Factors affecting the quality of sustainability reporting in Banking Sector: Evidence from Colombo Stock Exchange

Abstract

In recent decades, companies all across the world have adopted Sustainability Reporting (SR) as a common practice. Therefore, SR has been identified as a rapidly expanding area of modern corporate reporting. Moreover, SR is becoming a more popular topic in industry and academia since the late 1990s (Hahn & Kühnen, 2013). SR is widely used in organizations to communicate corporate responsibility and accountability to stakeholders (Channuntapipat, 2016). Accordingly, SR is a systematic technique for collecting and presenting sustainability data to management and stakeholders like employees, shareholders, local communities, customers, NGOs, investors, and financial analysts. In the last few decades, although SR is not mandatory, stakeholders have begun to pressure companies to report issues of sustainability. Investors now realize that sustainability is a platform for advanced and disciplined management and a critical success factor in an organization. As a result, many businesses are voluntarily disclosing their social and environmental performance. Hence, most companies publish sustainability reports as either stand-alone sustainability reports or integrated reports (Senaratne & Liyanagedara, 2009). Further, customers, employees, investors, and other stakeholders increasingly demand that businesses be more transparent about their sustainability efforts (Meijer, 2016). Therefore, by disclosing voluntary sustainability information, companies are trying to enhance transparency, benchmark against other companies, demonstrate competitiveness, increase brand value, encourage employees, and support corporate information and control processes (Dissanayake et al. 2019). Even while the quantity of reports has increased, their quality has been questionable. It is possible to disclose sustainability information without engaging in those activities, and some disclosures may be exaggerated. This implies that such businesses do not invariably operate according to the norms and values of society (Meijer, 2016). Still, SR is mostly criticized for lack of credibility, clarity, and consistency. Furthermore, prior research revealed a steady increase in SR, although the quality and quantity of reporting are quite low. Therefore, studying the quality of the SR is vital. As well, organizations can increase their financial performance by enhancing the quality of their SR (Uthayakumar & Puchihewa, 2018). Moreover, it is highlighted that the quality of SR is very important for the success of companies. Furthermore, sustainability information has gradually become a necessity for private and public sector enterprises (Persson & Vingren, 2017). In comparison to other parts of the world, Sri Lankan researchers have paid relatively little attention to SR (Dissanayake et al. 2016; Uthayakumar & Puchihewa, 2018), and very few studies have been conducted on this topic (Niresh & Silva, 2018). Previous research also reveals that SR is still in its early stages (Hummel & Schlick, 2016) in developing countries (Beddewela & Herzig, 2013; Dissanayake et al., 2016). Therefore, there are many avenues for further research in developing countries. The motivation of this study is to fill this empirical and knowledge gap. Further, this study gives excellent support to the expansion of knowledge in the field of SR by offering comprehensive empirical research in Sri Lanka. Hence, the objective of this study is to identify the factors influencing the quality of SR in listed companies in banking sector of Sri Lanka.

In recent decades, companies all across the world have adopted Sustainability Reporting (SR) as a common practice. Therefore, SR has been identified as a rapidly expanding area of modern corporate reporting. Moreover, SR is becoming a more popular topic in industry and academia since the late 1990s (Hahn & Kühnen, 2013). SR is widely used in organizations to communicate corporate responsibility and accountability to stakeholders (Channuntapipat, 2016). Accordingly, SR is a systematic technique for collecting and presenting sustainability data to management and stakeholders like employees, shareholders, local communities, customers, NGOs, investors, and financial analysts. In the last few decades, although SR is not mandatory, stakeholders have begun to pressure companies to report issues of sustainability. Investors now realize that sustainability is a platform for advanced and disciplined management and a critical success factor in an organization. As a result, many businesses are voluntarily disclosing their social and environmental performance. Hence, most companies publish sustainability reports as either stand-alone sustainability reports or integrated reports (Senaratne & Liyanagedara, 2009). Further, customers, employees, investors, and other stakeholders increasingly demand that businesses be more transparent about their sustainability efforts (Meijer, 2016). Therefore, by disclosing voluntary sustainability information, companies are trying to enhance transparency, benchmark against other companies, demonstrate competitiveness, increase brand value, encourage employees, and support corporate information and control processes (Dissanayake et al. 2019). Even while the quantity of reports has increased, their quality has been questionable. It is possible to disclose sustainability information without engaging in those activities, and some disclosures may be exaggerated. This implies that such businesses do not invariably operate according to the norms and values of society (Meijer, 2016). Still, SR is mostly criticized for lack of credibility, clarity, and consistency. Furthermore, prior research revealed a steady increase in SR, although the quality and quantity of reporting are quite low. Therefore, studying the quality of the SR is vital. As well, organizations can increase their financial performance by enhancing the quality of their SR (Uthayakumar & Puchihewa, 2018). Moreover, it is highlighted that the quality of SR is very important for the success of companies. Furthermore, sustainability information has gradually become a necessity for private and public sector enterprises (Persson & Vingren, 2017). In comparison to other parts of the world, Sri Lankan researchers have paid relatively little attention to SR (Dissanayake et al. 2016; Uthayakumar & Puchihewa, 2018), and very few studies have been conducted on this topic (Niresh & Silva, 2018). Previous research also reveals that SR is still in its early stages (Hummel & Schlick, 2016) in developing countries (Beddewela & Herzig, 2013; Dissanayake et al., 2016). Therefore, there are many avenues for further research in developing countries. The motivation of this study is to fill this empirical and knowledge gap. Further, this study gives excellent support to the expansion of knowledge in the field of SR by offering comprehensive empirical research in Sri Lanka. Hence, the objective of this study is to identify the factors influencing the quality of SR in listed companies in banking sector of Sri Lanka.