBI) has required the top 100 listed companies to prepare and publish a Business Responsibility Report based on nine principles of National Voluntary Guidelines which cover environmental, social and governance aspects which hold significant importance in business operations and sustainability. This requirement was extended to the top 500 listed companies in 2016. In China, the Securities Regulatory Commission required some companies listed on the Shanghai Stock Exchange (i.e. companies included in the SHSE Corporate Governance Index, companies with shares listed overseas and companies in the financial industry) and on the Shenzhen Stock Exchange (i.e. companies included in the Shenzhen 100 Index) to publish non-financial (CSR) information started from 2008. Turning our attention to western countries, similar initiatives are found. For instance, the 2013 amendments in the Norwegian Accounting Act which requires firms to discuss their policies on integrating considerations about human rights, employee rights, social matters, the external environment and corruption prevention in their business strategy, their daily operations and their stakeholder relations. Also, the French legislations named Grenelle I and Grenelle II Acts which took effect at the end of 2013 further expanded the scope of mandatory sustainability reporting in France and has been a pioneer in such reporting legislation since the 1970s.
It can be argued that NFR regulation may also serve as ‘soft’ regulation that shapes companies’ environmental or social activities without prescribing the details and the structure of the information being reported. For instance, since 2010 the US Environmental Protection Agency has required disclosures from all facilities in the US with annual carbon emissions exceeding 25 metric kilotonnes. Such a regulation may signal what is regarded acceptable levels of emissions in the US. Contrary to that, there are concerns about the symbolic or ‘greenwashing’ nature of the reported information (Belal, Cooper & Roberts, 2013; Hrasky, 2012; Michelon, Pilonato & Ricceri, 2015). This finding supports critical views that disclosures (and any relevant NFR) serve little social purpose and are driven, amongst other factors, by economic incentives, politics, culture and family traditions (Momin, 2013, Uddin, Siddiqui & Islam, 2018).
The worldwide diffusion of NFR appears to create a new environment for the provision of non-financial information by large corporations although there is also indication of an impact of NFR on the non-corporate context i.e. local government authorities (Gaia & Jones, 2017; 2019). Very few studies have specifically investigated the role of NFR regulation (Baboukardos and Rimmel, 2016; Baboukardos, 2017; Chen, Hung & Wang, 2018; Grewal, Riedl & Serafeim, 2018; Hummel & Rötzel, 2019; Ioannou & Serafeim, 2017; Jackson et al., 2019; La Torre et al., 2018; Monciardini, 2016; Shabana, Buchholtz & Carroll., 2017). Most of these studies have investigated the effect of NFR regulation on corporations, by mainly focussing on its impact on the level/quality of CSR disclosure (Hummel & Rötzel, 2019, Ioannou & Serafeim, 2017, Stolowy & Paugam, 2018) and on its economic (primarily capital market) consequences (Baboukardos, 2017; Chen et al., 2018; Grewal et al., 2018; Ioannou & Serafeim, 2017). Hence, important topics related to NFR regulation are underexplored or are yet to be examined.
The Call for Papers for this Special Issue therefore aims to address these gaps by calling for research that can deepen and broaden our understanding pertaining to (i) the NFR regulatory process, (ii) how organizations operating in both private and public sectors address NFR requirements to report on social or environmental information, and (iii) the effectiveness of NFR regulation in promoting socially responsible behaviours amongst public and private organizations.
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The Special Issue welcomes research papers using diverse methodological and theoretical approaches that will help to illuminate the role, process and consequences of NFR regulation in a developed or developing country (or on a multi-country basis). A non-exhaustive list of research topics relevant to the scope of the Special Issue follows:
- The process of NFR policy making
- Implementation and enforcement of NFR policies
- Economic consequences of NFR regulation
- Differences in NFR regulation across countries
- Contribution of NFR regulation to UN Sustainable Development Goals.
- Regulation and practice of NFR audit and assurance
- Consequences of NFR regulation on firms’ sustainability activities
- NFR regulation and readability of reports.
- Hard-regulation, soft-regulation and self-regulation in NFR
The Special Issue is associated to the 1st Virtual Workshop on Sustainability Reporting, Regulation & Practice, which will be hosted by Essex Business School and will take place, via Zoom, on the 29th and 30th of April 2021, with the support of the Eastern Academic Research Consortium.
Authors that are interested to present their paper at the free workshop need to email a full paper or an extended draft paper by March 31st, 2021 at [email protected]. The papers will be considered for presentation at the symposium by the Guest Editors, who will also act as discussants for the papers accepted for presentation. Papers presented at the workshop and that fall into the scope of the Special Issue may be invited for submission to the Special Issue. There is no obligation to attend the workshop to be considered for the special issue.
Submissions and deadlines
- The closing date for submissions for this special issue is 30th June 2021
- The special issue is expected to be published in 2022
- The Guest Co-Editors welcome enquiries and declarations of interest in submitting
- All papers will be reviewed in accordance with Accounting Forum’s editorial process
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