Institutional isomorphism under the test of Non-financial Reporting Directive. Evidence from Italy and Spain

Abstract

Purpose This paper aims to analyse the impact of the European Union (EU) Directive on the quality of sustainability reporting under the institutional theory lens. Specifically, the authors evaluate what kind of institutional pressure has the highest impact on the quality of corporate disclosure on sustainability issues. Design/methodology/approach The authors build a quality index based on the content analysis of sustainability information disclosed, before and after the transposition of the Directive, by Italian and Spanish companies belonging to different industries. The authors use an OLS regression model to analyse the effect of coercive, normative and mimetic forces on the quality of the sustainability reports. Findings The results highlight that normative and mimetic mechanisms positively affect the quality of sustainability reporting, whereas there is no evidence regarding coercive mechanisms, indicating that the new requirements do not provide a significant contribution to the development of better reporting practices, at least in the two analysed countries. Originality/value To the best of the authors’ knowledge, this is one of the few studies assessing the quality of sustainability reporting through an analysis involving the period before and after the implementation of the EU Directive. It enriches the literature on institutional theory by analysing how the different dimensions of isomorphism affect the quality of information disclosed by companies according to the EU requirements. It contributes to a better understanding of the impact of the non-financial information Directive, and the results of this paper can be relevant for regulators, practitioners and academia, especially in view of the adoption of the new Corporate Sustainability Reporting Directive proposal.

The juridification of social accounting and the transposition process of the non-financial reporting directive 2014/95/EU

“…Directive 2014/95 lacked legitimation as it failed to translate words into actions as well as convert moral discourse into concrete accounting procedures (Bebbington et al , 2012). At the same time, in transposing the Directive, EU countries ignored the already institutionalised practices of informal and moral laws, such as the GRI guidelines or the established practices on sustainability reporting (Korca et al , 2021; Posadas et al , 2023).…”

“…The discrepancy among stakeholders’ claims is something that should be considered both in evaluating the transposition of Directive 2014/95 into national law and in applying the national law by the managers to be a more accountable company (Cosma et al , 2021; Masiero et al , 2020; Korca et al , 2021). The lack of consideration for this issue has resulted in little improvement in the quality of reporting published since Directive 2014/95 was applied, mainly due to institutional pressures (Posadas et al , 2023; Carungu et al , 2021; Lombardi et al , 2022; Stefanescu, 2022). This is underlined in the special issue of Meditari Accountancy Research published in 2020, in which the editors state that “a shift from voluntary to regulated corporate NFR practices has not resulted in a radical change to improve corporate accountability” (La Torre et al , 2020, p. 717).…”

“…Analysis in a few European countries highlights the divergence in the implementation of Directive 2014/95 as the Member States were responsible for implementing procedures to ensure compliance (Posadas et al , 2023; Luque-Vilchez and Larrinaga, 2016; Aureli et al , 2018). The countries that demonstrate a higher quality of NFD had usually adopted an NFI provision before this Directive entered into force (Haji et al , 2022; Nicolò et al , 2020; Venturelli et al , 2018).…”

“…The previous literature shows that many variables can influence the transposition process, such as the translation of EU law into national law in the many different languages of the Member States (Dimitrakopoulos, 2001), existing domestic policies and norms belonging to specific social and cultural context or the lack of a management perspective (Thomas, 2018; Mazzotta et al , 2020; Biondi et al , 2020). Previous studies on the transposition implications suggest that structural changes are needed to promote improvements in a European NFD provision, such as specific requirements for preparation (Cordazzo et al , 2020; Luque-Vilchez and Larrinaga, 2016) or a framework for following NFD contents (Lombardi et al , 2022; Posadas et al , 2023).…”

The quality assessment of stakeholder engagement disclosure in the EU mandatory non-financial reporting framework

“…It has established the compulsory disclosure of information of a non-financial nature for public interest entities that exceed certain dimensional parameters, with the aims of improving the comparability of information and enhancing corporate accountability (La Torre et al, 2018). The first studies on the application of NFRD revealed that it has produced some positive results in terms of sustainability disclosure quality and quantity (Mion and Adaui, 2019;Ottenstein et al, 2022), although some exceptions have been presented (Carungu et al, 2020;Lippai-Makra et al, 2022;Posadas et al, 2023). Moreover, several scholars have claimed the need to introduce more focus on sustainability, more integration between non-financial and financial aspects (Fiandrino et al, 2022), and a new approach to the concept of materiality (Raith, 2023), with the introduction of the "double materiality" perspective (Adams et al, 2021;Baum€ uller and Sopp, 2022).…”