sustainability reporting in relation to financial value

Please only do part (c). Part (a) and (b) will be provided.

Use APA referencing

No plagiarism. Requirements: Eight hundred words

Market
Capitalization [My
Setting] EBT Excl Unusual
Market
Exchanges
Company
Capitalisati Exchange:T [Primary
Name
on
[12/31/2022]
Items [CY 2022]
Total Common
Equity [CY 2022]
(SGDmm,
(SGDmm,
(SGDmm,
icker
Listing]
Company Type
Historical rate)
Historical rate)
Historical rate)
NIO Inc.
Large cap
(NYSE:NIO)
Shangri-La Large cap
Asia Limited
(SEHK:69)
NYSE:NIO
–
Public Company
21,603.2
(2,814.3)
4,640.1
SEHK:69
–
Public Company
3,933.7
(355.9)
7,044.9
SATS Ltd.
(SGX:S58)
Large cap
SGX:S58
Public Company
3,192.7
(52.2)
1,531.5
Tianjin
Large cap
Pharmaceuti
cal Da Ren
Tang Group
Corporation
Limited
(SGX:T14)
SGX:T14
Singapore
Exchange
(SGX)
Singapore
Exchange
(SGX)
Public Company
3,547.1
192.9
1,267.8
Sheng Siong Large cap
Group Ltd
(SGX:OV8)
SGX:OV8
Singapore
Exchange
(SGX)
Public Company
2,480.8
158.9
452.2
iFAST
Corporation
Ltd.
(SGX:AIY)
Large cap
SGX:AIY
Singapore
Exchange
(SGX)
Public Company
1,711.4
16.4
222.5
Venture
Corporation
Limited
(SGX:V03)
Large cap
SGX:V03
Singapore
Exchange
(SGX)
Public Company
4,965.0
448.9
2,839.7
Thomson
Medical
Group
Limited
(SGX:A50)
Large cap
SGX:A50
Singapore
Exchange
(SGX)
Public Company
2,062.4
82.1
510.3
Singapore
Large cap
Post Limited
(SGX:S08)
SGX:S08
Public Company
1,169.9
82.5
1,381.7
Prudential
plc
(LSE:PRU)
Large cap
LSE:PRU
Singapore
Exchange
(SGX)
–
Public Company
49,856.1
1,987.2
22,741.0
Emperador
Inc.
(PSE:EMI)
Large cap
PSE:EMI
–
Public Company
7,806.6
282.1
2,105.3
UOL Group
Limited
(SGX:U14)
Large cap
SGX:U14
Public Company
5,676.9
613.5
10,638.4
Genting
Singapore
Limited
(SGX:G13)
Large cap
SGX:G13
Singapore
Exchange
(SGX)
Singapore
Exchange
(SGX)
Public Company
11,528.8
489.9
7,998.8
StarHub Ltd Large cap
(SGX:CC3)
SGX:CC3
Singapore
Exchange
(SGX)
Public Company
1,797.3
152.4
530.4
Singapore
Exchange
Limited
(SGX:S68)
Large cap
SGX:S68
Singapore
Exchange
(SGX)
Public Company
9,564.8
569.4
1,491.4
The Straits
Trading
Company
Limited
(SGX:S20)
Large cap
SGX:S20
Singapore
Exchange
(SGX)
Public Company
1,048.4
638.9
1,737.4
IHH
Healthcare
Berhad
(KLSE:IHH)
Large cap
KLSE:IHH
–
Public Company
16,768.0
833.3
8,018.2
Keppel
Corporation
Limited
(SGX:BN4)
Large cap
SGX:BN4
Singapore
Exchange
(SGX)
Public Company
12,719.1
907.5
11,579.8
DBS Group Large cap
Holdings Ltd
(SGX:D05)
SGX:D05
Singapore
Exchange
(SGX)
Public Company
87,297.5
9,382.0
56,887.0
Golden Agri- Large cap
Resources
Ltd
(SGX:E5H)
SGX:E5H
Singapore
Exchange
(SGX)
Public Company
3,170.4
1,933.9
6,706.3
Singapore
Airlines
Limited
(SGX:C6L)
Large cap
SGX:C6L
Singapore
Exchange
(SGX)
Public Company
35,663.9
1,741.3
19,858.3
Sembcorp
Industries
Ltd
(SGX:U96)
Large cap
SGX:U96
Singapore
Exchange
(SGX)
Public Company
6,005.5
870.0
3,977.0
OverseaChinese
Banking
Corporation
Limited
(SGX:O39)
Large cap
SGX:O39
Singapore
Exchange
(SGX)
Public Company
54,750.2
6,939.0
53,087.0
Great
Eastern
Holdings
Limited
(SGX:G07)
Large cap
SGX:G07
Singapore
Exchange
(SGX)
Public Company
8,756.4
707.3
9,431.4
Wilmar
Large cap
International
Limited
(SGX:F34)
SGX:F34
Singapore
Exchange
(SGX)
Public Company
26,031.1
3,937.8
26,798.1
Jardine
Matheson
Holdings
Limited
(SGX:J36)
Large cap
SGX:J36
Singapore
Exchange
(SGX)
Public Company
19,780.4
5,504.2
38,651.6
United
Large cap
Overseas
Bank Limited
(SGX:U11)
SGX:U11
Singapore
Exchange
(SGX)
Public Company
51,410.5
5,785.0
40,589.0
Singapore
Large cap
Technologie
s
Engineering
Ltd
(SGX:S63)
SGX:S63
Singapore
Exchange
(SGX)
Public Company
Singapore
Large cap
Telecommun
ications
Limited
(SGX:Z74)
SGX:Z74
Singapore
Exchange
(SGX)
Public Company
Thai
Beverage
Public
Company
Limited
(SGX:Y92)
SGX:Y92
Singapore
Exchange
(SGX)
Public Company
Large cap
10,428.2
553.6
2,398.0
2,621.2
28,092.7
1,518.4
7,821.8
42,415.10
17,207.80
Total Revenue [CY
Basic EPS [CY
2022] (SGDmm,
2022] (SGD,
Return on Assets
Return on Equity S&P Global
Historical rate)
Historical rate)
% [CY 2022]
% [CY 2022] ESG SCore
9,578.1
(1.73)
(10.9)
(44.8)
1,960.5
(0.059)
(0.55)
(3.27)
1,579.7
0
(1.64)
(2.66)
1,603.7
0.218
4.37
13.4
1,339.5
0.089
13.0
30.7
208.9
0.022
3.1
2.99
3,863.7
1.27
7.35
13.3
372.3
0.002
5.0
11.9
1,882.7
0.009
2.22
3.54
(10,937.4)
0.489
0.568
5.86
1,512.1
0.015
5.71
12.2
3,201.7
0.582
1.97
5.14
1,725.3
0.028
3.13
4.28
2,327.3
0.031
3.63
10.1
29
36
21
N/A
21
N/A
30
25
32
55
16
37
31
31
1,148.9
0.484
10.2
35.5
1,186.3
1.27
13.2
29.9
5,506.9
0.052
3.68
5.83
6,619.7
0.521
0.744
6.98
16,265.0
3.15
1.15
14.3
15,337.8
0.083
9.26
16.7
15,489.6
0.237
2.53
6.92
7,825.0
0.476
3.63
17.9
11,091.0
1.27
1.07
10.8
12,673.2
1.66
0.45
8.0
98,417.8
0.514
3.35
11.4
50,582.6
1.64
2.57
3.95
10,972.0
2.69
0.951
10.6
33
N/A
29
77
63
48
52
47
53
N/A
73
43
53
9,035.1
0.172
3.23
20.4
15,339.1
0.12
1.4
7.2
10,383.9
0.05
5.0
15.0
47
41
91
Exchanges [Primary
Company Name
Market Capitalisation
Exchange:Ticker
Listing]
Company Type
ValueMax Group Limited Small cap
(SGX:T6I)
Hafary Holdings Limited Small cap
(SGX:5VS)
KSH Holdings Limited
Small cap
(SGX:ER0)
Serial System Ltd
Small cap
(SGX:S69)
MTQ Corporation
Small cap
Limited (SGX:M05)
Marco Polo Marine Ltd. Small cap
(SGX:5LY)
Koda Ltd (SGX:BJZ)
Small cap
SGX:T6I
Public Company
King Wan Corporation
Small cap
Limited (SGX:554)
Pharmesis International Small cap
Ltd. (SGX:BFK)
SGX:554
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
AF Global Limited
(SGX:L38)
Chuan Hup Holdings
Limited (SGX:C33)
Global Invacom Group
Limited (SGX:QS9)
Hoe Leong Corporation
Ltd. (SGX:H20)
Small cap
SGX:L38
Public Company
Small cap
SGX:C33
Small cap
SGX:QS9
Small cap
SGX:H20
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Powermatic Data
Systems Limited
(SGX:BCY)
Small cap
SGX:BCY
Singapore Exchange
(SGX)
Public Company
Qian Hu Corporation
Limited (SGX:BCV)
Union Gas Holdings
Limited (SGX:1F2)
XMH Holdings Ltd.
(SGX:BQF)
Soup Holdings Limited
(SGX:5KI)
Dyna-Mac Holdings Ltd.
(SGX:NO4)
Lion Asiapac Limited
(SGX:BAZ)
Sakae Holdings Ltd.
(SGX:5DO)
World Precision
Machinery Limited
(SGX:B49)
Small cap
SGX:BCV
Public Company
Small cap
SGX:1F2
Small cap
SGX:BQF
Small cap
SGX:5KI
Small cap
SGX:NO4
Small cap
SGX:BAZ
Small cap
SGX:5DO
Small cap
SGX:B49
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Broadway Industrial
Group Limited
(SGX:B69)
Small cap
SGX:B69
Singapore Exchange
(SGX)
Public Company
International Cement
Group Ltd. (SGX:KUO)
CSC Holdings Limited
(SGX:C06)
Small cap
SGX:KUO
Public Company
Small cap
SGX:C06
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
SGX:5VS
SGX:ER0
SGX:S69
SGX:M05
SGX:5LY
SGX:BJZ
SGX:BFK
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Valuetronics Holdings
Small cap
Limited (SGX:BN2)
MindChamps PreSchool Small cap
Limited (SGX:CNE)
SGX:BN2
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Public Company
Envictus International
Holdings Limited
(SGX:BQD)
Small cap
SGX:BQD
Singapore Exchange
(SGX)
Public Company
Datapulse Technology
Limited (SGX:BKW)
ISDN Holdings Limited
(SGX:I07)
MYP Ltd. (SGX:F86)
Small cap
SGX:BKW
Public Company
Small cap
SGX:I07
Small cap
SGX:F86
New Toyo International Small cap
Holdings Ltd (SGX:N08)
SGX:N08
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
PSC Corporation Ltd.
Small cap
(SGX:DM0)
Wee Hur Holdings Ltd. Small cap
(SGX:E3B)
YHI International Limited Small cap
(SGX:BPF)
Vibrant Group Limited
Small cap
(SGX:BIP)
Ying Li International
Small cap
Real Estate Limited
(SGX:5DM)
SGX:DM0
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Singapore Exchange
(SGX)
Public Company
Malaysia Smelting
Corporation Berhad
(KLSE:MSC)
Jasper Investments
Limited (SGX:FQ7)
Small cap
KLSE:MSC
–
Public Company
Small cap
SGX:FQ7
Singapore Exchange
(SGX)
Public Company
VibroPower Corporation Small cap
Limited (SGX:BJD)
SGX:BJD
Singapore Exchange
(SGX)
Public Company
SGX:CNE
SGX:E3B
SGX:BPF
SGX:BIP
SGX:5DM
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Public Company
Market Capitalization
EBT Excl Unusual
[My Setting]
Items [CY 2022]
Total Common Equity
Total Revenue [CY
[12/31/2022] (SGDmm,
(SGDmm, Historical
[CY 2022] (SGDmm,
2022] (SGDmm,
Basic EPS [CY 2022]
Historical rate)
rate)
Historical rate)
Historical rate)
(SGD, Historical rate)
251.5
53.3
363.9
287.1
0.062
85.8
36.9
92.6
169.4
0.068
191.6
24.8
338.2
292.7
0.041
83.2
(7.65)
186.4
1,215.8
(0.007)
49.5
2.33
63.0
73.0
0.013
145.8
12.2
147.6
100.2
0.005
27.4
6.98
70.6
94.4
0.048
25.1
(6.56)
62.1
87.6
(0.007)
2.51
(0.614)
10.5
9.79
(0.03)
92.9
(0.584)
211.5
16.2
(0.001)
203.2
7.45
307.1
8.62
0.005
14.9
(9.23)
45.1
97.6
(0.076)
41.3
(2.11)
24.2
41.8
0
90.5
11.1
73.8
30.7
0.261
26.1
1.8
49.3
75.3
0.012
157.3
5.04
58.2
134.8
0.016
26.7
5.22
49.9
112.6
0.032
22.9
0.919
11.3
37.6
0.005
193.7
8.98
43.2
291.5
0.013
25.8
(3.3)
58.9
31.3
(0.043)
13.1
(2.08)
59.0
18.0
0.008
153.4
5.72
228.4
216.5
0.012
53.0
9.18
87.2
352.4
0.014
131.9
49.8
234.0
225.2
0.005
35.2
(22.6)
99.1
264.1
(0.005)
216.7
22.0
234.2
350.6
0.048
41.1
(1.95)
68.8
61.5
0.013
51.1
(6.14)
52.8
164.2
(0.01)
23.5
(1.64)
58.5
2.83
(0.008)
190.8
32.0
197.8
370.8
0.033
92.4
2.58
288.0
16.6
0.002
94.5
14.4
146.5
285.7
0.023
174.3
31.8
313.4
553.0
0.035
187.2
(7.49)
490.0
215.9
0.074
145.2
28.1
280.4
430.9
0.071
57.5
8.25
224.6
187.0
0.007
96.8
7.31
397.7
32.3
(0.026)
196.7
44.3
220.2
460.3
0.072
(0.75)
(1.44)
0
0
(2.7)
14.7
12.2
(0.04)
Return on Assets %
Return on Equity % S&P Global
[CY 2022]
[CY 2022] ESG SCore
3.56
12.9
6.74
35.3
0.825
6.41
1.2
(3.67)
2.04
4.89
4.25
13.1
3.53
5.46
(3.2)
(7.42)
(1.66)
(5.42)
(0.64)
(0.235)
(0.196)
1.39
(5.81)
(38.4)
(2.91)
4.16
7.86
12.8
1.8
3.21
1.36
9.13
3.41
7.29
2.46
13.4
1.53
36.2
(1.25)
(5.14)
(0.422)
1.82
0.754
2.08
2.89
6.49
8.54
13.8
(3.68)
(14.1)
N/A
N/A
14
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.31
8.71
(1.93)
4.21
0.287
(4.94)
(1.43)
(3.03)
6.1
9.43
1.0
1.27
3.8
4.26
3.51
7.01
(0.498)
(4.29)
1.99
7.49
2.31
2.02
0.065
(16.8)
7.5
14.9
(194.6)
0
0
0
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Corporate Social Responsibility and Environmental Management
Corp. Soc. Responsib. Environ. Mgmt. 19, 355–363 (2012)
Published online 5 February 2012 in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/csr.285
Do Investors Value Sustainability Reports?
A Canadian Study
Sylvie Berthelot,1* Michel Coulmont1 and Vanessa Serret2
1
Université de Sherbrooke, Canada
Université de Bretagne Sud, Vannes, France
2
ABSTRACT
The publication of sustainability reports has increased significantly in most western countries in
recent years. The fact that this type of reporting is on a voluntary basis in a number of countries
raises questions about whether capital markets take these reports into account. This study
attempts to address this question, drawing on a sample of Canadian companies listed on the
Toronto Stock Exchange. The results suggest that investors positively value this type of reporting.
These findings support the relevance of initiatives like the Global Reporting Initiative, the UN
Global Compact, and that launched by the International Organization for Standardization
(ISO), which focus on the development of recognized guidelines for sustainability reporting.
Our findings can also serve as arguments to facilitate a firm’s voluntary commitment to such
types of disclosures. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment.
Received 22 February 2011; revised 3 October 2011; accepted 19 October 2011
Keywords: corporate social responsibility; sustainability reporting; value relevance; firm’s market value; reporting
Introduction
I
N THIS ERA OF UNPRECEDENTED MAN-MADE GLOBAL WARMING, BIODIVERSITY EROSION, AND MARKET GLOBALIZATION,
which are all amplifying societal problems, companies are the first to be indicted and stakeholders are now
making increasing demands for information. Some firms have taken the lead by voluntarily publishing
information about their sustainable development initiatives and achievements in their annual reports, on their
websites or in separate reports. According to a KPMG study (2008), nearly 80% of the large Global Fortune 250
companies issue a separate corporate responsibility report. However, it should be noted that this percentage is much
lower among smaller companies.
Although many researchers have studied the content of communications conveying sustainable development
information (Livesey and Kearins, 2002; Morhardt et al., 2002; Perrini, 2005; Kolk, 2008; Perez and Sanchez, 2009;
Tsang et al., 2009; Vormedal and Ruud, 2009) and firms’ incentives to communicate this type of information
(Deegan, 2007; Larrinaga-Gonzalez, 2007), very few studies have focused on the integration of these elements by the
firms’ stakeholders (Tilt, 2007). Accordingly, this study aims to examine how investors view the publication of
sustainability reports by Canadian companies on the Toronto Stock Exchange’s S&P/TSX Composite Index. As
hypothesized, the tests conducted using a valuation model show that firms publishing such reports are traded at a
premium, which leads us to conclude that it may be advantageous for them to issue a sustainable development report.
*Correspondence to: Sylvie Berthelot, Faculté d’administration, Université de Sherbrooke, 2500, boul. de l’Université, Sherbrooke (QC), J1K 2R1,
Canada. E-mail: Sylvie.Berthelot@USherbrooke.ca
Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment
356
S. Berthelot et al.
This study indicates that companies may have a financial incentive to invest in the publication of a sustainability
report as its results confirm that investors value this type of report. It should not be forgotten that publishing a
sustainability report requires companies to commit effort and financial resources to an initiative that is wholly
voluntary in Canada and in other Western countries (Scott, 2011). Investors can thus interpret the issue of a
sustainability report as a sign of credibility. A company with poor sustainability development performance would
not likely invest the same resources as one that publishes a standalone sustainability development report.
From the perspective of capital markets, regulators, and accounting standard-setting bodies, our results support
the initiatives undertaken to establish recognized guidelines for sustainable development reporting, such as the
Accounting Bodies Network established by The Prince’s Accounting for Sustainability Project. This objective of this
network is to bring together the world’s largest accounting bodies to minimize the duplication of initiatives
undertaken in isolation and to achieve a common approach to accounting for sustainability (CICA, 2011). Since
our results show that sustainability reports add to the accounting information in the valuation of firms, the need
to standardize this type of report seems increasingly apparent.
This paper is broken down into four sections. First, we present the relevant existent literature. This section is
then followed by sections on the research design and the study’s sample and data collection. A third section
discusses the study results, while a final section wraps up the paper, addresses the study’s limits, and presents
potential avenues for future research.
Literature Review
In recent years, sustainable development reports, sometimes also called ‘corporate social responsibility reports’, have
been gradually replacing environmental reports issued by companies (Kolk, 2008; Perez and Sanchez, 2009). Unlike
environmental reports, which focus mainly on environmental performance, sustainable development reports include
companies’ social and economic performance, providing a more comprehensive picture of the non-financial aspects of
firms’ managerial practices. According to the Global Reporting Initiative (GRI, 2011), the social dimension of sustainable
development is tied to the impact that the organization may have on social systems in which it operates, while the
economic dimension of sustainable development refers to impacts that the organization may have on the
economic conditions of its stakeholders and on economic systems at local, national, and global level.
At the same time as firms are becoming increasingly committed to issuing sustainability reports, a number of
national and international organizations have developed frameworks to provide them with guidance on disclosing
information and preparing such reports (Adams and Narayanan, 2007). The GRI guidelines (GRI, 2011), the World
Business Council for Sustainable Development (WBCSB, 2002) guidelines and the Institute of Social and Ethical
Accountability guidelines (AA1000, 2008) are a few examples of the frameworks that have been proposed.
According to a KPMG study (2008), GRI guidelines are cited as a reference by more than 77% of the G250
constituent companies issuing sustainability reports. However, it is worth noting, as Morhardt et al. (2002)
observed, that companies only partially apply the guidelines set out in these frameworks. For example, Sinclair
and Walton (2003) noted that few companies in the wood and pulp and paper industries disclose their report
boundary, which makes their reports difficult to interpret. Perez and Sanchez (2009) observed that the content
of sustainability reports differed significantly from one firm to another; while Ho and Taylor (2007) and KPMG
(2008) indicated that the reports vary from one country to another. By examining stakeholder information,
Manetti (2011) concluded that firms seem to use sustainability reporting practices as a legitimization device
for managing stakeholders.
Kolk and Perego (2010) examined the factors associated with voluntary decisions to provide social, environmental,
and sustainability reports. Their results show that companies operating in countries that are more stakeholderoriented and have a weaker governance enforcement regime are more likely to issue a sustainability assurance
statement to accompany their sustainable development reports. In examining the content of assurance statements presented in mining corporations’ sustainable development reports, Fonseca (2010) raised several
questions as to the quality of these statements, citing low levels of stakeholder involvement in the assurance
engagement, few disclosures of assurance level, as well as few conclusions on the principles of materiality,
Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment
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DOI: 10.1002/csr
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inclusiveness and responsiveness to stakeholders. Clarkson et al. (2008) examined the link between the
environmental information contained in sustainability reports and the environmental performance of
companies proxied by two measures of the Toxics Release Inventory (TRI) of the US Environmental Protection
Agency’s (EPA). Their results show a positive relationship.
A number of factors have been suggested to explain corporate interest in sustainability reporting, including the
moral and ethical obligation some companies perceive, the competitive advantage that may result from reporting,
the pressure from competitors and the industry, the public relations and recognition of the efforts undertaken by
firms in the domain (Reverte, 2009), and the financial benefits (Buhr, 2007). Certain firms wish to participate in
the definition of voluntary standards disclosure or in the standardization process to ensure the alignment of the
agenda of regulatory or standard-setting bodies with that of the companies and their industries (Buhr, 2007).
From an empirical point of view, Brown et al. (2010) have investigated whether the first-time issuance of a
standalone sustainability report led to changes in reputation as measured by Fortune Most Admired scores. Their
results show no significant changes in reputational scores. In fact, their findings suggest that only the highest
quality sustainability reports appear to positively enhance corporate reputations.
Few studies have been conducted on the users of social and environmental disclosures. The results of a Danastas
and Gadenne survey (2006) of Australian social and environmental non-governmental organizations (NGOs)
suggest that the NGO perception of social disclosure is relatively homogeneous. They view some information as
relevant, but consider the disclosures to be insufficient overall.
Solomon and Solomon (2006) interviewed institutional investors. Their results suggest not only that a firm’s
information disclosures relating to social, ethical and environmental issues do not meet these investors’ needs,
but also that the shortcomings of such disclosures promote the development of private systems of information that
can meet their needs.
Moneva and Cuellar (2009), Cormier and Magnan (2007), and Murray et al. (2006) examined investors’
integration of the environmental information disclosed in annual reports. Moneva and Cuellar (2009) found
that investors take financial rather than non-financial information into account. The findings of Cormier and
Magnan (2007) indicate that investors in French companies tend to have a negative view of environmental
disclosures. Their results are insignificant as concerns German and Canadian firms. Murray et al. (2006) found
no significant relationship between a company’s stock price performance and its disclosure of social and
environmental information.
In the Canadian context, the results of a survey conducted among senior financial executives by the Canadian
Financial Executives Research Foundation (2009) suggest that a number of these executives believe that investors
do not consider sustainability performance in making investments decisions. The findings of a study by Magness
(2010) show that while investors do take environmental information into account, the extent to which they do so
remains to be determined.
For their part, Schadewitz and Niskala (2010) note that GRI-based reports issued by Finnish firms are valued by
the market. On average, Guidry and Patten (2010) found no significant market reaction to the announcement of the
first release of a sustainability report. However, in dividing their sample according to the quality of these reports,
their results show that companies with the highest quality reports elicited significantly more positive market
reactions than those issuing lower quality reports.
Our study aims to complement past studies by examining the signal that the publication of a sustainability report
conveys, similarly to Schadewitz and Niskala (2010) and Guidry and Patten (2010), rather than investors’ integration
of the content of social and/or environmental disclosure presented in corporate annual reports. Because the
publication of sustainability reports involves more effort and resources than simply disclosing information in an
annual report and this investment is voluntary, we believe that it can constitute a signal for investors.
Research Design
To examine how investors integrate the publication of a sustainability report, we drew on an empirical version of the
Ohlson model (1995), similar to that used by Xu et al. (2007) and Al Jifri and Citron (2009). This model relates firm
Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment
Corp. Soc. Responsib. Environ. Mgmt. 19, 355–363 (2012)
DOI: 10.1002/csr
S. Berthelot et al.
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market capitalization (Pi,t+4 * number of common shares outstanding) to the book value of equity and earnings. The
model is expressed as follows:
MVi;tþ4 ¼ a0 þ a1 BVi;t þ a2 EARNi;t þ a3 EARNi;t  NEGi;t þ ei;t
(1)
where,
MVi,t+4
BVi,t
EARNi,t
NEGi,t
ei,t
is the market value four months after the fiscal year-end
is book value of common equity
is earnings before extraordinary items
is a dummy variable equal to 1 if firm earnings are negative in year t and 0 otherwise
is the error term.
We then examine the incremental value-relevance of publishing a sustainability report by adding a new dummy
variable equal to 1 if the firm published a sustainability report for the year covered by the financial statements, and 0
otherwise. Thus, Equation (1) becomes:
MVi;tþ4 ¼ a0 þ a1 BVi;t þ a2 EARNi;t þ a3 EARNi;t  NEGi;t þ a4 SRi;t þ ei;t
(2)
where the new dummy variable is defined as:
SRi,t
is a dummy variable equal to 1 if the firm published a sustainability report, and 0 otherwise.
Market capitalization is estimated from financial data corresponding to four months after the end of the
fiscal year from which accounting data has been taken, in order to ensure that sustainability reporting was
available to investors and that they could have integrated this information into the company valuation within
the framework of our analysis. As in Xu et al. (2007), we expect the coefficients associated with the book
value of common equity (a1) and net earnings of the company (a2) to be positive and significant, and the
coefficient associated with an interaction variable that is the product of net earnings and the dummy variable
NEGi,t (a3) to be negative and significant. We also expect the coefficient associated with the publication of
sustainability reports (a4) to be positive, reflecting the positive value that investors grant to this type of voluntary
initiative.
As made by Xu et al. (2007), to address the scale effect of the financial and accounting variables, we relied on
weighted least squares (WLS) to estimate the regressions, with the weight being equal to the inverse of the square
of stock market value (Easton and Sommers, 2003; Xu et al. 2007). According to Xu et al. (2007), such an approach
does not affect the fundamental valuation relationships that are under investigation.
Sample and Data Collection
Firms in the sample are taken from the Toronto Stock Exchange S&P/TSX Composite Index. The intention was to
obtain a sizeable sample of companies willing to incur the cost of developing a sustainability report. Of the 209
companies listed on the index, 52 are income trusts. They were removed from the sample because income trusts
do not issue common shares. Eleven other companies changed their capital structure during the period covered
by this study. The final sample thus consisted of 146 companies.
Table 1 presents the distribution of firms by sector. The materials sector, i.e. companies involved in the discovery,
development and processing of raw materials, is over-represented in the sample (27.4%). This sector is followed by
the financials (17.8%) and energy sectors (16.4%). The frequency of publication of sustainability reports appears to
be higher in the materials (44.44%), energy (33.33%) and telecommunication services (25.00%) sectors. It should be
Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment
Corp. Soc. Responsib. Environ. Mgmt. 19, 355–363 (2012)
DOI: 10.1002/csr
Do Investors Value Sustainability Reports? A Canadian Study
359
noted that the materials and energy sectors are highly pollutant, which may explain their greater commitment to
publishing separate sustainability reports.
The financial and accounting information needed to perform statistical analysis (MVi,t+4, BVi,t, and EARNi,t),
respectively, market capitalization, book value of common equity and net earnings, was extracted from the Bloomberg
database. The dummy variable SRi,t (publication of sustainability reports) came from the sample companies’ websites,
which were carefully examined to identify the companies that published a separate sustainability report. Twenty-eight
or 19.18% of the 146 sample companies published such a report. The year 2007 was chosen for the analysis because
companies were issuing more separate sustainability reports at that time. Analyses are also likely to be less affected by
the decline in share prices in the summer of 2008.
Results
Table 2 presents descriptive statistics of the companies included in the sample. These firms are relatively large,
with an average market capitalization of CAD$8.6 billion (median = 2.7 billion). The average book value of their
common equity was CAD$3.6 billion (median = 1.3 billion) and the average net earnings was CAD$570 million
(median = 162.6 million).
Table 3 sets out the results of the regression analysis. We ran weighted least squares (WLS) regressions, with the
weight being equal to the inverse of the square of the stock market value (Xu et al., 2007). The multicollinearity
between the independent variables does not seem to be problematic in our analysis. In fact, the variant inflation
obtained by the collinearity diagnostic for the independent variables, (BVi,t, EARNi,t, EARNi,t*NEGi,t, and SRi,t) is
Sectors
Number
Sustainability Reports
% publishing a Sustainability Report
Consumer discretionary
Consumer staples
Energy
Financials
Healthcare
Industrials
Information technology
Materials
Telecommunication services
Utilities
Total
16
10
24
26
3
12
5
40
4
6
146
0
1
8
6
0
2
0
9
1
1
28
0.00%
10.00%
33.33%
3.85%
0.00%
16.67%
0.00%
44.44%
25.00%
16.67%
19.18%
Table 1. Descriptive sectors (N = 146)
Variables
Mean
SD
Median
Minimum
Maximum
MVi,t+4
BVi,t
EARNi,t
8 585.95
3 603.68
570.09
13 148.15
5 207.51
1 053.27
2 652.82
1 330.28
162.59
283.78
26.38
– 969.20
66 167.93
24 439.00
5 404.00
Table 2. Descriptive statistics (N = 146)
Financial figures are presented in millions of Canadian dollars.
MVi,t+4 = market value of the firm’s common shares outstanding four months after the fiscal year-end t; BVi,t = book value of the
firm’s common equity at the fiscal year-end t; EARNi,t = earnings of fiscal year t available for common shareholders of company i.
Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment
Corp. Soc. Responsib. Environ. Mgmt. 19, 355–363 (2012)
DOI: 10.1002/csr
S. Berthelot et al.
360
respectively 1.944, 3.762, 2.985, and 1.059. These values are within the prescribed threshold of [1, 10] proposed by
Hair et al. (2010).
The first model (Model 1) of Table 3 presents the analysis without the inclusion of the variable representing
the publication of a sustainability report (SRi,t). This is in order to evaluate the specific contribution publishing
a sustainability report makes to the explanation of the firms’ market value in Model 2. The distinction between
Model 1 and Model 2 is the inclusion of the dummy variable representing the publication of the sustainability
report (SRi,t).
As presented in Table 3, the results of the estimation of Model 1, which excludes the dummy variable
dissemination of a sustainability report (SR i,t), show that, as expected, the coefficients associated with the book
value of common equity (BVi,t) and net earnings (EARNi,t) are positive and highly significant. The coefficient
associated with the interaction variable resulting from the product of the net earnings and the dummy variable
NEGi,t (1 if the firm had negative earnings and 0 otherwise, i.e. EARNi,t * NEGi,t) is itself negative and highly
significant. Together, these three dependent variables explain 66.5% of the variance of the market capitalization
of firms (adjusted R2). These results are consistent with what is expected from the value relevance models and
are very close in terms of the explanatory capacity and signification levels found in the studies by Cazavan-Jeny
and Jeanjean (2006), Xu et al. (2007), and Al Jifri and Citron (2009). Thus, our reference model (Model 1)
appears to be well-specified.
Also, we assess the incremental value of adding the dummy variable publication of a sustainability report
(SRi,t) by computing the incremental adjusted R2 and employing F-tests to determine the trade-off concerning
the added fit and the loss of degrees of freedom arising from the incorporation of the new variable (i.e. test of
significance of the improved fit). We observe that the coefficient associated with the presence of a sustainability
report (SRi,t) is positive (755.44) and significant (p