The “Walk” towards the UN Sustainable Development Goals: Does Mandated “Talk” through NonFinancial Disclosure Affect Companies’ Financial Performance?

Abstract

With its Global Compact, the United Nations (UN) called companies to align strategies and operations with universal principles on human rights, labor, environment, and anti-corruption, while settling and pursuing the seventeen UN Sustainable Development Goals (SDGs). Achieving SDGs in business reporting is part of the lively debate in the literature about the ability of nonfinancial reporting in providing stakeholders with useful and value-relevant information about companies' behaviors. This paper intends to address this issue in the aftermath of the recent European Union EU policy (Directive 95/2014/EU) of mandating companies to disclose nonfinancial information (NFI) according to some of the SDGs matters. To this end, the Italian context was analyzed, and main findings provide some early evidence of the absence of association between NFI and financial/market performance. At the same time, the positive association between companies' Beta factor and size and NFI is supported. This implies that stakeholders still do not appreciate NFI reported according to the new rules and probably that more time is needed to assess the possible advantages of an improved regulation about NFI. However, results show that larger companies and/or companies with higher risk profiles (Beta) have already started to improve their NFI.

Performance and (non) mandatory disclosure: the moderating role of the Directive 2014/95/EU

“…In line with the previous literature background, also in the European context, some scholars focused on the impact of the Directive 2014/95/EU on firms' financial performance. Phan et al (2020) have investigated such a topic focusing on the Italian context. Since they found no evidence on the impacts of NFD on financial performance after the enactment of the Directive 2014/95/EU, the authors called for further research on this topic recommending enlarging the sample to be analysed.…”

“…Authors Main findings Khlif et al (2015) NFD can affect firms' financial performance only in those contexts in which there are strong social and environmental institutional pressures Bose et al (2017) NFD has a positive effect on financial performance increasing firms' market share Ioannou and Serafeim (2017) The increased disclosure of ESG data, induced by the NFD regulation, enables investors to engage with companies that actively improve ESG performance Nekhili et al (2017) NFD induced higher market-based financial performance in family firms Gatti et al (2019) Voluntary NFD may leave spaces for frauds and green-washing activities that may harm long-term financial performance Grewal et al (2019) Mandatory NFD produced a negative market reaction Jayaraman and Wu (2019) Mandatory NFD induced increased costs and a lower investment efficiency Omran et al (2019) NFD has a positive effect on the operating financial performance of manufacturing firms following a quality strategy Chi et al (2020) NFD induced a lower cost of debt in public firms while produced no effects in private companies Phan et al (2020) There are no evidence that mandatory NFD affects financial performance H2. NFD Regulation positively (or negatively) moderates the relationship between nonfinancial and financial performance in companies committed to sustainability.…”

Convergent Insights for Sustainable Development and Ethical Cohesion: An Empirical Study on Corporate Governance in Romanian Public Entities

“…According to research, responsibility is linked with disclosure and sustainable reporting [23]. Empirical studies enhance the research domain of corporate social responsibility reporting with gender diversity approaches [24], by investigating the interdependencies between nonfinancial information disclosure and financial performance [25], or through exploring the interdependence between the ownership structure and voluntary disclosure of financial information [26], thus pointing to a constant need to improve implementation and governance support [27].…”

Politics (Role of Politics in Sustainable Development)

“…In the EU, the political debate about the ability of nonfinancial reporting and providing stakeholders with useful and value relevant information about company behaviors resulted in the EU Directive 95/2014/EU (Phan et al 2020). Recent research by Phan et al (2020) shows that disclosing nonfinancial information by companies is still developing as a process and that it would take some more time before its advantages are fully appreciated. Research shows that this process is so far best adopted by larger companies and/or companies with higher-risk profiles (Phan et al 2020).…”

“…Recent research by Phan et al (2020) shows that disclosing nonfinancial information by companies is still developing as a process and that it would take some more time before its advantages are fully appreciated. Research shows that this process is so far best adopted by larger companies and/or companies with higher-risk profiles (Phan et al 2020).…”