Making Sense of Sustainability Reports

ESG in text and sustainable-related icons

What goes into a sustainability report? A sustainability report consists of non-financial disclosure documents that inform stakeholders of a company’s environmental, social and governance (ESG) performance and impacts for a specific period. Sustainability reporting is an essential element of integrated reporting that combines financial and non-financial performance analysis.  

Professor Kevin and Professor Yen Hee from the Accounting Division of Nanyang Business School wrote an article, ‘Don’s Column: Making Sense of Sustainability Reports’, published in the Institute of Singapore Chartered Accountants (ISCA). The article provides insights into companies’ sustainability disclosure practices.  

Increasing demand for sustainability disclosures 

Due to the rise and importance of sustainability in businesses, the authors shed light on the increasing demand by investors for integrating ESG criteria in their investment decisions. Aside from investors, consumers and employees also consider sustainability issues when making decisions. In 2022, Deloitte reported that almost six in 10 consumers had changed their behaviours to help address climate change, while one-quarter of employees have considered switching careers to work for a more sustainable company. Hence, with more eco-conscious stakeholders, it drives companies to report on their sustainability-related activities.  

Academics have proposed two theories for the impact of sustainability performance on the quantity and quality of information disclosed in sustainability reports. Sustainability performance refers to how well a company manages relevant ESG risks and opportunities. It is typically measured using ESG ratings from rating agencies such as MSCI or Refinitiv.  

Financial graphs and software on a laptop

Quantity of Disclosures 

Firstly, the signalling theory of information disclosure suggests that companies with better sustainability performance (higher ESG ratings) can enhance their reputation and market value by disclosing more relevant information. Whereas companies with poor sustainability performance (lower ESG ratings) would provide less or not voluntarily disclose information beyond those mandated by regulation to avoid revealing information that draws stakeholders’ attention to their performance.  

Koh et al. (2022) sampled 2,774 sustainability reports and found that companies with better sustainability performance issue longer reports with more words. These companies also disclose more incremental information beyond the sustainability-related information disclosed in their mandatory annual financial reports. Incremental information disclosed includes greenhouse gas emissions and diversity.  

García-Sánchez and Martínez-Ferrero (2018) find that independent directors favour voluntary sustainability disclosure policies for companies with better than poor sustainability performance. This is because directors are trying to avoid reputation risks from the potential circulation of misleading information by companies with poor sustainability performance. Therefore, consistent with the signalling theory, companies with poor sustainability performance will likely reveal a lower quantity of sustainability information. 

Solar panel and skyscrapers in the background

Quality of Disclosures 

Conversely, the political legitimacy theory of information disclosure predicts that companies with poor sustainability performance seek to gain or maintain legitimacy by potentially using impression management to influence stakeholder perceptions. These companies will project an idealised image of themselves by making their disclosures unclear or confusing, hence lowering sustainability information quality.  

Furthermore, Koh et al. (2022) find that the sustainability reports issued by companies with poor sustainability performance contain more uncertainty or imprecise language. In contrast, the study finds that sustainability reports issued by companies with better sustainability performance are less focused on short-term issues as they emphasise forward-looking information that aligns with the long-term nature of sustainability issues. Similarly, Corciolani et al. (2019) shows that companies that engage in controversial sustainability practices use more narrative and deceptive language style in their reports instead of technical and analytical language.  

Companies can also manipulate the visual presentation of their sustainability reports. To distract readers, companies with poor sustainability performance incorporate more graphs that depict or exaggerate favourable trends though scale distortion. García-Sánchez and Araújo-Bernardo (2019) document that companies tend to divert readers’ attention by using larger-size pictures and colours associated with nature in their sustainability reports, e.g., blue and green. Hence, the authors caution stakeholders about companies’ potential greenwashing attempts via textual and visual manipulation of sustainability reports to hide their poor sustainability performance. 

Sustainable text in green showing on a laptop

Steps towards higher quantity and quality of sustainable disclosures  

In 2021, the International Sustainability Standards Board (ISSB) was established to represent a step towards creating a set of globally aligned standards that will drive more transparent, reliable, and comparable sustainability reporting. Moreover, in 2022, ISSB released two exposure drafts of its first two proposed IFRS (International Financial Reporting Standards) Sustainability Disclosure Standards.  

The first standard sets out overall requirements to disclose sustainability-related financial information while the second standard focuses on climate-related risks and opportunities. When these new standards come into effect, they will likely mitigate greenwashing via the manipulation of sustainability reports, which will enhance the information quality of these reports.  



Corciolani, M, Nieri, F, Tuan, A. Does involvement in corporate social irresponsibility affect the linguistic features of corporate social responsibility reports?. Corp Soc Resp Env Ma. 2020; 27: 670– 680. 

García-Sánchez, I.-M., and Martínez-Ferrero, J. (2018) How do Independent Directors Behave with Respect to Sustainability Disclosure?. Corp. Soc. Responsib. Environ. Mgmt., 25: 609– 627.

García-Sánchez, I-M, Araújo-Bernardo, C-A. What colour is the corporate social responsibility report? Structural visual rhetoric, impression management strategies, and stakeholder engagement. Corp Soc Resp Env Ma. 2020; 27: 1117– 1142. 

Koh, K., Li, H., & Tong, Y. H. (2022). Corporate social responsibility (CSR) performance and stakeholder engagement: Evidence from the quantity and quality of CSR disclosures. Corporate Social Responsibility and Environmental Management, 1– 14.

Kevin Koh is an Associate Professor from the Division of Accounting at Nanyang Business School. His research expertise is in the area of the impact of financial regulation and enforcement efforts on managerial choices in a company’s financial reporting practices.

Tong Yen Hee is an Associate Professor and Head of the Division of Accounting at Nanyang Business School. His research deals primarily with the role of financial accounting in capital markets and examines the interactions among users and preparers of accounting information, such as auditors, investors, stock analysts and managers.

This article was published in the Institute of Singapore Chartered Accountants (ISCA):

This article is based on the following research paper by the authors: