Pacific Accounting Review: Article Information

Pacific Accounting Review
Factors influencing sustainability reporting by Sri Lankan companies

Dinithi Dissanayake, Carol Tilt, Wei Qian,
Article information:
To cite this document:
Dinithi Dissanayake, Carol Tilt, Wei Qian, (2019) "Factors influencing sustainability reporting by Sri
Lankan companies", Pacific Accounting Review, Vol. 31 Issue: 1, pp.84-109, https://doi.org/10.1108/
PAR-10-2017-0085
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PAR
31,1 Factors influencing sustainability
reporting by Sri Lankan companies
Dinithi Dissanayake, Carol Tilt and Wei Qian
School of Commerce, University of South Australia, Adelaide,
84 South Australia, Australia
Received 31 October 2017
Revised 30 March 2018
19 June 2018 Abstract
Accepted 12 July 2018
Purpose – This paper aims to investigate the key company characteristics which influence sustainability
reporting by publicly listed companies in Sri Lanka.
Design/methodology/approach – Panel data analysis is conducted to analyse sustainability reporting
of 84 publicly listed companies from 2012 to 2015.

Findings – Company size and usage of the GRI guidelines are found to be the most relevant company
characteristics associated with sustainability reporting by listed companies in Sri Lanka. Unexpectedly,
ownership and industry sector do not show strong influences on the extent of sustainability reporting over the
study period compared with prior studies.
Research limitations/implications – Large companies which follow the GRI guidelines are more likely
to report in an elaborate manner, indicating the influence of standards setting bodies in Sri Lanka. This means
Sri Lankan companies pay attention to global business practices, given the current re-development phase Sri
Lanka is experiencing after the end of the civil war.
Originality – This study is one of the few studies that examine sustainability reporting in a country set
against a backdrop of war in the South Asian region. Besides this, it extends the previous research on
sustainability reporting and variables such as company ownership, GRI usage, company size and industry
sector in a developing country context.
Keywords Sri Lanka, Sustainability reporting, Developing country, GRI guidelines,
Publicly listed companies
Paper type Research paper
Introduction
This paper focuses on the development of sustainability reporting by publicly listed
companies in a developing country context and the company characteristics that influence
them to undertake such reporting. Sustainability reporting has evolved over many decades
(Magness, 2006), mainly because of the changing expectations of users of sustainability
information, and which stakeholders businesses believe they should provide information to
(Birth et al., 2008). The information age, or the “new media” age, coupled with increased
standards of living has also brought about new expectations from many stakeholders. For
example, customers are more aware about product developments through quick and ready
transmission of information and prefer green/low-carbon commodities (Bui and De Villiers,
2017). Some customers are even prepared to pay a higher price for products that have been
manufactured in a sustainable manner (Font et al., 2012). Similarly, governments and civil
societies are interested to see companies reporting on social and environmental practices, so
Pacific Accounting Review
they can assess the impact and contribution of businesses to the economy and understand
Vol. 31 No. 1, 2019
pp. 84-109
which social and environmental issues are tackled by businesses (Belal and Owen, 2007).
© Emerald Publishing Limited By carrying out sustainability reporting, companies aim to increase transparency,
0114-0582
DOI 10.1108/PAR-10-2017-0085 enhance brand value, benchmark against other companies, demonstrate competitiveness,
motivate employees and support corporate information and control processes (Hahn and Sustainability
Kühnen, 2013). The end result of all these factors should be a move towards sustainable reporting
development, where businesses can continue to be profit-making entities whilst neither
harming the environment nor destroying the standards of society. KPMG has been
investigating the development of corporate responsibility reporting more than a decade and
published a series of international surveys of corporate responsibility reporting. In 2015, its
ninth edition survey reveals that the Asia Pacific has risen to become the leading region for
corporate responsibility reporting, moving from a reporting level below 50 per cent in the 85
past to a reporting level of 79 per cent in 2015 (KPMG, 2015). The main reason attributed to
this change is the surge in reporting by the emerging economies in the region. Accordingly,
an exploration of which company characteristics may lead companies to report
sustainability information, and the underlying theories that can provide an explanation for
sustainability reporting practices, is warranted.
This study examines these issues in Sri Lanka, an emerging economy in the Asia Pacific
region. Apart from being a developing country, Sri Lanka’s uniqueness in terms of
geography, political history, economy and social and environmental concerns sets it apart
from other emerging nations. Sustainability reporting is not mandatory in most developing
countries, and economic development is a major aspect of these countries’ political policies
and goals (Bhattacharyya, 2014). Sri Lanka is focusing on long-term strategic and structural
development challenges as it strives to transition to an upper middle-income country as the
country emerges from a prolonged war of three decades. Key challenges include boosting
investment, including human capital, realigning public spending and policy with the needs
of a middle-income country, enhancing the role of the private sector, including the provision
of an appropriate environment for increasing productivity and exports and ensuring that
growth is inclusive.
There are many terms and phrases used to describe sustainability and sustainability
reporting. These include corporate social responsibility (CSR), corporate sustainability,
corporate citizenship, corporate responsibility reporting, environmental and social
reporting, integrated reporting and sustainable entrepreneurship, many of which are used
interchangeably in practice (Davis and Searcy, 2010). In this paper, the term sustainability
reporting is used to refer to reporting of information on economic, social and environmental
aspects of businesses. The rest of this paper is organised as follows. The next section
presents the broad literature around the research problem and hypotheses which have led to
the pursuit of the current research. This is followed by the research approach of the study
and empirical results. Finally, conclusions are made based on the discussion of the main
findings, and avenues for further research are provided in the last section.
Literature and hypothesis development

To understand the factors influencing sustainability reporting, we use the stakeholder
theory to guide our investigation and hypothesis development. The stakeholder theory is
one of the most dominant theories applied in the previous literature to explain voluntary
sustainability reporting behaviour. According to the stakeholder theory, business entities
have responsibilities to all other groups who have a vested interest in the business apart
from shareholders, whose sole objective is value creation through profit maximisation
(Freeman, 1984). As suggested by the stakeholder theory, this goal cannot be fulfilled by
ignoring the needs of other stakeholders, so whilst being accountable to investors or
shareholders, companies must also balance a variety of stakeholder interests that can affect
or be affected by the companies’ activities (Verrecchia, 1983). As per Freeman (1984), “a
stakeholder in an organisation is any group or individual who can affect or is affected by the
PAR achievement of the organisation’s objectives”. In accordance with this definition,
31,1 stakeholders include customers, suppliers, government, pressure groups, international
donor agencies, standards setting organisations and the public apart from the managers and
shareholders (Freeman et al., 2007). Amongst the multitude of demands on companies are
those related to socially and environmentally responsible behaviour (Prado-Lorenzo et al.,
2009a, 2009b). Hence, the stakeholder theory has been used to explain the widening role and
86 responsibilities of business entities and is fundamental to understand the implied
contractual nature of relationships between business entities, society and the environment.
Although various interpretations and classifications of the stakeholder theory are found
in the literature, the two main branches of the stakeholder theory commonly discussed are:
the ethical (moral or normative) branch and the managerial (positive) branch (Garriga and
Melé, 2004). The ethical branch of the stakeholder theory holds that all stakeholders should
be treated equally by the organisation, irrespective of the power possessed by the
stakeholders. This means the organisation is accountable to all stakeholders rather than
only to the privileged stakeholders providing critical resources to the organisation (Stoney
and Winstanley, 2001). The managerial branch, on the other hand, suggests managers exert
more effort to address the needs of stakeholders critical to the well-being of the business
entity. Stakeholders who have stronger strategic roles in terms of the corporation are more
likely to be satisfied and more able to influence corporate disclosure practices, according to
the managerial perspective of the stakeholder theory. Sustainability reporting is, therefore,
used to engage with different stakeholder groups that are deemed essential for the
continuation of the company (Roberts, 1992).
To indicate to stakeholders that their expectations are being addressed, companies
engage in and account for sustainability-related issues voluntarily, either in the annual
reports or in standalone sustainability reports (Prado-Lorenzo et al., 2009a, 2009b). CSR and/
or sustainability reporting is, thus, a part of the dialogue between the firm and its
stakeholders (Hartman et al., 2007). In communicating sustainability information,
businesses aim to reduce information asymmetry by disclosing non-financial issues like
social and environmental initiatives and impacts (Bonson and Bednárová, 2014).
Sustainability reporting is, therefore, used to engage with different stakeholder groups that
are deemed essential for the continuation of the company (Roberts, 1992).
In developing countries, the impact of stakeholders is often different to developed
countries. For example, ownership structures of companies in developing countries may
result in different responses; multi-national owners may have different expectations from
local owners. In addition, the response to different stakeholders may be mitigated by other
factors, such as external pressures from international organisations, or other company
characteristics. The managerial branch of the stakeholder theory is used in this study to
provide insights for academics and practitioners concerned with sustainability reporting in
Sri Lanka, which is characterised by a distinctive contextual setting. This accentuates the
notion that companies must be viewed as operating at the centre of a web of interrelated
stakeholders that create, sustain and enhance wealth maximisation capacity. These
stakeholder relationships are discussed further below to develop the hypotheses of the
study.
Company ownership
The literature indicates that the country in which an organisation is reporting and the
country of ultimate ownership may have a significant effect on CSR or sustainability
reporting (Andrew et al., 1989; Clarkson et al., 2011; Fernandez-Feijoo, Romero and Ruiz,
2014; Guthrie and Parker, 1989; Teoh and Thong, 1984). Multinational corporations (MNCs)
have expanded the scope of their reach and influence with globalisation, as well as recent Sustainability
waves of liberalisation and privatisation in developing countries (Jamali, 2010). MNCs now reporting
spread into every corner of the world through extended production networks and transcend
geographic, economic and political divides, and sometimes are even larger than the small
developing states in which they have operations (Koerber and Fort, 2008). MNCs also have
been found to have a large proportion of institutional investors, who are seen by the
company as primary stakeholders, with a great deal of power to ensure their interests are
met. 87
With this spread of globalisation, the track record of MNCs has been mixed in relation to
their CSR or sustainability reporting when they are involved in developing countries (Kolk,
2010). Moreover, in recent years, MNCs have been confronted with a multitude of requests
from stakeholders in different markets, where they have varying regulations and
government systems (Kolk, 2010). The publication of negative incidents by the media and
non-governmental organisations (NGOs) has increased social awareness, created negative
public sentiment and somewhat damaged the reputation of MNCs (Amaeshi and Amao,
2009). MNCs’ reputation has been challenged by stakeholders, especially international and
national NGOs. For instance, Adidas, GAP, McDonalds, Nike and Shell have been accused of
exploiting cheap labour and other social conditions in developing countries and are often
under intense pressure from stakeholders to undertake operations responsibly (O’riordan
and Fairbrass, 2008; Owen, 2005).
Global stakeholders, such as consumer groups and funding providers, have shown great
awareness of environmental and social issues, and parent companies are generally aware of
this. Consequently, parent companies instruct subsidiaries to provide sustainability
information to appease these powerful stakeholders (Momin and Parker, 2013). That is, they
treat sustainability reporting as a strategy to maintain internal legitimacy to the parent
company and external legitimacy to stakeholders for survival in host countries (Cruz and
Boehe, 2010). MNC subsidiaries also report externally through annual reports or standalone
reports. A study by Teoh and Thong (1984) seems to be the first-ever investigation into CSR
reporting of MNC subsidiaries. Studies by Belal and Owen (2007), Lattemann et al. (2009)
and Vormedal and Ruud (2009) also illustrate multinational companies are more likely to
undertake extensive sustainability reporting compared to locally owned companies.
Vormedal and Ruud (2009) state that there are significant differences in sustainability
reporting relative to where an MNC subsidiary is operating. For instance, providing higher-
quality information to the worldwide stakeholders by the parent company rather than for
the domestic stakeholders. One of the main reasons for this are the additional costs
generated by the production of sustainability reports and the lower pressure from domestic
stakeholders compared to the global ones (Fernandez-Feijoo et al., 2014). In addition, the
legislative and regulatory reforms where the subsidiary operates may have influenced them
to extend reporting for domestic stakeholders (Mzembe and Meaton, 2014). Further,
Vormedal and Ruud (2009) indicate a decreasing trend in these differences caused by a
reduction in information reported for global audiences due to rising administrative and
strategic costs of sustainability reporting. Sotorrío and Sánchez (2010), however, find no
significant effect on sustainability reporting depending on whether the company is locally
owned or a subsidiary of a MNC, so it is an area in need of further research.
A few studies indicate a positive influence of foreign ownership on the level of sustainability
reporting (Cormier et al., 2005; Othman and Ameer, 2009). However, there are other studies that
have indicated no significant effect (da Silva Monteiro et al., 2010; Ertuna and Tukel, 2010). A
couple of studies, by Beddewela and Herzig (2013) and Hunter and van Wassenhove (2011),
explore the enablers and barriers multinational companies’ subsidiaries in Sri Lanka face in
PAR undertaking sustainability activities and whether corporate responsibility is a cost or a
31,1 profitable business strategy for a Sri Lankan multinational company. They conclude that
sustainability activities undertaken by these companies are gaining momentum in Sri Lanka
due to renewed and increasing interest in the sustainability agenda. Also, Sri Lanka, to achieve
its desired growth, requires inflows of foreign direct investment (FDI) and multinational
companies are seen as a strong facilitator for this kind of investment (Board of Investment of
88 Sri Lanka, 2016). As such, the following hypothesis is presented:
H1. The companies owned by MNCs have a higher volume of sustainability reporting
than local companies.
GRI usage
As a multi-stakeholder initiative, the guidelines provide a framework of principles and
guidance, together with a list of disclosures and sustainability KPIs for voluntary use by
public, private and not-for-profit organisations in reporting their sustainability performance

(GRI, 2015). This enables business entities operating in various industries to pursue
sustainability reporting in an orderly and consistent manner. As suggested by Kuzey and
Uyar (2017), publishing sustainability information via referring to the GRI emphasises that
a company considers those environmental and social aspects that are most relevant to its
key stakeholders and have the most significant impacts on its business (Kolk and Perego,
2010). The adoption of the GRI guidelines has been found to be important for several
reasons. First, the GRI helps to increase transparency of corporate information because they
require communication of information that would otherwise not have been disclosed.
Second, the information gathered according to the GRI guidelines can be used for internal
management practices. Third, the information provided in annual reports can reinforce the
relationships between companies and stakeholders by explaining the contribution of
companies to the community and environment. Finally, the information could provide early
warnings about future mismanagement of company resources (Alonso-Almeida et al., 2014).
GRI guidelines emphasise that sustainability reporting should not be seen as a cost to the
business, but as an opportunity to sustain itself in the long run through risk management
which includes economic, social and environmental elements (Christofi, Christofi and Sisaye,
2012).
Therefore, this study investigates the impact of GRI usage by the sample of companies in
communicating sustainability information in a developing context. A general impression of
the sustainability information published by the listed companies in developing nations
using the GRI framework is that they are of a better standard, despite the fact that the
companies may use the guidelines in different ways (Legendre and Coderre, 2013). It is likely
that Sri Lankan companies, which make greater efforts to communicate sustainability
information and are committed to the sustainability reporting process, are more prone to
communicate sustainability information according to the GRI framework (Barkemeyer et al.,
2015). This gives rise to the following hypothesis:
H2. The companies that use the GRI framework have a higher volume of sustainability
reporting than the companies which do not use the GRI framework.
Company size
The positive influence of company size on the adoption and extent of sustainability
reporting is widely acknowledged in previous research (Brammer and Pavelin, 2004; Gallo
and Christensen, 2011) and developing countries (Das et al., 2015; Janggu, Joseph and Madi, Sustainability
2007; Schreck and Raithel, 2015). This is because company size is a comprehensive variable reporting
that can be used as a proxy for a number of corporate attributes such as competitive
advantage, information production costs and political costs. Corporate size, whether
measured by total assets, turnover or sales, number of employees or market capitalisation, is
generally considered to have a positive effect on the adoption and the extent of
sustainability reporting.
Suggested reasons for this include the fact that larger companies create greater impacts, 89
become more visible and therefore, face greater stakeholder scrutiny and pressure
(Fortanier, Kolk and Pinkse, 2011; Gallo and Christensen, 2011), particuarly from the media.
As these companies are more visible in the different realms of the public, they are
consequently subjected to greater expectations of bearing accountability (Fernando et al.,
2015; Fernando and Pandey, 2012). The literature supports the notion that large companies
are exposed to a diverse set of stakeholders who expect sustainability reporting to be
undertaken (Al-Tuwaijri, Christensen and Hughes, 2004; Jamali, 2010). Due to this, large
firms may be especially driven to respond to social and environmental problems (Patten,
1992) and make disclosures to demonstrate that their actions are legitimate and consistent
with good corporate citizenship (Belkaoui and Karpik, 1989; Deegan and Gordon, 1996;
Hackston and Milne, 1996).
Moreover, larger firms are likely to make more extensive use of capital markets for
external financing and compete for international resources than their smaller counterparts
(Clarkson et al., 2008; Cormier et al., 2005). Likewise, it has been asserted that larger firms are
financially healthy and are able to easily provide the necessary resources to meet the
accompanying costs associated with sustainability reporting (Brammer and Pavelin, 2006).
Also, small companies are more likely to incur higher marginal costs of disclosure as
supported by previous empirical findings (Haddock, 2005). In Sri Lanka, there are more than
200 companies listed on the Colombo Stock Exchange (CSE) which represent local
companies, as well as MNC subsidiaries (Colombo Stock Exchange, 2017a). Based upon the
overwhelming evidence in the literature, the following hypothesis is posited for the Sri
Lankan PLCs in this study:
H3. Large companies have a higher volume of sustainability reporting than smaller
companies.
Industry sector affiliation

In previous research, another common variable used to explain the extent and nature of
sustainability reporting is the industry sector to which the companies belong (Brammer and
Pavelin, 2006; Clarkson et al., 2008; Clarkson, Overell and Chapple, 2011; Hahn and Kühnen,
2013; Spence, 2009; Stanny and Ely, 2008; Vormedal and Ruud, 2009). The results from these
studies show that corporations whose manufacturing process has a negative influence on
the environment disclose and report considerably more information than companies from
other industries (Alrazi, De Villiers and Van Staden, 2016; Clarkson et al., 2008; Nunes and
Bennett, 2010). This may be due to strong stakeholder pressure from industry bodies, or as
for size, the threat from being more politically visible and a response to stakeholder pressure
from, for example, the media. In addition, whilst sustainability reporting has deepened
amongst firms in a few high-impact industries (Cahan et al., 2016; Kirat, 2015), it has also
spread to a small number of firms in a wide range of low-impact industries (de Grosbois,
2012; Higgins, Milne and van Gramberg, 2014). Therefore, sustainability reporting in these
industries may be driven by mimetic tendencies within sectors, which would explain the
PAR extent of sustainability reporting despite the absence of legitimacy threats or direct
31,1 stakeholder pressure (Hahn and Kühnen, 2013; Spence, 2009).
In general, companies from the mining, oil and chemical industries emphasise
information regarding environment, health and safety issues (Clarkson et al., 2011). The
firms in the finance and service industries seem to report more regarding social issues and
philanthropic deeds (Kolk, 2003). Literature associates metals, paper and pulp, power
90 generation, water and chemical sectors with high environmental impacts (Stanny and Ely,
2008). Therefore, they face environmental risks, health and safety risks, liability risks and
ultimately reputation risks, the management of which is central to the companies’ long-term
success (Brammer and Pavelin, 2004; Hahn and Kühnen, 2013). In contrast, other industries,
particularly newer manufacturing industries and the service sectors, have significantly
lower environmental impacts and are associated with fewer visible environmental issues
(Vormedal and Ruud, 2009; Bouten et al., 2011).
In Sri Lanka, the financials and consumer goods and healthcare industry sectors play
significant roles in taking the economy forward. For instance, tourism in Sri Lanka,
belonging to consumer goods and healthcare sector, reached an all-time high with a record
of 1,798,380 arrivals in 2015, an increase of 17.8 per cent from previous year. This allowed it
to upgrade its rank to the third largest Foreign Exchange Earner of the national economy in
2015 (Sri Lanka Tourism Development Authority, 2015). This has a considerable impact on
the large Sri Lankan hotel companies, and as illustrated by de Grosbois (2012), the hotel
companies are fast growing throughout the world and play an important role in supporting
development. Therefore, in Sri Lanka, the main industry sectors tend to be consumer-centric
with a lot of companies operating in finance, services and consumer goods-oriented
industries (Colombo Stock Exchange, 2017b). Based on the predominance of positive
arguments that the industry sector is an important determinant of the extent of
sustainability reporting, it is expected that there will be differences in sustainability
reporting based on the industry sectors the Sri Lankan companies belong to. This is
presented as the following hypothesis:
H4. There is an association between the industry of the company and the volume of
sustainability reporting.
Methods
This paper uses a positivistic/quantitative research approach. In positivism,
epistemologically it is held that the researcher is independent of what is being researched, or
knower and known are independent (Guba and Lincoln, 1994; Tuli, 2011). Therefore, in
positivism, the researcher establishes and test hypotheses, mostly derived from relevant
theories and prior empirical studies, using statistical methods (Creswell, 2009). This study
reviews existing literature and applies a preset theory to develop hypotheses in a unique
developing country context. The quantitative method using a large sample of panel data is
considered the most appropriate approach for our inquiry and hypothesis testing. The next
section discusses the data collection and analytical methods used in this paper.
Sample selection
To provide solid empirical evidence, we collected a sample of listed companies over a
longitudinal period of four years from 2012 to 2015. The initial sample chosen was the top
100 companies of the 297 listed on the CSE as at 14 March 2015. However, the final sample
consists of 84 companies, which had included some sustainability information in the annual
report for at least one of the four years 2012-2015. Hence, this provides 336 observations to Sustainability
be used for hypotheses testing. The final sample of companies represents about 30 per cent reporting
(28.28) in relation to the total number of publicly listed companies in Sri Lanka.
Dependent variable
Content analysis was used to measure the volume of sustainability reporting in annual
reports as the dependent variable. This was measured using the number of words that could
be classified as pertaining to the economic, social and environmental aspects of
91
sustainability. The steps outlined by Weber (1990) were followed to ensure robustness of the
method. First, the measurement unit and initial themes were defined. Themes were
developed from prior literature on social, environmental and economic categories. Then, a
pilot study, which included 15 companies, comprising 60 annual reports, was carried out to
develop the process of content analysis and gain experience about the themes present in the
annual reports. The themes within the economic, social and environmental categories were
updated following this pilot study.

Following the revision of the sustainability reporting themes, a second pilot test was
carried out to assess the reliability of the themes and the decision rules. Six reports were
coded by two other persons. Several steps were taken to ensure inter-coder reliability. First,
the coders read and discussed some of the existing studies to have a better understanding of
the subject. Second, the researchers gave a detailed explanation of the coding instrument to
each coder. Each of the two coded three annual reports of two companies. The results were
compared and analysed. The coding instrument was then revised accordingly. Third,
during the coding process, regular checks on one another’s work were made by the coders.
Ambiguities, if any, were discussed with the researchers, who tried to ensure that both the
coders used the same coding rules. Finally, the researchers re-coded one annual report
randomly selected from the work of each coder. The decision rules were then updated
according to the two coders’ feedback. Accordingly, the subsequent list of themes is deemed
rigorous and viable in capturing sustainability reporting disclosures in Sri Lankan-listed
companies’ annual reports. The steps taken in the development of the coding scheme
followed those suggested by (Weber 1990) as discussed below:
define the unit of measurement (word count is used in this research as the unit of
measurement);
define the categories (Tables I, II and III for details of sustainability reporting
themes adopted in this paper);
test coding of a sample of text (Pilot 1 sample discussed earlier);
assess reliability (Pilot 1 sample);
revise coding rules (Pilot 2 sample);
repeat Steps 3-5 until reliability is satisfactory (Pilot 2 sample);
code all text; and
assess achieved reliability (Pilot 2 sample).
The final checklist comprises three main themes in each aspect of sustainability (social,
environmental and economic). Each of these three aspects is further subdivided into a set of
distinctive informational items or topics. The three economic aspect themes include:
economic performance (two items), market presence (two items) and indirect economic
impacts (six items). The three social aspect themes include: labour practices and human
rights (18 items), product responsibility (even items) and local communities (15 items). The
PAR No Description of themes and sub themes in the economic aspect
31,1
1 Economic performance: Coverage of the organisation’s defined benefit plan obligations. Significant
financial assistance received from government
2 Market presence: Policy, practices and proportion of spending on locally based suppliers at
significant locations of operations
Procedures for local hiring and proportion of senior management hired from the local community
92 3 Indirect economic impacts: Development of education, religious and other institutions
Development and impact of infrastructure investments and services provided primarily for public
benefit through commercial, in-kind or pro bono engagement
Sponsoring public health projects
Table I. Aiding medical and educational research
Themes for economic Provision of health facilities
aspect Supporting government-sponsored development projects
three environmental aspect themes include energy (six items); emissions, effluents and
waste (12 items) and other environmental disclosures (17 items).
The following tables (Tables I, II and III) are intended to represent an exhaustive coding
of information with economic, social and environmental importance. Some of the themes
included in the original studies are excluded to suit this study. The following tables provide
a taxonomy of the types of sustainability disclosures comprising the economic, social and
environmental aspects that form the substance of the content analysis of annual reports.
The themes are outlined with the corresponding decision rules:
Decision rules for the economic aspect are as follows:
Description: Word count of any statement where any item within the themes of
economic aspect in Table I is mentioned.
Other inclusions: Any statement where involvement with government development
projects is mentioned.
All statements indicating employees are hired from the local community even if
they do not belong to the senior management.
Any employee involvement with activities in Table I if company support is
apparent.
Any tax concessions received from government.
Exclusions: All disclosures must be specifically stated, they cannot be implied.
Any statement indicating the company’s disclosure of economic activity is in
compliance with governmental regulatory standards is not considered.
Any disclosures on themes in Table I conducted by branches operating in other
countries.
Decision rules for the social aspect are as follows:

social aspect in Table 5.3 above is mentioned.
Other inclusions: Any statement where involvement with local community is mentioned.
All statements concerning employee rights and welfare.
Any employee involvement with activities in Table 5.3 if company support is
apparent.
No Description of themes and sub-themes in the social aspect
Sustainability
reporting
1 Labour practices and human rights: information and statistics on employee turnover
Promoting employee safety and physical or mental health
Disclosing accident statistics
Complying with health and safety standards and regulations
Providing low-cost health care for employees
Employee satisfaction surveys or feedback mechanisms 93
Training employees through in-house programmes
Establishment of trainee centres
Providing staff accommodation/staff home ownership schemes
Providing recreation opportunities/facilities
Financial assistance for employees for continuing education courses
Right to organise and collective bargaining
Remuneration packages and rewards
Fostering diversity and inclusion of minorities and disabled employees
Statistics on child labour, forced or compulsory labour

Procedures and policies for grievances handling
Procedures and policies for whistleblowers
Improvements for working conditions
2 Product responsibility: product development information, including research undertaking
Product safety information, including data protection policies, regulations, guidelines and procedures
for customer data
Codes of compliance for advertising and marketing
Adherence to standards and regulations on product safety
Product labelling information
Data protection policies for information obtained whilst providing services
Disclosing factual information related to products and services, including nature and associated risks
3 Local communities: local community development programmes based on local communities’ needs
Assistance during natural disasters
Culture preservation activities within the community
Mobile health clinics
Networking, mentoring and other development opportunities for youth
Computer literacy training and English-language support
Scholarships for education
Occupational skills development programmes
Career guidance for youth
Home-based business ventures for women in the local community
Donations of cash and distribution of sundry goods
Contributions for various trusts, community activities and events
Programmes for women and children empowerment Table II.
Projects for uplifting living standards in the local community Themes for social
Awareness campaigns about diseases aspect
Any product or service specifications for differently abled people.

Any awards for social or employee welfare activities are not included.
Any disclosures on themes in Table 5.3 conducted by branches operating in other
countries.
Decision rules for the environmental aspect are as follows:

environmental aspect in Table 5.5 above is mentioned.
PAR No Description of themes and sub-themes environmental aspect
31,1
1 Energy: energy conservation in the conduct of business operations
Disclosing energy consumption
Investing in energy efficient equipment/facilities
Investing in renewable energy sources
Water conservation
94 Usage of other sources of energy
2 Emissions, effluents and waste: recycling
Pollution control within the business organisation
Efficient usage of raw materials and other resources
Anti-litter campaigns
Reduced usage of fossil fuels and chemicals
Waste management processes
Reduction of air emissions and liquid effluents
Minimise soil erosion
Reduction in noise pollution

Reduction of carbon footprint
Data protection policies for information obtained whilst providing services
Waste water treatment and water purification
3 Other environmental disclosures: remove invasive plants
Environmental protection expenditures
Providing education on environmental conservation
Establishing parks and environmental facilities
Projects for cleaning the environment
Sponsoring environmental exhibitions
Conducting business operations in environmentally friendly facilities
Review environmental aspects during project appraisal
Using environmentally friendly materials in production
Planting trees and reforestation programmes
Distribution of materials (books and leaflets) about environmental conservation
Using promotional materials featuring images of environment and accompanied by a relevant message
Distributing plants and trees
Breeding of endangered species
Table III. Complying with environmental laws and regulations
Themes for Sanctions imposed for non-compliance with environmental laws and regulations
environmental aspect Environmental certifications, e.g. organic certification, ISO and other certifications
Other inclusions: Any statement where involvement with the environment

conservation is mentioned.
All statements concerning energy usage in the company.
Any employee involvement with activities in Table 5.5 if company support is
apparent.
All statements concerning amount of emissions, effluents and waste released by the
company.
Any statement indicating the company’s disclosure of environmental activity is in
compliance with governmental regulatory standards is not considered.
Any awards for environmental or related activities are not included.
Any disclosures on themes in Table 5.5 conducted by branches operating in other
countries.
And, are intended to be mutually exclusive and exhaustive due to pilot testing. Sustainability
Once the sustainability information was identified, NVivo software was used for reporting
counting the words. First, the annual reports were downloaded from the CSE database or
individual company websites. The reports were then imported to NVivo, where the
sustainability information was sorted according to the themes corresponding to the final
decision rules. The three main aspects of sustainability: economic, social and environmental
themes were then divided into different sub-themes to capture richer information provided
within the main themes. The word count per theme of the three sustainability activities was 95
then computed and recorded. Information is considered to be valid either when a theme is
directly indicated, for example, by a heading, or where economic, social and environmental
involvements are mentioned within a statement. Only information that is specifically stated
was captured as information cannot be implied.
Data analysis
Campbell, Moore and Shrives (2006) state that longitudinal studies give an overall picture of
the popularity of a category of disclosures. In this study, descriptive statistics are used to
summarise, describe and explore patterns in the collected data. Subsequently, analysis using
panel data multiple regression is used to test the four hypotheses. Multicollinearity tests are
also run to ensure that no correlation issues existed between the variables.
The two main modelling techniques used to analyse panel data are fixed effects (FE)
models or random effects (RE) models (Dougherty, 2011). Unlike the FE models, RE models
assume the variations between the entities to be random and uncorrelated with the
independent variables included in the model (Gujarati and Porter, 2009). Therefore, time-
invariant variables like industry sector can be included in RE models, whereas in FE models
these are absorbed by the intercept. Also, RE models assume that the entity’s error term is
not correlated with the predictors which allows for time-invariant variables to play a role as
explanatory variables (Cameron and Trivedi, 2005).
This study mostly includes categorical variables and the differences between entities
have influence over the dependent variable. Also, as the years go by, there is likely to be
increased awareness of, and demand for, sustainability reporting. Therefore, it is intended
that this study will reveal how the passing of years has affected sustainability reporting by
publicly listed companies in Sri Lanka during the period of the study. Likewise, by using the
RE model, inferences can be generalised beyond the sample used for this study. The
statistical software STATA is used to facilitate the running of the multiple regressions as
the nature of the data set is longitudinal panel data. The dependent variable is the
sustainability reporting word count determined from undertaking content analysis.
Independent variables
As noted earlier, four independent variables are considered in the model (company size,
industry sector, ownership and GRI usage of companies). The measurement of these
variables is specified below.
Ownership
MNCs have the essential components in terms of resources, global reach and motivation to
pursue sustainability reporting and contribute to sustainable development on a global scale
compared to local companies operating only in Sri Lanka. Importantly, they also possess
enormous power because of the spread of their operations around the world (Jamali, 2010).
The ownership of companies is differentiated as a multinational subsidiary operating in Sri
Lanka (coded as “1”) or a locally owned company (coded as “0”).
PAR GRI usage
31,1 As a multi-stakeholder initiative, the GRI guidelines provide a framework of principles and
guidance, together with a list of disclosures and sustainability KPIs to be included for
voluntary use by public, private and FGRI
not-for-profit organisations in reporting their sustainability performance (GRI, 2015).
The usage of the GRI by the sample companies is coded as “1” as yes, and “0” as no.
96
Company size
Different measures such as the number of employees, market capitalisation, total sales and
total assets have been used to measure company size in previous studies (Brammer and
Pavelin, 2004; Branco et al., 2014; da Silva et al., 2010; Das, Dixon and Michael, 2015), and most
of these factors are highly correlated. However, in this study, the size of the companies is
measured as the natural log of total assets given this measure has been widely used in previous
studies (Brammer and Pavelin, 2004; Bansal and Hunter, 2003; Brammer and Pavelin, 2006; da
Silva et al., 2010; Gallo and Christensen, 2011; Hörisch, Johnson and Schaltegger, 2015).
Moreover, total assets broadly proxy company resources (such as financial capacity,
capabilities, processes and knowledge), and hence how these resources may be utilised by
companies to engage in sustainability reporting. Data for this measure are also consistently
available for all the companies in the sample for the period 2012-2015.
Industry sector
The listed companies are categorised under nine categories on the CSE according to the
GICS (Global Industry Classification Standard). To enable statistical analysis, these nine
industry sectors were condensed into four industry sectors as some of the industry sectors
only included a few companies. Therefore, the companies of a similar nature were grouped
together and the new industry sectors are shown below (Table IV). The industry sectors are:
financials (30 companies), consumer goods and healthcare (28 companies), industrials and
communications (17 companies) and utilities and materials (nine companies). A dummy
variable is included for each industry category.
The measurements for the dependent and independent variables are summarised in
Table V. The dependent variable is total sustainability reporting measured as the total
count of the number of words dedicated to reporting sustainability information in the annual
reports of Sri Lankan-listed companies in the CSE. Company size is measured as the natural
log of total assets of PLCs. Industry sector is measured as a dummy variable where 1 =
industrials and telecommunications, 2 = consumer goods and healthcare, 3 = financials and
4 = utilities and materials. Ownership is differentiated as 0 = local and 1 = MNC subsidiary.
Finally, GRI usage is measured as a binary dummy variable where 0 = no and 1 = yes.
The panel model (1) shown below was developed to test the hypotheses, and this
regresses the four independent variables, against total sustainability reporting (LnWords).
The panel model is represented as:
Industry No of companies
Financials 30
Consumer goods and healthcare 28
Table IV. Industrials and telecommunications 17
Reclassified industry Utilities and materials 9
sectors Total 84
Variables Measurement
Sustainability
reporting
Dependent variable
Total sustainability reporting Total count of the number of words dedicated to reporting sustainability
information in the annual reports of Sri Lankan-listed companies in the
CSE
Independent variables
Company size Natural log of total assets of PLCs
97
Industry sector 1 = Industrials and telecommunications
2 = Consumer goods and healthcare
3 = Financials
4 = Utilities and materials
Ownership 0 = Local
1 = MNC subsidiary Table V.
GRI usage 0 = No Measurement of
1 = Yes variables
LnWords ¼ a þ b 1 LnAssetsi;t þ b 2 OWN_mnci;t þ b 3 GRI_Yi;t þ b 4 Financialsi;t

þ b 5 Consumer goodsi;t þ b 6 Utilities and materialsi;t
þ b 7 Interact_GRI_Y_OWN_mnci;t þ « (1)
where:
Ln = Natural log of total words used to report sustainability
information;
Ln = Natural log of total assets;
OWN_mncwhether = Whether the firm is a MNC subsidiary;
GRI_Y = Whether the company uses the GRI;
Financials = Industry dummy (Financials);
Con goods_healthcare = Industry dummy (consumer goods and healthcare);
Utilities_materialsindustry = Industry dummy (utilities and materials);
Interact_GRI_Y_OWN_mnc = Interaction effect between GRI usage and ownership;
a = Constant;
b = Regression coefficient; and
e = Error term.
Results and discussion

Descriptive analysis
Figure 1 shows the average number of words dedicated to sustainability reporting by
publicly listed companies of Sri Lanka during the period 2012-2015. As can be seen in the
figure, there is an increasing trend of sustainability reporting as the average reporting has
improved over the four-year period with 2015, showing the highest reporting by the listed
companies.
To examine whether the data follow a normal distribution, tests for skewness, including
the Kolmogorov–Smirnov and Shapiro–Wilk tests, as well as a P-P plot of the residuals,
were carried out. The subsequent results indicate that the dependent variable (total
sustainability reporting) and the continuous independent variable, total assets, are not
PAR
31,1 Average total words
3,039
2,738
98 2,264 2,243
Figure 1.
Sustainability
reporting from 2012

to 2015 2012 2013 2014 2015
normally distributed. Therefore, the data were transformed by taking the natural log, so the
data are normalised and suitable for panel data analysis and the assumptions of this type of
analysis were not violated. Tests for multicollinearity were also performed, and there was no
evidence of collinearity problems.
For regression models, R2 measures how close the data are to the fitted regression line. It
is also known as the coefficient of determination. The statistical package STATA produces
three measures of R2 that should be reported for panel regressions: within, between and
overall; which are interpreted differently than OLS. These three measures are compared, and
if, for instance, within and overall R2 are close, it means that the individual (between) effects
are not so important. For the model above, within-firm differences across time in this sample
are not significant (overall: 0.253, between: 0.406) or the companies are relatively consistent
(Cameron and Trivedi, 2005).
The findings of the panel model for 336 observations (Model 1) are presented in Table VI.
This table indicates that only the independent variables LnAssets and GRI_Y are
statistically significant predictors for sustainability reporting by the companies as
LnWords Coefficient Standard error z p-value
Industry
Con goods_healthcare –0.132 0.451 –0.29 0.770
Financials –0.611 0.456 –1.34 0.181
Utilities_materials –0.168 0.612 –0.28 0.783
LnAssets 1.346 0.477 2.82 0.005
GRI_Y 1.393 0.314 4.44 0.000
OWN_mnc 0.082 0.456 0.18 0.858
Interactions
GRI#Ownership 0.393 0.809 0.49 0.627
Table VI. Number of observations 336
RE-GLS regression R2 within 0.051
with LnWords as R2 between 0.406
dependent variable R2 overall 0.253
measured by total words reported (LnWords). Also, the interaction term GRI and local/MNC Sustainability
ownership is not significant, indicating that its ownership is not mitigating the impact of the reporting
GRI or vice versa. Hence, only two of the four predicted hypotheses (H2 and H3) are
supported by the results. That is, there is an impact of the size of the company and whether
they use the GRI guidelines on the extent of sustainability reporting undertaken. Therefore,
it can be said that these are important factors in explaining sustainability reporting by
publicly listed companies in Sri Lanka. Also, the interaction term GRI and local/MNC 99
ownership is not significant, indicating that its ownership is not mitigating the impact of the
GRI or vice versa. These are discussed in more detail below.
Ownership
The p-value of 0.858 (Table VI) suggests that ownership type is not a significant company
characteristic that influences sustainability reporting by Sri Lankan companies. Therefore,
the findings do not support H1. Whilst MNCs are known to be vehicles of development from
developed countries to the lesser developed, and of capital and technology transfer and thus
global economic integration and convergence, they also face accusations of exploitation of
resources, labour and social and environmental assets in developing countries (Jamali, 2010).
Hence, MNCs have the essential components in terms of resources, global reach and
motivation to pursue sustainability reporting and contribute to sustainable development on
a global scale (Fernandez-Feijoo et al., 2014).
Interestingly, this result that ownership differentiation of companies does not seem to
contribute to the sustainability reporting of Sri Lankan PLCs in the long run contrasts with
findings from previous studies undertaken in similar contextual settings. Whilst some
companies tend to strictly adhere to the practices of the parent companies (CTC PLC) and
report extensively, other subsidiaries are more likely to localise their sustainability
endeavours (Nestlé Lanka PLC), but do not report comprehensively. So, the attention paid to
sustainability reporting and the resources allocated varies significantly from each
subsidiary. Referring to the only previous study that examined sustainability reporting
practices by MNC subsidiaries in Sri Lanka, Beddewela and Herzig (2013) found that only
three of nine companies in their sample communicated sustainability information within Sri
Lanka, and yet, all these companies provided comprehensive information about their social
and environmental projects within Sri Lanka to their head offices.
A potential reason why MNCs are less likely to carry out sustainability reporting,
suggested by Kolk (2010), is that multinational corporations are acting ethically in settings
that are highly regulated, such as Europe, but acting in an opposite manner in other parts of
the world, i.e. Sri Lanka. Businesses are reactive to laws, so they do not pay the same
attention to social and environmental matters in countries where there is very little
regulation and the consequences of non-compliance barely concern the reputation and image
of these giant corporations. Also, the governments of these countries exert very little control
over the operations of these powerful MNC subsidiaries due to the financial inflow to their
country. This is certainly the case for Sri Lanka, where the global perspectives on
sustainability reporting for most of the MNCs have not transferred in the same manner to
Sri Lanka. For instance, the sustainability report of Nestlé does not even mention Sri Lanka
in their “creating shared value” report, and for the Sri Lankan stakeholders, sustainability
information in the annual report was limited to only a few paragraphs in the reports over
2012-2015. Therefore, the global reporting focus of MNCs appears to be responsible for
preventing subsidiary-level sustainability reporting in Sri Lanka.
PAR Usage of the GRI framework
31,1 An important driver for improving social and environmental reports has been the
sustainability reporting guidelines developed by the GRI (Perego and Kolk, 2012). As a
multi-stakeholder initiative, the guidelines provide a framework of principles and guidance,
together with a list of disclosures and sustainability KPIs for voluntary use by public,
private and not-for-profit organisations in reporting their sustainability performance (GRI,
100 2015).
The findings (Table VI) of this study indicate (p-value of 0.000) that the companies which
use the GRI guidelines have a higher volume of sustainability reporting compared to the
other companies. Hence, the findings of this study support H2. This result implies that in
addition to other standardisation of reports, the GRI framework has been considered a
useful tool to guide listed companies in Sri Lanka and allowed them to improve and
strengthen sustainability reporting over time.
Although many previous studies found that public companies in developing countries
hardly apply any international guidelines for their sustainability-related information

disclosure (Mitchell and Hill, 2009), our findings show that international frameworks such as
GRI can be used as an important source of inspiration for companies to prepare and publish
sustainability information and help companies decide whether and how annual reports
should include sustainability information to enhance communication with external
stakeholders. Companies in small open economies are forced to compete in international
markets even in the early stages of their development, as such, markets do not provide for
their survival in the home market alone (Elango and Sethi, 2007). Therefore, Sri Lankan
companies are more likely to follow business practices of global counterparts to grow and
flourish.
Company size
The p-value of 0.005 (Table VI) indicates that company size is a characteristic that influences
sustainability reporting by Sri Lankan companies. Therefore, the findings support H3. The
prominence, expansion and increasing visibility of corporations have been associated with
escalating pressures and expectations of social and environmental responsibilities across
the spectrum of their operations (Al-Tuwaijri et al., 2004; Jamali, 2010). As these companies
are more visible in the different realms of the public, they are consequently subjected to
greater expectations of bearing accountability (Fernando et al., 2015; Fernando and Pandey,
2012).
Also, activities of large companies are of interest to various stakeholders, so they tend to
provide leadership and set an example for sustainability reporting practices. Due to this,
large businesses may be especially driven to make social and environmental disclosures to
demonstrate that their actions are legitimate and consistent with good corporate citizenship
(Belkaoui and Karpik, 1989; Deegan and Gordon, 1996; Hackston and Milne, 1996). The
positive result (p-value of 0.005) found in this study is not unexpected. In Sri Lanka, larger
companies usually incorporate sustainability information in the annual report to reach a
large and diverse cross-section of the community with the aim of correcting apparent
misconceptions held within the community at large, some of which may be created by other
forms of communication, e.g. digital and print media. Similarly, the companies recognise
that the growth of the companies itself depends extensively on the well-being of the context
where the companies are situated (Tilt, 2016). Financially healthy organisations can more
easily provide the necessary resources to meet the accompanying costs associated with
sustainability reporting (Brammer and Pavelin, 2006). Also, small companies are more likely
to incur higher marginal costs of disclosure as supported by previous empirical findings
(Haddock, 2005). Importantly, as this study did not find a significant result for ownership, it Sustainability
indicates that the result for size is not driven by the larger MNCs in the sample. reporting
Industry sector
As per Table VI, p-values for different sectors are 0.770 for consumer goods and healthcare,
0.181 for financials and 0.783 for utilities and materials which do not support H4. The
regression analysis indicates the fact that companies belong to different industry sectors in 101
Sri Lanka does not tend to influence the extent of sustainability reporting. Previous research
(Chapple and Moon, 2005; de Grosbois, 2012; Tuan, 2012) has extensively investigated sector
attachment of companies as a driving force for sustainability reporting as social and
environmental impacts vary greatly from industry to industry. These studies generally
indicate that industry is related to reporting volume, which contrasts with the findings of
this study.
Sustainability reporting has spread widely across the business community in Sri Lanka,
but it has deepened more so in consumer-centric or service industries, i.e. those industries
most associated with reputational impacts and retention of customers, similar to the results
found by Chapple and Moon (2005). Hence, most of this recent growth in sustainability
reporting has come from a few firms in a wide range of comparatively low physical
environmental impact industries, i.e. firms in the finance, hospitality and other services
sectors. For these industries, public opinion is an important gatekeeper for the extent of
organisational sustainability reporting. These firms are involved in repeated transactions
with consumers on the basis of trust and cooperation and, therefore, have an incentive to be
honest and ethical, as such behaviour is beneficial for the firm as it also implies promise of
the service the consumers can anticipate (Tuan, 2012).
Alternative specifications
To test whether using total sustainability reporting as the dependent variable was
concealing any effects, the Model (1) was run with three alternative dependent variables
representing the economic, social and environmental aspects of sustainability. That is,
Total_A, Total_B and Total_C represent the total volume of reporting for each of the three
aspects independently. The new specifications are named as Models (2), (3) and (4) in
Table VII. A summary of the results showing only coefficients is provided in Table VII as
none of the model results was significant. Thus, the results do not provide any further
information than that provided by Model (1) results.
Model (2) (3) (4)

Variable Total_A Total_B Total_C
Industry
Con goods_healthcare 0.0222 0.0543 0.0233
Financials –0.0354 –0.1252 –0.0773
Utilities_materials 0.0460 0.0700 0.0215
LnAssets 0.0451 0.0675 0.0620
GRI_Y 0.0572 0.4650 0.2870
OWN_mnc –0.0093 0.0414 0.0933 Table VII.
Interactions Summary of model
GRI#Ownership 0.1511 0.2296 –0.377 results for each sub-
Number of observations 336 336 336 category of words
PAR Interactions between variables. The panel Model (1) shown above was developed to test the
31,1 hypotheses, and this regresses the four independent variables discussed in Section 2, against
total sustainability reporting (LnWords). In addition to the four independent variables, the
interaction term (GRI and Ownership) was added to further test the possible effects of the
combination of the GRI framework and ownership of the companies on sustainability
reporting. This is because the MNC subsidiaries situated in Sri Lanka may be more prone to
102 use the GRI guidelines in reporting sustainability information in annual reports compared to
the locally owned companies. Therefore, the interaction term tests whether the combination
of a firm being both a multinational and a GRI signatory has an impact on sustainability
reporting level. It appears that though both local and MNC subsidiaries are less likely to use
the GRI; MNC subsidiaries are even less likely to do so compared to local companies, as
shown by the value in Table VI (p-value: 0.858).
Implications and conclusions

This paper enables better understanding of sustainability reporting practices of listed

companies in Sri Lanka. The results of this study not only contribute to the body of
knowledge in the area of sustainability reporting, but also present important implications
for the development of a nation set against the backdrop of a three decades long war, which
introduces novel contextual discussion regarding how sustainability reporting is viewed
and executed by businesses. By carrying out a longitudinal quantitative study over a period
of four years, this paper contributes to the current literature on factors driving sustainability
reporting in developing countries. Sustainability reporting is seen as an essential element of
corporate communication as apparent by the increasing trend of sustainability reporting by
Sri Lankan listed companies over the 2012-2015 period of study.
This study shows that, in Sri Lanka, larger companies are at the forefront of
sustainability reporting and are increasingly making use of the GRI guidelines in
communicating sustainability information. Whilst the importance of company size and the
GRI framework has been discussed in existing literature, the underlying reasons for the
particular company characteristics being significant may be different in Sri Lanka. For
instance, Sri Lankan-listed companies that are seen as leaders and innovators can be in a
stronger bargaining position when it comes to attracting investment, initiating new
activities, entering new markets and negotiating contracts. Pressures to adopt western codes
and standards to attract foreign capital and secure access to international markets may offer
sustainability reporting incentives to the publicly listed companies in Sri Lanka.
Accordingly, the GRI framework assists Sri Lankan companies to undertake sustainability
reporting in a systematic manner. Hence, it seems that many of the companies have selected
the GRI framework as an external benchmark.
Contrary to prior studies, the findings also reveal that industry sensitivity and
ownership differences are not found to contribute to the decision to undertake higher
Local or MNC
GRI or non-GRI Local MNC Total
No 144 54 198
53.73% 79.41% 58.93%
Table VIII. Yes 124 14 138
GRI and local/MNC 46.27% 20.56% 41.07%
ownership Total 268 68 336
volumes of corporate sustainability reporting. Hence, Sri Lankan companies have chosen to Sustainability
undertake sustainability reporting despite their industry sector. Likewise, the lack of reporting
influence by MNCs on sustainability reporting by local companies is novel. Companies
operating under a parent company are expected to have a higher tendency to adopt
sustainability practices and a reporting culture that is compatible with the parent company,
as they share a similar mission and policy, including for sustainability reporting. Whilst, at
parent company or group level, the same level of emphasis is paid to sustainability
reporting, there appears to be different levels of commitment to sustainability reporting in 103
different contexts where subsidiaries are operating. This is an important implication for
future research. Hence, the drive towards enhancing sustainability reporting globally may
be disrupted. When considered in conjunction with the positive result for the GRI, the result
suggests that global standards may drive reporting practices by local listed firms which are
keen to follow international best practices, but not by those MNC firms that contribute most
to social and environmental degradation in the country. This has implications for standard
setting bodies, such as the GRI, to promote implementation by MNCs to report local
information, and thus ensure transparency to local stakeholders, who may be presently
ignored or not seen as particularly salient.
The findings of this paper provide some evidence in support of the managerial branch of
the stakeholder theory where the larger companies with many stakeholders and those which
follow the GRI guidelines are more prone to report in an elaborate manner, indicating the
influence of standards setting bodies in this context. This means the expectations of external
stakeholders such as GRI are keenly taken on board by Sri Lankan companies given the
current re-development phase Sri Lanka is experiencing post the civil war. Therefore, the
local companies of Sri Lanka are more likely to follow business practices of western
countries to be seen as competitive companies in the global business arena. Particularly,
large companies seem to value having guidelines to follow and the decision to report is not
necessarily about their industry sector or the ownership of the companies. The companies
that have taken great efforts to communicate sustainability information according to the
GRI framework to denote their involvement in the sustainability reporting process and
demonstrate how committed they are in seeking improvements in reporting as well as in
their sustainability practices. Thus, despite sustainability reporting being voluntary in Sri
Lanka, companies are more likely to display their excellence in sustainability reporting to
stakeholders of crucial importance to the well-being of their companies. As the managerial
stakeholder theory predicts, stakeholders that have stronger strategic roles in terms of the
corporation’s success are more likely to be well taken care of and more able to influence
corporate sustainability reporting practices. Some of the examples of such stakeholders
include industry lobby groups and regulators. However, in the context of Sri Lanka, lobby
groups or regulators are not prominent and even being a subsidiary of an MNC does not
seem to be as influential as the managerial stakeholder theory would predict. This is likely
due to the lower level of commitment attributed to sustainability reporting by subsidiaries
operating in countries with more lax environmental regulation. On the other hand, global
stakeholders such as GRI are not only powerful, but referring to their framework also
indicates that Sri Lankan companies are striving to reach a global market. Identifying that
particular stakeholders are considered to be more important in the Sri Lankan context paves
the way for further research to be undertaken about the underlying reasons for it.
Recognition of these reasons is important to fully understand how various contextual
settings shape execution of sustainability information by business entities.
This study has attempted to portray a holistic picture of factors that drive sustainability
reporting in a developing country context. However, it has several limitations which also
PAR potentially represent opportunities for further investigation in this area. First, future
31,1 research should focus on the quality of sustainability reporting in developing countries.
Second, further discussion is required to understand why certain characteristics such as
industry sector and ownership are not influential in driving sustainability reporting in Sri
Lanka. Hence, first-hand engagement with management personnel responsible for
sustainability reporting is necessary. This will also allow the managers to articulate their
104 knowledge and understanding of sustainability reporting and understand their motivations
for using resources for sustainability reporting.
Third, this study focused on a sample of companies listed on the CSE, and hence,
the results are generalisable more so to Sri Lanka compared to other developing
countries in South Asia. The results are particularly relevant to large profit-seeking
companies than to small and medium companies, not-for-profit companies or other
unlisted private companies.
Despite its limitations, this paper provides important insights into the various factors
that drive sustainability reporting by publicly listed companies in Sri Lanka. Specifically,
this study reiterates the importance of understanding why specific company characteristics
are relevant because of the particular contextual settings of where the businesses may
operate. Moreover, this study highlights that there is a current need to go beyond
quantitative research, which tends to provide mixed results, to include more qualitative
approaches to reveal other factors which are likely to influence sustainability reporting
practices in Sri Lanka and other developing country contexts.
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Corresponding author
Dinithi Dissanayake can be contacted at: dinithi.dissanayake@unisa.edu.au
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Factors influencing sustainability reporting by Sri Lankan companies

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of 84 publicly listed companies from 2012 to 2015.

Literature and hypothesis development

public, private and not-for-proﬁt organisations in reporting their sustainability performance

Industry sector aﬃliation

updated following this pilot study.

Decision rules for the social aspect are as follows:

Statistics on child labour, forced or compulsory labour

Any product or service speciﬁcations for differently abled people.

Decision rules for the environmental aspect are as follows:

Reduction in noise pollution

Other inclusions: Any statement where involvement with the environment

LnWords ¼ a þ b 1 LnAssetsi;t þ b 2 OWN_mnci;t þ b 3 GRI_Yi;t þ b 4 Financialsi;t

Results and discussion

reporting from 2012

LnWords Coefficient Standard error z p-value

hardly apply any international guidelines for their sustainability-related information

Model (2) (3) (4)

Implications and conclusions

This paper enables better understanding of sustainability reporting practices of listed

statements: an international investigation”, Business Strategy and the Environment,

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