ESG reporting, the communication of environmental, social and governance issues by business firms, has been hailed as an important solution to tackle societal challenges such as the climate crisis. Yet, while it increases transparency, the “real” effects of ESG reporting on social and ecological conditions remain unclear. To address this shortcoming, we have solicited a special issue of research papers with a call to scrutinize how ESG reporting may accelerate, or even slow down, real sustainable change in organizations. This is crucial, because a report alone can only be a first step toward such change. We need to focus on whether and how ESG reporting evokes the transformation of organizational practices that would ultimately materialize into real impact for society at large, rather than being merely a PR exercise for business firms.
The topic is timely, because ESG reporting has recently been fueled by several regulatory initiatives around the world, most notably in the EU, the USA, as well as in China. Yet, the elephant in the room that remains to be tackled is how we can causally link the outputs of ESG reporting such as higher transparency, commitments and strategies to outcomes such as absolute emissions reductions and real impacts such as meeting the 1.5° target.
In an ideal world, and as often proclaimed by many reporting companies, advisory firms, and regulatory bodies, ESG reporting is critical for generating sustainable change. The argument goes that increased transparency would lead to increased accountability, thus stimulating change in organizational practices and procedures. However, it often appears that current ESG reporting practices are rather oriented at serving the demands of reporting entities, such as reputational gains, while offering attractive new markets for advisory and auditing firms. This is problematic, because the measurable impacts on societal well-being and other beneficiaries, such as marginalized stakeholders and ecological conditions, are often only a by-products of ESG reporting, rather than their core aim. It remains unclear whether there is a robust causal link between reporting and real sustainable change. In fact, whether, why, and how sustainable outputs, such as nonfinancial reports and other information distributed to stakeholders would actually materialize into sustainability-related outcomes, such as reduced carbon emissions, enhanced biodiversity, and improved human rights, which would ultimately lead to desirable impacts at the societal level of analysis remains ambiguous at best.
With these premises in mind, we have put together a special issue in the journal Organization & Environment that presents a collection of research articles which shed important light on the phenomenon of how ESG reporting can contribute to real sustainable change, and disentangled the complicated linkages between outputs, outcomes, and impact. As the collection of research shows, it is no easy task and requires reconsidering some important assumptions of ESG reporting in companies.
The contributions to the special issue address several important themes in the ESG/nonfinancial reporting literature and collectively offer a deep dive into the state-of-the-art research in this field. The first contribution by Nicolas Garcia-Torea, Carlos Larrinaga and Mercedes Luque-Vílchez, titled “Bridging the Understanding of Sustainability Accounting and 17 Organizational Change,” reviews the literature on ESG reporting; the authors integrate research in the accounting and organizational studies domains and alert us to important blind spots in the literature. Then, two articles examine key input factors that may enable real sustainable change through ESG reporting, transparency, and voluntary versus involuntary reporting. Joel Andrus, Patrick Callery and Jake Grandy analyze The Uneven Returns of Transparency in Voluntary Nonfinancial Disclosures, and Dorota Dobija, Charles Cho, Chaoyuan She, Ewelina Zarzycka, Joanna Krasodomska and Dariouz Jemielniak investigate Involuntary Disclosures and Stakeholder-Initiated Communication on Social Media.
Another set of articles incorporates (quantitative) measures of real sustainable change as a dependent variable related to ESG reporting. For example, Limin Fu studies negative media coverage of ESG reporting, asking “Why Bad News Can Be Good News?”, and studies The Signaling Feedback Effect of Negative Media Coverage of Corporate Irresponsibility. In their work Under Pressure? The Link Between Mandatory Climate Reporting and Firms’ Carbon Performance, Tobias Bauckloh, Christian Klein, Thomas Pioch and Frank Schiemann make an important distinction between relative and absolute levels of real sustainable change, showing that firms tend to favor the former at the expense of the latter. Then, Logan Crace and Joel Gehman examine What Really Explains ESG Performance and Disentangle the Asymmetrical Drivers of the Triple Bottom Line. Finally, Koen van Bommel, Andreas Rasche and André Spicer, in their study “From Values to Value: The Commensuration of Sustainability Reporting and the Crowding Out of Morality,” show that ESG reporting shifted from an emphasis on morally charged values toward a focus on financial value creation, making it more difficult to associate sustainability issues with potential moral dilemmas.
Taken together, the research presented in this special issue takes our understanding of how ESG reporting relates to real sustainable change to the next level. Yet, the same research also alerts us to a number of important blind spots that we still need to investigate. In the introduction to the special issue, we offer a range of suggestions where future research should be heading and how open questions could be best addressed.