The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/2049-372X.htm
MEDAR
31,4
938
Received 16 June 2021
Revised 30 November 2021
7 February 2022
Accepted 13 March 2022
Meditari Accountancy Research
Vol. 31 No. 4, 2023
pp. 938-969
© Emerald Publishing Limited
2049-372X
DOI 10.1108/MEDAR-06-2021-1346
Financially material sustainability
reporting and firm performance
in New Zealand
Mariela Carvajal and Muhammad Nadeem
Department of Accountancy and Finance, University of Otago,
Dunedin, New Zealand
Abstract
Purpose – This paper aims to examine the relationship between sustainability reporting and firm
performance in New Zealand, encompassing the materiality concept of sustainability reporting based on the
newly available sustainability reporting standards of the Sustainability Accounting Standards Board (SASB).
This set of disclosure items published in 2018 is likely to impact on investors’ decision-making and firm
performance, as stipulated by the SASB.
Design/methodology/approach – Using a sample of 84 New Zealand companies during the period
2017–2019 and an ordinary least squares statistical approach, this research examines whether firms
disclosing sustainability reporting and financially material sustainability information have better
performance than the ones non-disclosing.
Findings – Consistent with the legitimacy and stakeholder theories, a positive relationship between
sustainability reporting and performance is observed. This positive association is stronger when the
sustainability disclosure is financially material information as defined by the SASB.
Originality/value – The outcome of this study provides evidence of the financial incentives for firms to
initiate sustainability reporting, especially including financially material sustainability information as guided
by the SASB. It also supports the rationale of the SASB for developing new standards that can be globally
applicable, influencing investors’ decisions and firm’s financial performance. The results also have
implications for the management of New Zealand firms in considering the disclosure of material
sustainability information which is linked to firm performance.
Keywords Sustainability reporting, Financial performance, Material sustainability information,
SASB, New Zealand
Paper type Research paper
1. Introduction
Sustainability is becoming a central issue to many organisations around the world in our
current business environment, which is facing serious sustainability risks. According to the
KPMG (2017), international survey investigating the status of sustainability reporting
among 4,900 companies worldwide, three-quarters of companies issue sustainability reports.
The survey also illustrates a significant upward trend in sustainability reporting over the
past decade due to an increasing demand for organisations’ sustainability reporting by
stakeholders. To respond to these requirements, many firms have started to incorporate
sustainability disclosure in their annual reports or publish stand-alone sustainability
reports.
In this context, international organisations such as the Global Reporting Initiative (GRI)
and Sustainability Accounting Standards Board (SASB) have been established to provide a
framework for disclosing sustainability information, as well as to encourage the adoption of
sustainability reporting in firms that are not yet disclosing such information.
 A sustainability report is “a report published by a company or organisation about the Financially
economic, environmental and social impacts caused by its everyday activities” and shows material
the connection between the firm’s strategy and commitment to a sustainable global
economy [1]. Sustainability reporting can be called by other interchangeable terms, such as
sustainability
environmental, social and corporate governance (ESG) reporting, corporate social reporting
responsibility (CSR) reporting, non-financial reporting and triple bottom line reporting.
Recently, numerous firms have been publishing integrated reports, which disclose financial
and non-financial information incorporated into their annual report. 939
In most countries, sustainability reporting is not mandatory and regulated, unlike
financial statement disclosure, thus it is up to the discretion of firms to decide whether to
disclose sustainability-related information. Some businesses opt not to disclose
sustainability information because they find sustainability reporting is costly and with no
perceived benefits (Stubbs et al., 2013). However, there is a counterargument insisting that
sustainability reporting should be implemented despite its costs, since its benefits outweigh
the costs (Guidry and Patten, 2010; Dhaliwal et al., 2011; Ameer and Othman, 2012; Bachoo
et al., 2013; Arif et al., 2021). Firms would be reluctant to implement sustainability reporting
if they do not perceive benefits in the short and/or long run that offsets its disadvantages.
This study examines the relationship between sustainability reporting and firm
performance in New Zealand, with the aim of providing a better understanding about firms’
motivation to implement sustainability reporting.
There is a significant growing awareness about sustainability reporting in New Zealand.
For example, KPMG (2020) international survey about sustainability reporting indicates
that New Zealand’s sustainability reporting rate in 2017 was 69%, and it increased to 74%
in 2020, having a 5% increase in two years and confirming this rising trend. This is a further
increment from the rate in 2015 that was 52% (KPMG, 2017).
In addition, New Zealand is a country well known for its clean and environment-friendly
image. Collins et al. (2010) argue that New Zealand branded itself internationally as “clean
and green”, and Zaman et al. (2021) note that New Zealand communities perceive the
environment as a relevant element for such a clean and green image. Dairy, tourism and
organic food industries have been contributing to making this green status through their
advertising (De Bruin and Lewis, 2005; Collins et al., 2010). However, while businesses in
New Zealand are benefitting from this clean and green image, their corporate practices
towards sustainability have not been fully supportive of the country’s environmental
reputation (De Bruin and Lewis, 2005). This lack of environmental disclosure has caused the
increment of political and civil pressure on New Zealand firms to act towards sustainability.
Collins et al. (2010) explain that the political movements toward sustainability in New
Zealand accommodate the rapid changes in the international discourse about sustainability
issues. For instance, the Ministry for the Environment (2001) recognises the critical
economic consequences of losing the green image for New Zealand businesses and suggests
acting towards sustainability. As a result, the awareness of sustainable business practices
and reporting has been strengthened in New Zealand.
Our study makes several contributions to the literature. First, this research adds to the
current discussion regarding the relationship between sustainability reporting and firm
performance, while it differentiates from other studies by taking the materiality
sustainability reporting notion into consideration, a concept developed by the SASB.
Previous research mostly uses sustainability measures of the GRI Guidelines and Dow Jones
Sustainability Index (DJSI), where these frameworks do not consider materiality and provide
generic guidelines for firms in all industries. In contrast, the SASB standards include
materiality in sustainability reporting and present guidelines which are tailored for each
MEDAR industry to disclose financially material information and provide decision-useful
31,4 information to investors.
SASB (2017a) argues that materiality is an important factor in sustainability reporting
because it affects investors’ decisions and consequently firms’ financial performance. The
disclosure items differ among industries and investors consider different sustainability
factors. For example, SASB standards request The Warehouse Group, which belongs to the
940 Food Retailers and Distributors industry, to disclose Energy Management, Waste and
Hazardous Materials Management, Data Security, Product Quality and Safety, Customer
Welfare, Selling Practices and Product Labelling and Labour Practices because this
information is expected to be material to the decision-making of The Warehouse Group’s
investors. However, it requests the Auckland International Airport, which belongs to the
Professional and Commercial Services industry, to disclose different information, such as
Data Security, Employee Engagement, Diversity and Inclusion and Business Ethics,
because SASB standards identify those topics as financially material for this industry.
In contrast, GRI standards do not identify materiality in measuring sustainability
reporting and suggest a uniform disclosure standard that can be applied to all companies
across all industries. Therefore, the relationship between sustainability reporting and firm
performance can be better explained by using SASB standards instead of generic ones.
Second, to the best of our knowledge, this is the first research which utilises the SASB
sustainability reporting frameworks and a sample of firms outside the USA to discuss
sustainability reporting with SASB guidelines. SASB published its first complete set
of standards in November 2018 and as this standard is very new, studies are limited and use
US samples only (Eccles et al., 2012; Schooley and English, 2015; Khan et al., 2016; Rodriguez
et al., 2017; Grewal et al., 2021). However, it does not mean that the SASB standards are only
applicable to the USA, where the standards were first developed. The chair of SASB
explains that the standards are for use of global enterprises and applicable to firms all over
the world (Hales, 2018). Additionally, these prior works are mainly descriptive, focus on
introducing the SASB standards and how they work and are written by SASB members or
associated researchers. Further, the only empirical works using SASB guidelines (Khan
et al., 2016; Grewal et al., 2021) use US data and different methodology approaches to the one
presented in this research.
Third, studies examining the relation between sustainability reporting and firm
performance in New Zealand are very limited. Thus, this research also extends the literature
regarding sustainability reporting, particularly focusing on a market that strives to increase
disclosure of firms’ sustainability information.
Fourth, this study provides evidence that can have policy implications for New Zealand
companies, government and regulators. The public interest regarding sustainability
reporting is increasing significantly in New Zealand, particularly around the current
sustainability reporting practices of New Zealand businesses and their relationship with
firm performance.
Disclosure of sustainability information and material sustainability information using
the SASB industry guidelines are measured in two metrics: an indicator measure
(DISCLOSE) and a continuous index variable (SRINDEX). Firm performance proxies are
return on assets (ROA), return on equity (ROE) and Tobin’s Q. Descriptive statistics and
ordinary least squares (OLS) regression analyses are conducted to test the hypotheses.
Consistent with the legitimacy and stakeholder theories, we find that firm performance
has a positive relationship with both disclosure of sustainability information and financially
material sustainability information. The findings indicate that disclosure of financially
material sustainability information has a stronger relationship with firm performance,
showing a significant association with both ROA and ROE, compared with the disclosure of Financially
sustainability information itself, which has a positive relationship with ROA only. This is material
consistent with the rationale of the SASB for developing the sustainability reporting
standards, which is to provide benefits for companies. Sustainability reporting is value-
sustainability
creating because it reduces information asymmetry and boosts stakeholders’ confidence in a reporting
reporting firm. These outcomes suggest that managers of New Zealand firms initiate
sustainability reporting, especially focused on financially material sustainability
information, due to its positive effect on firm performance. 941
The rest of the paper is organised as follows. Section 2 reviews the relevant literature,
theory and hypotheses. Section 3 describes the sample, variables and models. Section 4
discusses the results and Section 5 concludes.

2. Literature review, theory and Hypotheses

2.1 Sustainability reporting in New Zealand
There is a rising trend of sustainability reporting worldwide (Farooq and De Villiers, 2019;
Ceesay et al., 2021; Grewal et al., 2021) and in New Zealand. According to the director of
Sustainability Service in KPMG New Zealand, the growth in sustainability reporting was
driven by “increased consumer awareness and investor pressure, as well as a broader
appreciation among businesses that non-financial risk management is key to long-term
value protection and creation” (KPMG, 2020). Furthermore, according to Simon Wilkins, a
KPMG partner:
While progress is being made, much remains to be done. We need to enhance the quality of ESG
reporting if we intend to meet increasing international and domestic stakeholder expectations
(KPMG, 2020).
However, the quality of sustainability reporting by New Zealand businesses remains an
issue, as is the case internationally, and is often considered to have deficiencies in “balance,
objectivity and transparency” (KPMG, 2017, p. 18). In addition, New Zealand is considered to
be lagging behind other nations in terms of emergence and development of sustainability
reporting (Hackston and Milne, 1996; Gray and Milne, 2002; Chapman and Milne, 2003).
The main issue is the lack of monetary information related to the organisations’
sustainability practices. It is found that the contents of sustainability reporting in New
Zealand companies are mostly declarative (narrative) and good news, rather than monetary
information or bad news (Hackston and Milne, 1996). This issue remained the same until
recent years, where New Zealand organisations seem to disclose less numerical information
such as environmental liabilities and costs (Chapman and Milne, 2003), and the annual
amount spent for implementation of policies (Othman et al., 2017).
The lack of details and monetary values in the sustainability reporting of New Zealand
firms may be explained by the main objective of implementing sustainability reporting
attributed to institutionalisation (Bebbington et al., 2009), legitimacy (Bellringer et al., 2011;
Dobbs and Van Staden, 2016; Othman et al., 2017), accountability (Bellringer et al., 2011;
Schneider et al., 2014), enhancement of reputation and good corporate governance (Dimitrov
and Davey, 2011). Based on surveys of New Zealand CFOs, the expected opportunity
granted by sustainability reporting is perceived to be positioning the organisation as
socially responsible, rather than communicating with external stakeholders or obtaining
financial gains (McGuinness and Bradshaw, 2011).
Although the financial benefits of sustainability reporting can be a determinant of
initiating sustainability reporting in New Zealand organisations (Bellringer et al., 2011),
sustainability reporting is largely focused on non-financial rather than financial factors
MEDAR (Dimitrov and Davey, 2011). A reason is that CFOs in New Zealand companies consider
31,4 sustainability reporting as a means of enhancing their reputation, rather than a tool for
actively communicating with stakeholders and improving profits as a result. CFOs are
found to be sceptical about the link between sustainability reporting and economic gains;
therefore, they would not want to be scrutinised about their sustainability practices by
stakeholders, which leads to a lack of detailed financial figures being disclosed in their
942 sustainability reports (Dimitrov and Davey, 2011).
Another reason for the lack of credible sustainability reporting is the fact that
sustainability is not mandatory and is unregulated in most parts of the world. Furthermore,
unlike financial reporting, sustainability is not yet guided by a set of accounting standards
that define financially material sustainability disclosure requirements (Grewal et al., 2021).
Regulators around the world hesitate to set standards for sustainability reporting mainly
due to a lack of understanding about which sustainability metrics are investor relevant and
financially material, leaving regulators with no justification for imposing reporting
requirements (Grewal et al., 2021). Therefore, more research is required worldwide to
understand the value-relevance of financially material sustainability reporting based on
some industry-specific frameworks, such as the one issued by SASB.
Studies examining the relation between sustainability reporting and firm performance in
New Zealand are very limited. Reddy and Gordon (2010) investigate the effect of
sustainability reporting on financial performance in New Zealand listed companies and find
some evidence of a positive link between sustainability reporting and firm performance.
However, this research could not confirm the significance of such a link, which could be
because the sample is small, using only 17 New Zealand listed firms.
De Villiers and Van Staden (2012) also imply a positive relationship between
sustainability reporting and financial benefit. The authors investigate New Zealand
shareholders’ attitudes towards corporate environmental disclosure, finding that
environmental disclosure is perceived as strongly positive by shareholders who emphasize
the accessibility and reliability of information. Shareholders consider that environmental
disclosure should be included in the annual reports and company website, rather than in a
separate confidential stand-alone document, in order to be publicly available. Shareholders
also prefer the environmental disclosure to be audited, despite the additional cost it might
incur and its implications for reduced returns on their investments.

2.2 Sustainability reporting and firm performance

In much of the literature, the relationship between sustainability reporting and firm
performance has been studied and mainly focused on the motivation of firms to voluntarily
execute sustainability reporting. However, mixed outcomes have been found between
sustainability reporting and financial performance, i.e. positive, negative or no relationship.
Christensen et al. (2021) present a comprehensive review of the literature on sustainability
reporting and firm performance.
The majority of previous research supports the idea that sustainability reporting has a
positive association with firm performance. It is argued that sustainability reporting leads to
better firm performance, measured by various indicators such as ROA, ROE, sales revenue
growth, profit before tax (PBT), share price and stock return (Guidry and Patten, 2010;
Dhaliwal et al., 2011; Ameer and Othman, 2012; Bachoo et al., 2013). Ameer and Othman
(2012) find that firms with higher sustainability scores, which are examined based on four
sustainability indices such as environment, diversity, community and ethical standards,
have better financial performance measured by ROA, PBT and cash flow from operations,
compared with non-sustainability-disclosing firms. The relationship between sustainability
reporting and financial performance is also supported by Burhan and Rahmanti (2012), who Financially
find that sustainability reporting positively affects ROA. material
According to Yu and Zhao (2015), there are two alternative theories explaining the
influence of sustainability on firm value: the value-creating theory and the value-destroying
sustainability
theory. Value-creating theory suggests that sustainability practice and disclosure mitigate reporting
firm risk and create firm value in the long run. In contrast, the value-destroying theory
indicates that sustainability-related activities are conducted at the expense of shareholders,
meaning a negative association between sustainability practices and firm value. Yu and 943
Zhao (2015) support the value-creating theory, noting that the capital market rewards the
implementation of sustainability initiatives.
It is also argued that sustainability reporting leads to positive market reactions and
increases share price (Guidry and Patten, 2010; De Klerk and De Villiers, 2012; Bachoo et al.,
2013). Guidry and Patten (2010) find that high-quality sustainability reports are associated
with significantly positive market values. Based on the boosted reputation and positive
market reaction, sustainability reporting augments share prices and the market value of the
company, which shows that sustainability reporting is relevant to investors’ decision-
making (De Klerk and De Villiers, 2012; Bachoo et al., 2013; Jain et al., 2021).
The positive relationship between sustainability reporting and firm performance can be
explained in relation to legitimacy and stakeholder theories. A high level of sustainability
reporting is associated with high company reputation because firms meet the informational
needs of stakeholders for disclosure of sustainability issues (Bayoud et al., 2012). Further,
high-quality sustainability reporting decreases information asymmetry between
stakeholders and firm managers. This makes investors perceive that the firm is legitimate,
and thus there is less risk about poor sustainability practices and cash outflows associated
with them (Bachoo et al., 2013).
However, research also shows an opposite link between sustainability reporting and firm
performance. Cormier and Magnan (1999) identify a negative relationship between
voluntary environmental reporting and stock market value if the firm incurs pollution levels
in excess of governmental standards. Lopez et al. (2007) also find that sustainability
reporting has a negative impact on firm performance.
Detre and Gunderson (2011) note that share value has a negative association with
sustainability reporting. Specifically, the market reacts negatively, at least in the short term,
when the firm announces that it will become a member of the DJSI. This outcome reflects a
short-term view of investors because they may presume a decline in firm value is due to the
increased costs related to sustainability initiatives. This argument supports the value-
destroying theory arguing that as a result of sustainability reporting, firm value is found to
be decreasing. The negative association between sustainability reporting and share price is
also affirmed by Uwuigbe et al. (2018).
A number of studies claim that there is no meaningful relationship between
sustainability reporting and financial performance. McWilliams and Siegel (2000) point out
that the positive or negative link between sustainability-related indicators and profitability
is the outcome of flawed empirical analysis, and that when all other variables are controlled
for, there is no significant relationship between sustainability-related activities and firm
financial performance. Murray et al. (2006) also find no relationship between sustainability
disclosure and share returns. This is consistent with a previous study by Ziegler et al. (2002),
who conclude that companies’ sustainability practices do not affect shareholder value.
Adams et al. (2012) test the relationship between sustainability level, proxied by DJSI
membership, and firm performance, suggesting that sustainability level does not have a
significant impact on firm performance. This contradicts the outcome by Lopez et al. (2007),
MEDAR who also use DSJI membership as a proxy of sustainability practice and find a negative
31,4 relationship between sustainability reporting and financial performance. More recently,
Taiwo et al. (2021) study the impact of sustainability reporting on firm performance in
Nigeria and document no significant relationship.
Given the mixed findings in the prior literature concerning the value-relevance of
sustainability reporting and regulators requiring strong justification for imposing reporting
944 requirements, there is a strong call for further studies to examine the relationship between
firm value and sustainability reporting, particularly based on financially material principles
such as those introduced by the SASB (Grewal et al., 2021). Thus, this study aims to fill this
void in the literature.

2.3 Theory and hypotheses

According to legitimacy theory, companies try to show their legitimacy and obtain the
support from the society they operate in through disclosing sustainability information
(Guthrie and Parker, 1989; Tilling, 2004; Farooq et al., 2018; Ali et al., 2020; Jain et al., 2021).
Stakeholder theory also explains that the disclosure of sustainability information is related
to the society. Stakeholders put pressure on firms to act in a socially responsible manner,
and companies try to build trust with stakeholders by voluntarily disclosing sustainability
information (Freeman, 1984; Aggarwal, 2013; Rezaee, 2016; Nadeem, 2021a). Parallel to these
theories is the argument maintained in value-creating theory, which posits that firms’
sustainability reporting generates value as such reporting is viewed positively by the
market (Grewal et al., 2021) and the demand for integration of sustainability data in
investment management has also increased exponentially over the past decade (Amel-Zadeh
and Serafeim, 2018).
However, there is a sceptical viewpoint on sustainability reporting. Shareholder theory
argues that sustainability reporting can have a negative impact on firm value because
shareholders may consider that sustainability activities consume firms’ resources that could
have been used for maximising shareholders’ interest (Friedman, 1970; Rezaee, 2016), a
concept that views sustainability reporting as value-destroying. These theories provide a
background to the argument that sustainability reporting has an association with financial
performance, either positively or negatively.
The relationship between sustainability reporting and firm performance has been
studied in previous research using various samples and indicators. The outcomes are mixed.
Some studies argue that sustainability reporting has a positive association with firm
performance, which supports the legitimacy, stakeholder and value-creating theories
(Guidry and Patten, 2010; Dhaliwal et al., 2011; Ameer and Othman, 2012; Bachoo et al.,
2013). These viewpoints consider that firms show their legitimacy to society through
sustainability reporting and stakeholders react positively to those initiatives.
In contrast, it is argued that sustainability reporting has a negative association with firm
performance (Lopez et al., 2007; Detre and Gunderson, 2011; Uwuigbe et al., 2018). The view
on this negative link is related to shareholder theory (value-destroying), which suggests that
sustainability reporting deteriorates financial performance due to the unfavourable
perception of shareholders towards sustainability reporting.
Although the outcomes are mixed, we expect a positive relationship between
sustainability reporting and firm performance in New Zealand for two reasons. First, more
of the prior papers observe a positive relationship between sustainability reporting and firm
performance (Freeman, 1984; Waddock and Graves, 1997; Guidry and Patten, 2010;
Dhaliwal et al., 2011; Ameer and Othman, 2012; Bayoud et al., 2012; De Klerk and De Villiers,
2012; Bachoo et al., 2013; Yu and Zhao, 2015). Second, Reddy and Gordon (2010) conclude
that there is a systematic positive relationship between sustainability reporting and Financially
financial performance in New Zealand firms. However, their study uses a small sample and material
could not find significant results. Thus, it would be meaningful to review the up-to-date
sustainability reporting status of New Zealand organisations and examine the possible link
sustainability
between sustainability reporting and firm performance. Therefore, the first hypothesis is the reporting
following:

H1. Disclosure of sustainability information is positively associated with firm 945

performance in New Zealand firms.
The SASB, a non-profit organisation that developed a new sustainability reporting
standard, brings the concept of ‘materiality’ into the discussion about the relationship
between sustainability reporting and firm performance. The SASB suggests a range of
sustainability reporting items that are likely to impact on the decision-making of investors,
i.e. financially material sustainability reporting items. Its framework does not encourage
firms to disclose the whole range of sustainability items because it considers disclosing
generic sustainability information to be less suitable. Instead, the SASB suggests firms
disclose the sustainability items that are likely to impact on their investors’ decision-
making.
The first reason for that recommendation is that it is cost-efficient for firms. Disclosing
the whole range of general sustainability items is highly time-consuming and costly. Collins
et al. (2010) identify that cost, management time and knowledge/skills are the three most
commonly reported barriers to the adoption of sustainability initiatives in New Zealand. If
there are more items to disclose, it definitely burdens firms and might lead to totally
ignoring the adoption of sustainability initiatives.
However, if the reporting items are reduced and focused on the ones that are material to
the business’ financial success, firms would be more willing to initiate sustainability
reporting (Ruiz-Lozano et al., 2021). For example, Downer EDI Limited should disclose 80
indicators according to the GRI standards, which is a set of standards suggesting generic
sustainability information disclosure for all businesses. In contrast, Downer EDI Limited
has to disclose only 13 indicators that are financially material, according to the SASB
standards. Limiting the disclosure items reduces cost, which is likely to encourage firms to
start sustainability reporting.
In addition, industry-tailored sustainability reporting standards can provide more useful
information about firms’ sustainability practices than the one-size-fits-all sustainability
reporting standard. The SASB standards are tailored for each industry; therefore, firms in
different industries have different sustainability items to disclose. Generic sustainability
reporting standards may not provide information that is material to the decision-making of
investors because they do not consider the unique characteristics of each industry. For
example, waste management is a disclosure topic that is more important to the Food and
Beverage industry than to the Financial industry, but the generic sustainability standard
weighs that topic the same in both industries. In contrast, the SASB standards have more
detailed disclosure lists of waste management topics for the Food and Beverage industry,
while excluding or limiting the disclosure lists in its guidelines for the Financial industry.
Therefore, it is expected that the SASB standards will provide more useful and specific
information to the users of sustainability reports.
This new viewpoint towards sustainability reporting of the SASB raises the question of
whether disclosing financially material sustainability information affects investors’
decision-making process and leads to better firm performance, as the SASB initially
intended in its standards development. Thus, it would be interesting to explore the
MEDAR relationship between the disclosure of ‘financially material’ sustainability information using
31,4 this new SASB framework and financial performance, rather than encompassing a whole
range of generic sustainability information.
As the SASB published its complete set of sustainability reporting standards in 2018,
there are not many papers using the SASB guidelines. Khan et al. (2016), the first research
which considers the concept of materiality in sustainability disclosure, find a positive
946 relationship between the disclosure of financially material sustainability information and
firm performance. More recently, Grewal et al. (2021) also display a positive relationship
between material sustainability information and stock price informativeness, while noting
no relationship between immaterial sustainability information and stock price
informativeness. These two studies possibly support legitimacy theory because they show
that firm performance improves if a firm considers stakeholder perspectives and discloses
financially material sustainability information to prove their legitimacy.
This prior research examining the relationship between sustainability reporting
considering the SASB standards and firm performance are limited to the USA However, the
SASB standards and the concept of material sustainability reporting are aimed to be used
globally. Further, these studies have a different research design than the one proposed in
this research. Therefore, it is meaningful to investigate the SASB-identified disclosure items
in firms from other countries, such as New Zealand, using a different methodology approach
and examining any association with firm performance.
In previous research, New Zealand companies are found to be lacking in disclosing
sustainability information in a measurable and comparable format. This is due to some
belief in New Zealand firms that sustainability reporting has no relationship with firm
performance; hence, there is no need to reveal measurable sustainability information and be
scrutinised by stakeholders (Dimitrov and Davey, 2011). However, according to Khan et al.
(2016), firms disclosing more material sustainability issues outperform the ones with poor
disclosure, concluding that material sustainability information is important to enhance firm
performance. Thus, in the context of New Zealand, it is expected that firms disclosing more
financially material information, expressed in a measurable format, have better performance
than firms not disclosing. Therefore, the second hypothesis is the following:

H2. Disclosure of financially material sustainability information is positively associated

with firm performance in New Zealand firms.

3. Research design
3.1 Sample
Data from the Datastream and Orbis databases are used to gather financial information
about companies. In addition, we manually collect information from annual reports, stand-
alone sustainability reports, the New Zealand Stock Exchange (NZX) and companies’
websites. For the industry classification of companies, data from the SASB are used.
In line with the purpose of this study, we follow Jones et al. (2016) and include in our
sample all companies listed in the NZX, 177 in total, for the period of 2008–2019. First, the
extent of sustainability reporting information is checked by reviewing the existence of
sustainability disclosure, and where and how it is disclosed. The process consists of
checking annual reports, stand-alone sustainability reports or equivalent documents (e.g.
ESG report, CSR report and Impact report) obtained from the NZX database, companies’
websites and the “sustainability” section of companies’ homepages. Second, keywords are
used to identify any sustainability-related information disclosed; for example,
“Sustainability”, “Sustainable”, “ESG”, “Environment”, “Greenhouse gas emission”,
“Pollution”, “Emission”, “Waste”, “Recycle”, “Reuse”, “Employee”, “Community”, “CSR”, Financially
“Packaging”, “Water” and “Air”. If there is any sustainability-related information disclosed, material
it is ticked as “yes” for the sustainability disclosure for that year, otherwise “no”.
Third, after checking the existence of sustainability disclosure, the 177 companies are
sustainability
classified according to the Sustainable Industry Classification System (SICS), developed by reporting
the SASB. SICS classification groups 77 industries across 11 sectors. For the SICS sector
classification, SICS Look-up Tools are used [2]. Companies that cannot be found using this
tool, are classified using the SICS Mapping Archive, which is private information directly 947
obtained from SASB through signing an Academic Licensing Agreement. Financial
companies and firms missing SICS information are removed from the sample, totalling 58
businesses.
Fourth, the top five most frequent SICS sectors are selected, which are Food and
Beverage, Health Care, Infrastructure, Services and Technology and Communications,
including 84 companies representing 71% of the sample. The final sample comprises a total
of 26 industries distributed in five major SICS sectors: 7 industries in Food and Beverage, 5
industries in Health Care, 3 industries in Infrastructure, 7 industries in Services and 4
industries in Technology and Communications.
The final sample considers the most recent period because sustainability disclosure data
are not available for earlier years. Also, sustainability disclosure is rapidly growing in New
Zealand, with a rate increasing significantly in recent years. This is consistent with Jones
et al. (2016), who draw their sample from the most recent sustainability reports of UK
companies. Considering the availability of information and keeping data consistency, the
final period is 2017–2019. As a result, the initial number of firm-year observations in the
sample is 252.
The sample is further reduced in 54 observations due to the lack of financial information
of New Zealand companies from the Datastream and Orbis databases to calculate the
dependent and independent variables; thus, the final sample comprises 198 firm-year
observations. Table 1 describes the sample.

3.2 Dependent variable

For measurement of financial performance, ROA, return on equity (ROE) and Tobin’s Q
(TOBINSQ) are used. These proxies are the most common indicators of financial
performance in the literature investigating the relationship between sustainability reporting
and firm performance (Chung and Pruitt, 1994; Waddock and Graves, 1997; Guidry and
Patten, 2010; Dhaliwal et al., 2011; Ameer and Othman, 2012; Bachoo et al., 2013; Wolfe and
Sauaia, 2014). ROA is annual earnings divided by total assets, ROE is net income divided by
shareholders’ equity and Tobin’s Q is defined as market capitalisation plus total debt

Unique firms

Companies listed in New Zealand Stock Exchange 177

Less: Financial companies 48
Less: Missing required SICS information 10
Less: Less frequent SICS Sectors 35
Total number of companies in sample 84
Firm years
Unique firms
number of years (84
3) 252
Less: Missing values on dependent and independent variables 54 Table 1.
Total number of firm-year observations in sample 198 Sample selection
MEDAR divided by total assets. ROA, ROE and Tobin’s Q measure firm financial performance from
31,4 different angles. Therefore, it is expected that the relationship between sustainability
reporting and firm performance is observed reasonably using these three indicators.

3.3 Independent variables

Two measures of sustainability reporting are used. The first one is DISCLOSE, a dummy
948 variable that is equal to 1 if the company discloses sustainability information in its annual
reports or stand-alone sustainability reports, and 0 otherwise.
The second one is SRINDEX, which is the sustainability reporting score based on the
firm’s disclosure of financially material sustainability information and ranges from 0% to
100%. We comprehensively follow the SASB’s industry guidelines in measuring material
sustainability disclosure, and use a different approach from Khan et al. (2016) and Grewal
et al. (2021).
The SASB standards aim to produce information that is “reasonably likely to be
material; decision-useful for companies and their investors; and cost-effective for corporate
issuers” (SASB, 2017a, p. 9). Regarding the materiality concept, the SASB states that:
Information is material if there is a substantial likelihood that the disclosure of the omitted fact
would have been viewed by the reasonable investor as having significantly altered the ‘total mix’
of information made available. (SASB, 2017a, p. 9).
In the sustainability literature, the concept of materiality is concerned with reporting those
environmental, social and economic issues that matter most to a company and its
stakeholders (Jones et al., 2016).
The SASB standards identify 11 major sectors: Consumer Goods, Extractives and
Minerals Processing, Financials, Food and Beverage, Health Care, Infrastructure, Renewable
Resources and Alternative Energy, Resource Transformation, Services, Technology and
Communications and Transportation. For each sector, there are industries as a sub-category.
For example, the health care sector has six industries: Biotechnology and Pharmaceuticals,
Drug Retailers, Health Care Delivery, Health Care Distributors, Managed Care and Medical
Equipment and Supplies. Appendix 1 includes the details of the SICS industry classification.
In addition, the SASB provides a separate document of standards for each industry,
which comprises sustainability disclosure topics and accounting metrics for each topic. For
instance, in the Health Care sector, one of the industries is Drug Retailers. In the Drug
Retailers document, a full set of sustainability disclosure topics is provided, such as Energy
Management in Retail, Data Security and Privacy, Drug Supply Chain Integrity,
Management of Controlled Substances and Patient Health Outcomes. For each disclosure
topic, one or more accounting metrics are included. Specifically for the topic of ‘Energy
Management in Retail’, the accounting metrics are Total energy consumed, Percentage grid
electricity and Percentage renewable. The unit of measure for these accounting metrics can
be gigajoules (GJ) and percentage (%).
The basis for scoring disclosure status used in this study is the guidelines provided by
the SASB called The State of Disclosure (2017), which provides an overview of the quality of
existing corporate disclosure on the SASB topics. It classifies the disclosure quality in No
disclosure, Boilerplate, Company-tailored narrative and Metrics (SASB, 2017b).
(1) No disclosure means that the company does not provide any disclosure regarding
the topics.
(2) Boilerplate means that the company discloses some sustainability-related
information; however, it uses a generic language that can be applicable to any
other firm within and outside the industry. The SASB considers that boilerplate is
 a poor disclosure status because it is not tailored enough to the specified Financially
circumstance of the disclosing entity, and lacks sufficient and significant material
information that differentiates the company from its peers.
sustainability
(3) Company-tailored narrative means that the company provides disclosure using reporting
specific language that can be understood only in the context of the issuer. Unlike
boilerplate disclosure, such disclosure has been sufficiently and significantly
tailored to reflect the company’s specific and unique circumstances, which makes it 949
uniquely applicable to this reporting firm and not applicable to its peers. However,
company-tailored narrative disclosure has limitations in that it may not provide
information that enables quantitative comparisons between firms.
(4) Metrics means that the company provides disclosure using quantitative
performance indicators which, by their nature, can be understood only in the
context of the issuer.

Based on the criteria provided by the SASB, each disclosure topic is scored between 0 and 3.
We review the annual reports, stand-alone sustainability reports and company websites and
check the sustainability disclosure status regarding the disclosure topic and accounting
metrics suggested by the SASB industry guideline. For each of those accounting metrics, if a
firm has no disclosure, then it is scored as 0. If the disclosure is “Boilerplate”, then it is
scored as 1. If it is “Company-tailored narrative”, it is scored as 2. If it is a “Metric”, then it is
scored as 3. After scoring each accounting metric, these figures are summed up to conclude a
final score for each firm and year.
Then, we create an index showing a list with disclosure scores based on the SASB
materiality map, which is the measure of material sustainability disclosure. This materiality
map identifies sustainability issues that are likely to affect the company’s financial
condition or operating performance within an industry. This map provides an overview of
the 5 dimensions and 26 sustainability-related business issues categories and of the issues
that are material for each industry.
Through this map, it is easily identifiable if a specific topic is material to an industry or
not. For example, the GHG Emissions category under the Environment dimension is
coloured dark grey on the map in the Extractives and Minerals Processing sector, while it is
not coloured for Financials. This means that GHG Emissions are likely to be material in
Extractives and Minerals Processing sector firms, and therefore they should disclose GHG
Emissions. However, GHG Emissions are not material for Financial firms and therefore they
do not need to disclose it.
Under one sector, there are various industries included and these industries all have
different colouring in this map. The materiality map has 26 rows showing a general issue
category and 77 columns showing the industries. Appendix 2 illustrates the SASB’s sector-
level materiality map.
Based on this materiality map, an index comprising 26 general issue categories is
created. The disclosure topics of each company are listed and coloured in the index to
highlight that they are material for that company based on the SASB classification. Other
disclosure topics that are not coloured are not considered material for the company
according to the SASB standards; therefore, they do not need to disclose those topics. Then,
the aggregate scores for each coloured topic are recorded and the disclosure rate is
calculated for each firm-year. The total score that a firm obtains is divided by the total score
available for such a firm to achieve in that year. All companies’ scores are recorded the same
way. Appendix 3 illustrates an example of the material sustainability disclosure rate of The
Warehouse Group.
MEDAR In this scoring and mapping process, some accounting metrics are excluded and those
31,4 are about complying with US laws, where most of the firms outside the USA would not
disclose this accounting metric.[3]

3.4 Control variables

Following previous studies, several variables are included to control for other determinants
950 of firm performance. Firm size (SIZE) is defined as the natural logarithm of total assets. Size
has been suggested to be a factor that affects firm performance (Cormier and Magnan, 1999;
Brammer and Pavelin, 2008; Dhaliwal et al., 2011; Qiu et al., 2016). Lee (2009) and Pervan and
Višic (2012) argue that firm size plays a significant positive role in profitability.
Leverage (LEV) is total debt divided by total assets (Cormier and Magnan, 1999;
Brammer and Pavelin, 2008; Qiu et al., 2016). Leverage is regarded as having an association
with firm performance, either positive or negative (Campello, 2006; Margaritis and Psillaki,
2010; Raza, 2013; Ilyukhin, 2015).
Market-to-book ratio is an indicator of the firm’s growth opportunity (Fama and French,
1992; Dhaliwal et al., 2011; Khan et al., 2016; Kuzey and Uyar, 2017; Grewal et al., 2021).
Cross-listing (CROSS) is an indicator variable that is equal to 1 if the company is also listed
on the Australian Securities Exchange (ASX), and 0 otherwise. Chen et al. (2008) argue that
cross-listing is linked to better operating performance.
Analyst (ANALYST) is the number of analysts issuing earnings per share forecasts and
analyst forecast (ANALYSTF) refers to analysts’ 12-month forecast of earnings per share.
Mola et al. (2013) and Farooq and Satt (2014) note that analyst following is positively related
with firm performance.
Finally, year indicators to control for year fixed effects are included [4]. Table 2 provides
a summary of the variables and their definitions.

3.5 Models
To test H1, we examine whether disclosure of sustainability information is associated with
firm performance. The model for H1 is specified as follows:

Dependent variables
ROA Net income divided by total assets.
ROE Net income divided by total equity.
TOBINSQ Market capitalisation plus total debt divided by total assets.
Independent variables
Test variables
DISCLOSE Dummy variable that is equal to 1 if the company discloses a sustainability
report; 0 otherwise.
SRINDEX Sustainability reporting score based on the firm’s disclosure of financially
material sustainability information, which ranges from 0% to 100% age.
Control variables
SIZE Natural logarithm of total assets.
LEV Total debt divided by total assets.
MB Market value of equity divided by its book value.
CROSS Indicator that is equal to 1 if the company is also listed on the AUS stock
exchange; 0 otherwise.
Table 2. ANALYST Number of analysts issuing earnings per share forecasts.
Variable definitions ANALYSTF Analyst forecast of earnings per share.
FP ¼ b 0 þ b 1 DISCLOSE þ b 2 SIZE þ b 3 LEV þ b 4 MB þ b 5 CROSS þ b 6 ANALYST Financially
þ b 7 ANALYSTF þ fixed effects þ « material
(1)
sustainability
reporting
In equation (1), FP refers to firm performance, which is indicated by three dependent
variables ROA, ROE and TOBINSQ.
We expect b 1 to be positive and significant if New Zealand companies disclosing
951
sustainability reporting have better financial performance. A positive and significant b 1 –
which measures whether a firm discloses sustainability information through annual reports
or stand-alone sustainability reports – would support H1.

FP ¼ b 0 þ b 1 SRINDEX þ b 2 SIZE þ b 3 LEV þ b 4 MB þ b 5 CROSS þ b 6 ANALYST

þ b 7 ANALYSTF þ fixed effects þ «
(2)

H2 is examined in equation (2). It is designed to identify the association between disclosure

of financially material sustainability information and firm performance.
We expect b 1 to be positive and significant if New Zealand companies disclosing more
financially material sustainability information have better financial performance. A positive
and significant b 1 – which measures a firm sustainability reporting index based on the
SASB materiality metric – would support H2.

4. Results
4.1 Descriptive statistics
Table 3 shows the descriptive statistics. The mean of ROA is 2.7%, ROE is 4.3% and
TOBINSQ is 192%. In addition, 71% of firms disclose sustainability information, showing
that there are more firms disclosing sustainability issues than firms not disclosing. This is
because the sample contains the largest New Zealand companies listed on the NZX and
aligning with the legitimacy theory, and these bigger companies are potentially under more

Variable N Mean Median SD 25th Pctl 75th Pctl

ROA 198 0.027 0.049 0.184 0.023 0.074

ROE 198 0.043 0.095 0.327 0.048 0.156
TOBINSQ 198 1.916 1.035 2.786 0.873 1.873
DISCLOSE 198 0.712 1.000 0.454 0.000 1.000
SRINDEX 150 0.052 0.000 0.127 0.000 0.000
SIZE 198 13.730 13.827 1.428 12.685 14.878
LEV 198 0.245 0.243 0.145 0.159 0.344
MB 198 2.839 1.495 3.772 1.080 2.870
CROSS 198 0.480 0.000 0.501 0.000 1.000
ANALYST 198 4.465 4.000 2.379 2.000 6.000
ANALYSTF 198 0.237 0.146 0.221 0.085 0.351

Notes: This table reports descriptive statistics for the variables used to estimate equations (1) and (2). All Table 3.
variables are defined in Table 3 Descriptive statistics
MEDAR pressure from stakeholders to disclose sustainability information to prove their legitimacy
31,4 to the society, compared with smaller firms across New Zealand.
The average of SRINDEX is 5.2%, meaning that firms disclose only 5.2% of financially
material sustainability information out of 100%, the full score. This is considered low, which
is consistent with prior literature arguing that New Zealand firms have low disclosure of
financial, monetary, numerical and measurable format of sustainability information
952 (Hackston and Milne, 1996; Chapman and Milne, 2003; Othman et al., 2017).
The average of size is 13.73, leverage is 24.5% and market-to-book ratio is 2.839. About
half of the sample is cross-listed in the ASX (0.480). On average, the number of analysts
issuing earnings per share forecast is 4.465, whereas their 12-month forecast of earnings per
share is 0.237.
Table 4 presents the Spearman correlation matrix. DISCLOSE does not show a
significant correlation with any of the firm performance indicators (ROA, ROE and
TOBINSQ), while SRINDEX has a positive correlation with ROA (0.222) and ROE (0.267),
both at a p < 0.01 significance level, though it does not show any significant link with
TOBINSQ. This may indicate that sustainability reporting is related to financial
performance only when the sustainability information disclosed is financially material,
which is consistent with the rationale of the SASB sustainability reporting standards
(SASB, 2017a). This initial finding is also consistent with recent literature (Grewal et al.,
2021) showing that financially material sustainability reporting increases firm value, and
warrants a further investigation into this relationship.
MB has positive correlations with all firm performance indicators (ROA, ROE and
TOBINSQ) at p < 0.01, especially strong with TOBINSQ (0.837). ANALYSTF also displays
positive correlations with all firm performance indicators, while the relationship with ROA
(0.288 at p < 0.01) and ROE (0.405 at p < 0.01) is stronger than the relationship with
TOBINSQ (0.143 at p < 0.05). Along with ANALYSTF, ANALYST also shows a positive
relationship with firm performance. It has positive associations with ROA (0.172 at p < 0.05)
and ROE (0.197 at p < 0.01), though the relationship with TOBINSQ is not significant.
In contrast, SIZE, LEV and CROSS show a negative correlation with firm performance.
SIZE has a negative association with TOBINSQ (0.327 at p < 0.01), while it does not show
a significant correlation with the other two variables (ROA, ROE). LEV has a negative
relationship with ROA (0.212 at p < 0.01) and TOBINSQ (0.170 at p < 0.05). CROSS has
a negative correlation with ROA (0.187 at p < 0.01), though no significant correlation with
ROE and TOBINSQ. These findings are generally in line with prior literature and indicate
that larger, cross-listed and high-leveraged firms exhibit lower performance compared with
their counterparts. Nonetheless, the correlation results need a further empirical/regression
analysis for better understanding of the effects of different indicators on firm performance.
Table 5 shows the difference of means test for variables based on disclosure. A total of
141 observations are classified as “DISCLOSE” and 57 observations are classified as “NO
DISCLOSE”. The number of observations classified as “DISCLOSE” (141) is greater than
double the observations classified as “NO DISCLOSE” (57), meaning that the majority of the
firms disclose sustainability information either within their financial reports or in separate
documents. The sample contains larger firms listed in the NZX, and larger firms usually
face stakeholders’ informational demands more often than smaller ones, according to
legitimacy theory.
Companies disclosing sustainability information have a significantly higher average
ROA (5.19%) than the ones with no disclosure (3.55%) at a 5% significance level. For
ROE, disclosing firms have an average of 8.08%, while non-disclosing firms have an
 ROA ROE TOBINSQ DISCLOSE SRINDEX SIZE LEV MB CROSS ANALYST ANALYSTF

ROA 1
ROE 0.913 *** 1
TOBINSQ 0.347 *** 0.268 *** 1
DISCLOSE 0.059 0.058 0.043 1
SRINDEX 0.222 *** 0.267 *** 0.075 0.317 *** 1
SIZE 0.039 0.070 0.327 *** 0.489 *** 0.126 1
LEV 0.212 *** 0.096 0.170 ** 0.144 ** 0.156 * 0.234 *** 1
MB 0.221 *** 0.279 *** 0.837 *** 0.088 0.137 * 0.208 *** 0.239 *** 1
CROSS 0.187 *** 0.094 0.015 0.030 0.159 * 0.217 *** 0.127 * 0.223 *** 1
ANALYST 0.172 ** 0.197 *** 0.074 0.472 *** 0.163 ** 0.724 *** 0.042 0.120 * 0.228 *** 1
ANALYSTF 0.288 *** 0.405 *** 0.143 ** 0.281 *** 0.443 *** 0.299 *** 0.028 0.252 *** 0.013 0.271 *** 1

Notes: This table reports Spearman correlation coefficients for the variables used to estimate equations (1) and (2). All variables are defined in Table 3. *, **, and
***indicate significance at the 10%, 5% and 1% level respectively
reporting
Financially

Spearman correlation
Table 4.
953
sustainability
material
MEDAR average of 5.14% at a 10% significance level. Thus, in terms of ROA and ROE, disclosers
31,4 are performing significantly better than non-disclosers.
However, Tobin’s Q (TOBINSQ) shows a different result. The average Tobin’s Q for
disclosers is 160.98%, while it is 267.48% for non-disclosers at a 10% significance level. A
possible reason for the different results using ROA and ROE as financial performance
proxies with TOBINSQ is the type of figures they use for calculation. ROA and ROE are
954 accounting-based measures, where items are obtained mainly from financial statements,
while TOBINSQ is considered a market-based proxy, which is more volatile, as it depends
on the market value of equity rather than its book value.
Disclosers are on average bigger in size (14.18) than non-disclosers (12.62) and the
difference is significant at a 1% level, indicating that bigger firms tend to disclose
sustainability reporting in comparison with smaller firms.
The average leverage of disclosers is 25.97% compared with 20.8% for non-disclosers
and the difference (5.17%) is significant (p < 0.05), meaning that disclosers have higher
leverages than non-disclosers. Market-to-book ratio and cross-listing do not show any
significant differences between disclosers and non-disclosers.
Disclosers have on average 5.15 analysts who issue earnings per share forecasts on those
firms, while non-disclosers have 2.77 analysts. The difference of 2.377 is significant at a 1%
level. Disclosers also have a higher 12-month analyst forecast of earnings per share (0.2691)
than non-disclosers (0.157) with a significant difference (p < 0.01), suggesting that firms
followed by analysts tend to disclose sustainability reporting.

4.2 Regression results

Tables 6 and 7 document the OLS regressions results. Each model uses a different proxy of
sustainability reporting. Table 6 displays the estimation results using DISCLOSE and Table 7
using SRINDEX. Proxies of financial performance are ROA, ROE and TOBINSQ. In each table,
Column 2 reports the expected sign for the tested hypothesis and the following columns show
the coefficient values with and without year fixed effects. The t-statistics and p-values are
based on a heteroscedasticity consistent covariance matrix.
Table 6 reports the result of testing H1. DISCLOSE has a positive relationship with ROA,
showing a significant coefficient of 0.035 without year fixed effects and 0.042 with year fixed
effects. There is a lack of statistically significant results using ROE and TOBINSQ that
could be due to DISCLOSE being an indicator variable based on the existence of

DISCLOSURE NO_DISCLOSURE
Variable N Mean N MEAN Diff t-stat

ROA 141 0.052 57 0.036 0.087 2.09 **

ROE 141 0.081 57 0.051 0.132 1.98 *
TOBINSQ 141 1.610 57 2.675 1.065 1.76 *
SIZE 141 14.178 57 12.621 1.557 7.89 ***
LEV 141 0.260 57 0.208 0.052 2.04 **
MB 141 2.634 57 3.346 0.712 1.01
Table 5. CROSS 141 0.489 57 0.456 0.033 0.42
ANALYST 141 5.149 57 2.772 2.377 8.88 ***
Difference of means
ANALYSTF 141 0.269 57 0.157 0.112 3.97 ***
test for variables of
disclosure and no Notes: This table reports the difference of means for variables of disclosure and no disclosure. All variables are
disclosure defined in Table 3. *, **, and ***indicate significance at the 10%, 5% and 1% level respectively
 ROA ROE TOBINSQ
Variable Exp. Sign Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat.

Intercept 0.196 0.77 0.178 0.74 0.305 0.75 0.262 0.69 7.233 2.81 *** 6.990 2.85 ***
DISCLOSE þ 0.035 1.33 * 0.042 1.44 * 0.009 0.20 0.025 0.52 0.314 0.92 0.402 1.12
SIZE 0.015 0.80 0.015 0.80 0.030 0.92 0.029 0.92 0.446 2.15 ** 0.439 2.20 **
LEV 0.074 0.65 0.073 0.64 0.324 1.45 0.320 1.46 4.574 3.67 *** 4.590 3.68 ***
MB 0.014 2.21 ** 0.014 2.21 ** 0.036 3.25 *** 0.036 3.26 *** 0.432 3.28 *** 0.431 3.32 ***
CROSS 0.003 0.09 0.002 0.08 0.052 0.88 0.051 0.89 0.044 0.24 0.042 0.23
ANALYST 0.003 0.33 0.003 0.33 0.015 1.29 0.015 1.30 0.225 2.29 ** 0.225 2.32 **
ANALYSTF 0.139 3.18 *** 0.138 3.17 *** 0.294 4.28 *** 0.292 4.23 0.435 1.08 0.428 1.04
Year fixed effects Yes Yes Yes
N 198 198 198 198 198 198
R2 0.21 0.21 0.36 0.37 0.60 0.60
F-statistic 7.10*** 5.59*** 15.42*** 12.17*** 40.82*** 31.78***

Notes: This table reports the results from estimating equation (1) to test H1. In Model (1), the dependent variable is ROA, in Model (2), the dependent variable is
ROE and in Model (3), the dependent variable is TOBINSQ. The sample period is 2017–2019. See Table 3 for variable definitions. *, **, and ***indicate
significance at the 10%, 5% and 1% levels, respectively. Only the p-value of DISCLOSE is based on one-tailed tests where a positive sign is predicted. The
remaining p-value results are based on two-tailed tests. N refers to the number of observations used in each model

reporting disclosure
Effect of
reporting
Financially

Table 6.
955

on firm performance
sustainability
sustainability
material
 31,4

956

Effect of
Table 7.
MEDAR

sustainability

firm performance
reporting index on
ROA ROE TOBINSQ
Variable Exp. Sign Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat.

Intercept 0.411 1.25 0.397 1.27 0.624 1.25 0.577 1.23 8.093 2.63 *** 7.734 2.65 ***
SRINDEX þ 0.196 2.11 ** 0.204 2.15 ** 0.225 1.41 * 0.253 1.61 * 0.754 0.91 0.935 1.12
SIZE 0.026 1.06 0.026 1.07 0.049 1.21 0.047 1.22 0.459 1.80 * 0.444 1.82 *
LEV 0.021 0.13 0.028 0.17 0.388 1.21 0.366 1.19 6.627 3.56 *** 6.778 3.59 ***
MB 0.013 1.99 ** 0.013 2.02 ** 0.034 2.78 *** 0.034 2.85 *** 0.433 3.29 *** 0.434 3.37 ***
CROSS 0.015 0.33 0.016 0.35 0.063 0.73 0.061 0.73 0.200 0.87 0.211 0.94
ANALYST 0.010 1.01 0.010 1.09 0.023 1.85 * 0.025 2.01 ** 0.202 1.54 0.191 1.53
ANALYSTF 0.159 2.60 ** 0.159 2.62 *** 0.334 3.41 *** 0.333 3.47 *** 0.644 1.04 0.656 1.01
Year fixed effects Yes Yes Yes
N 150 150 150 150 150 150
R2 0.27 0.27 0.43 0.44 0.62 0.62
F-statistic 7.59*** 5.85*** 15.59*** 12.15*** 33.18*** 25.78***

Notes: This table reports the results from estimating equation (2) to test H2. In Model (1), the dependent variable is ROA, in Model (2), the dependent variable is
ROE and in Model (3), the dependent variable is TOBINSQ. The sample period is 2017–2019. See Table 1 for variable definitions. *, **, and ***indicate
significance at the 10%, 5% and 1% level, respectively. Only the p-value of SRINDEX is based on one-tailed tests where a positive sign is predicted. The
remaining p-value results are based on two-tailed tests. N refers to the number of observations used in each model
sustainability disclosure and does not take into consideration the level of disclosure of each Financially
firm. material
Based on this result, we support H1, which posits that disclosure of sustainability
information is positively associated with firm performance in New Zealand, only when ROA
sustainability
is used as a proxy of financial performance. This finding suggests that firms disclosing reporting
sustainability information have better financial performance, consistent with the legitimacy
and stakeholder theories. The result also is in line with prior literature which identifies a
positive link between disclosure and ROA (Waddock and Graves, 1997; Ngwakwe, 2009; 957
Dhaliwal et al., 2011; Ameer and Othman, 2012; Jones et al., 2016; Lys et al., 2015). This
outcome could possibly motivate managers to initiate sustainability reporting in New
Zealand.
In terms of control variables, MB has a significant negative relationship with ROA
(0.014, p < 0.05) and ROE (0.036, p < 0.01), while it has a significant positive relationship
with TOBINSQ (0.432, p < 0.01). ANALYSTF also has a significant positive relationship
with ROA (0.139, p < 0.01) and ROE (0.294, p < 0.01).
In addition, significant negative coefficients are found in SIZE (0.446, p < 0.05) and
LEV (4.574, p < 0.01) when using TOBINSQ, while significant positive coefficients are
found with MB (0.432, p < 0.01) and ANALYST (0.225, p < 0.05).
Table 7 reports the result of testing H2. SRINDEX presents a positive and significant
relationship with ROA (0.196 without year fixed effects, 0.204 with year fixed effects) and
ROE (0.225 without year fixed effects, 0.253 with year fixed effects). The index does not
show a significant coefficient using TOBINSQ.
Based on this result, we support H2, indicating that disclosure of financially material
sustainability information is positively associated with firm performance in New Zealand,
when ROA and ROE are used as proxies of financial performance. The finding is consistent
with a prior study of Khan et al. (2016) that notes a positive relationship between material
sustainability reporting and firm performance.
The results identify a relationship between disclosure of financially material
sustainability information using the SASB guidelines and firm performance in New Zealand
companies. Particularly in a New Zealand setting, it demonstrates that these standards can
globally function as useful guidelines for financially material sustainability reporting,
suggesting that firms can accommodate the SASB standards and disclose financially
material sustainability information because it is linked to better firm performance. Our
results are also in line with a recent study by Schiehll and Kolahgar (2021), who report that
disclosing material ESG information increases stock price informativeness in the context of
S&P companies. The rationale behind this is that material sustainability information is
useful for investors in decision-making and investors value this disclosure (Griffin and Sun,
2013; Grewal et al., 2021; Carvajal et al., 2021).
In terms of the control variables, MB is found to have a significant negative relationship
with ROA (0.013, p < 0.05), ROE (0.034, p < 0.01) and a positive relationship with
TOBINSQ (0.433, p < 0.01). ANALYSTF also has a significant positive relationship with
ROA (0.159, p < 0.05 without year fixed effects, p < 0.01 with year fixed effects) and ROE
(0.334, p < 0.01 without year fixed effects, 0.333 p < 0.01 with year fixed effects). In addition,
when TOBINSQ is used, significant negative coefficients are found in SIZE (0.459, p < 0.1
without year fixed effects, 0.444 p < 0.1 with year fixed effects) and LEV (6.627, p < 0.01
without year fixed effects and 6.778, p < 0.01 with year fixed effects), whereas significant
positive coefficients are found in MB (0.433, p < 0.01). CROSS does not have any significant
relationship with any firm performance indicators, meaning that being cross-listed in the
ASX does not affect financial performance.
MEDAR Overall, our findings support the argument of disclosure theory (Dye, 1985; Verrecchia,
31,4 1983), which maintains that credible and material voluntary disclosure is an important
mechanism by which management shares firm-specific information with stakeholders,
particularly investors (Healy and Palepu, 2001; Morhardt, 2009). Firm disclosure is therefore
expected to benefit capital market participants by increasing stock price informativeness
(Amel-Zadeh and Serafeim, 2018). Sustainability disclosure practices are also viewed as a
958 proxy for a firm’s sustainability commitment and intention to both reduce information
asymmetry regarding sustainability risk exposure and to take initiatives to minimize these
risks (Amel-Zadeh and Serafeim, 2018). In line with the above-mentioned reasoning, our
results indeed provide strong evidence that financially material sustainability disclosure
complements firm performance, as such disclosures are rewarded by investors and other
stakeholders.

4.3 Endogeneity tests

In this section, we address the endogeneity concerns. There are two possible sources of
endogeneity in this study: the omitted variables and self-selection bias. Regarding the
former, our main model might have missed some variables that are correlated with either
sustainability disclosure or firm performance. For example, organisational culture and
individual beliefs are likely to affect firms’ sustainability practices and are also relatively
difficult to observe. To address this issue, we use the two-stage least square (2SLS)
estimator, which requires a valid instrument. We use industry-average sustainability
disclosure as an instrument. The rationale behind employing industry-average as an
instrument is that a focal firm is likely to be affected by the disclosure practices of its peers
in the same industry. The results of 2SLS are reported in Table 8. We continue to find a
significant positive relationship between SRINDEX and firm performance in most cases,
indicating that our main results are robust to endogeneity issues.
The second possible endogeneity concern in our study is self-selection bias. As
sustainability reporting is mostly voluntary across the world, some firms might choose to do
such reporting for whatever reasons, creating a self-selection bias in our sample. Heckman’s
two-stage model is generally applied to control for self-selection (Nadeem, 2021b). In the first
stage, we model a firm’s probability to practice sustainability disclosure and calculate the
inverse of Mill’s ratio (IMR). We then use IMR as an additional control variable and run our
main model. The results are presented in Table 9. Once again, we find a significant positive
relationship between SRINDEX and firm performance, indicating that our main results are
robust to endogeneity arising from self-selection bias.

5. Conclusions
This paper examines the relationship between sustainability reporting and firm
performance in New Zealand, encompassing the materiality concept in sustainability
reporting, based on the sustainability reporting standards of the SASB published in 2018.
We find a significant positive relationship between sustainability reporting and firm
performance, particularly the positive association is stronger when the sustainability
disclosure is financially material information. Our results have implications for managers,
suggesting that there are significant financial incentives for firms to initiate sustainability
reporting, especially the reporting that includes financially material sustainability
information. Firms are under intense stakeholder pressure to disclose information about
whether their operations are economically, socially and environmentally sustainable. Thus,
a financial report alone is not sufficient to meet the needs of shareholders. Additional value
reporting and sustainability reports are required. Sustainability reporting is a relatively new
 ROA ROE TOBINSQ
Variable Exp. Sign Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat.

Intercept 0.406 1.80 * 0.379 1.65 0.617 1.76 * 0.550 1.54 8.074 3.30 *** 7.647 3.08 ***
SRINDEX þ 0.524 2.47 ** 0.568 2.57 ** 0.677 2.04 ** 0.783 2.27 ** 2.012 0.87 2.659 1.11
SIZE 0.024 1.27 0.023 1.18 0.046 1.54 0.043 1.40 0.451 2.16 ** 0.431 2.04 **
LEV 0.059 0.48 0.075 0.59 0.336 1.75 * 0.297 1.51 6.773 5.06 *** 7.003 5.14 ***
MB 0.014 3.02 *** 0.015 3.03 *** 0.036 4.79 *** 0.036 4.81 *** 0.438 8.44 *** 0.441 8.44 ***
CROSS 0.035 0.95 0.037 1.00 0.036 0.63 0.029 0.50 0.275 0.69 0.314 0.78
ANALYST 0.012 1.20 0.013 1.29 0.026 1.71 * 0.029 1.85 * 0.194 1.82 * 0.178 1.65
ANALYSTF 0.080 0.83 0.073 0.75 0.225 1.49 0.208 1.36 0.342 0.33 0.249 0.24
Year fixed effects Yes Yes Yes
R2 0.28 0.28 0.43 0.44 0.62 0.62
F-statistic 7.83*** 6.04*** 15.51*** 12.02*** 33.07*** 25.62***

Notes: This table reports the results from estimating a two-stage least square (2SLS) approach. For brevity, only stage two results are presented. In Model (1), the
dependent variable is ROA, in Model (2), the dependent variable is ROE and in Model (3), the dependent variable is TOBINSQ. The sample period is 2017–2019.
See Table 1 for variable definitions. *, ** and ***indicate significance at the 10%, 5% and 1% levels, respectively
reporting
Financially

squares (2SLS)
Two-stage least
Table 8.

estimation
959
sustainability
material
 31,4

960

Table 9.

estimation
MEDAR

Heckman two-stage
ROA ROE TOBINSQ
Variable Exp. Sign Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat. Coef. t-stat.

Intercept 0.566 1.84 * 0.567 1.84 * 1.618 1.85 * 1.607 1.83 * 1.567 0.35 1.709 0.38
SRINDEX þ 0.084 1.68 * 0.087 1.74 * 0.242 1.75 * 0.243 1.74 * 0.185 0.21 0.146 0.17
SIZE 0.037 2.13 ** 0.038 2.16 ** 0.093 1.88 * 0.093 1.88 * 0.093 0.37 0.100 0.40
LEV 0.230 2.88 *** 0.227 2.79 *** 0.372 1.61 0.372 1.59 3.684 3.42 *** 3.751 3.47 ***
MB 0.008 2.47 ** 0.009 2.54 ** 0.012 1.28 0.012 1.25 0.364 7.69 *** 0.363 7.66 ***
CROSS 0.067 3.25 *** 0.067 3.24 *** 0.138 2.32 ** 0.138 2.32 ** 0.129 0.46 0.127 0.46
ANALYST 0.017 1.93 * 0.017 1.93 * 0.058 2.32 ** 0.058 2.30 ** 0.206 1.73 * 0.201 1.69 *
ANALYSTF 0.073 1.21 0.074 1.22 0.361 2.06 ** 0.362 2.06 ** 0.426 0.55 0.410 0.54
IMR 0.125 1.72 * 0.128 1.76 * 0.385 1.87 * 0.384 1.86 * 0.776 0.70 0.720 0.65
Year fixed effects Yes Yes Yes
R2 0.35 0.36 0.43 0.43 0.64 0.64

Notes: This table reports the results from estimating a Heckman two-stage approach. For brevity, only stage two results are presented. In Model (1), the
dependent variable is ROA, in Model (2), the dependent variable is ROE and in Model (3), the dependent variable is TOBINSQ. The sample period is 2017–2019.
See Table 1 for variable definitions. *, ** and *** indicate significance at the 10%, 5% and 1% levels, respectively
disclosure philosophy that concentrates on generating future value from business policy. In Financially
this regard, our study provides evidence that sustainability reporting is not value- material
destroying, rather it increases firm performance by reducing information asymmetry and
increasing the confidence of investors and other stakeholders in a reporting firm. Therefore,
sustainability
managers should focus on reporting financially material information in sustainability reporting
reports to increase firm value.
Our study also provides vital policy implications for standard-setting bodies, such as the
SASB. Using the SASB’s framework, our study provides evidence that financially material 961
information disclosure does indeed increase firm performance. Therefore, companies wishing
to report sustainability information are encouraged to adopt the SASB’s guidelines to focus
on financially material information in sustainability reports and to avoid immaterial
information. Furthermore, the findings in our study also validate the SASB’s framework and
encourage standard setters to continue developing industry-specific sustainability standards.
While New Zealand is showing a rapid increase in sustainability reporting, its firms are
often found to be lacking in the disclosure of comparable, measurable, numerical and
monetary sustainability information (Hackston and Milne, 1996; Chapman and Milne, 2003;
Dimitrov and Davey, 2011; Othman et al., 2017). This is mainly attributable to business
management’s perception that sustainability reporting does not have any relationship with
firm performance, and therefore they do not need to disclose measurable and numerical data
and thus be scrutinised by stakeholders (Dimitrov and Davey, 2011). Based on our findings,
this perception is found to be invalid because disclosing financially material sustainability
information, which is characterised to include comparable, measurable, numerical and
monetary data, rather than focusing on narratives, actually leads to better firm performance.
Therefore, New Zealand managers may consider following the SASB’s standards to initiate
the disclosure of financially material sustainability reports and, as a consequence, improve
financial performance.
This paper has limitations and future research implications. The findings are related to
the largest New Zealand firms listed in the stock market and only five industries are
selected; thus, the number of observations is small. Future research could investigate the
disclosure practices of smaller firms and include more industries because the disclosure of
sustainability information might have a different relationship with firm performance
depending on firm size or inclusion of more industries. The time period also can be extended.
Additionally, our findings are based on the New Zealand context, which focuses on
expanding the sustainability reporting practices with both social and governmental
pressure on firms. If the research is conducted using other countries with different trends
and environmental regulatory settings, the outcomes might change.
We use three dependent variables for the measurement of firm performance – ROA, ROE
and Tobin’s Q. Including more measures of financial performance in the model might lead to
deeper insights about the relationship between sustainability reporting and firm
performance. Other dependent variables also can be explored, such as financial reporting
quality and corporate governance.
Further, it would be interesting to compare company performance between firms using
the SASB framework and firms using frameworks that do not take materiality into
consideration, such as the GRI, the UN Global Compact and the International Integrated
Reporting Council.

Notes
1. www.globalreporting.org/how-to-use-the-gri-standards
MEDAR 2. www.sasb.org/standards-overview/download-current-standards
31,4
3. For example, one accounting metric in Biotechnology and Pharmaceuticals is “Number of
Settlements of Abbreviated New Drug Application (ANDA) litigation that involved payments
and/or provisions to delay bringing an authorised generic product to market for a defined time
period”. This refers to a US regulation and thus it is very unlikely that New Zealand firms would
disclose such accounting metrics, which are mainly tailored for US firms.
962 4. We do not control for industry fixed effects, as the sustainability reporting variables are already
controlling for industry characteristics.

References
Adams, M., Thornton, B. and Sepehri, M. (2012), “The impact of the pursuit of sustainability on the
financial performance of the firm”, Journal of Sustainability and Green Business, Vol. 1 No. 1,
pp. 1-14.
Aggarwal, P. (2013), “Sustainability reporting and its impact on corporate financial performance: a
literature review”, Indian Journal of Commerce and Management Studies, Vol. 4 No. 3, p. 51.
Ali, I., Lodhia, S. and Narayan, A.K. (2020), “Value creation attempts via photographs in sustainability
reporting: a legitimacy theory perspective”, Meditari Accountancy Research, Vol. 19 No. 2,
pp. 247-263.
Ameer, R. and Othman, R. (2012), “Sustainability practices and corporate financial performance: study
based on the top global corporations”, Journal of Business Ethics, Vol. 108 No. 1, pp. 61-79.
Amel-Zadeh, A. and Serafeim, G. (2018), “Why and how investors use ESG information: evidence from
a global survey”, Financial Analysts Journal, Vol. 74 No. 3, pp. 1-17.
Amel-Zadeh, A. and Serafeim, G. (2018), “Why and how investors use ESG information: evidence from
a global survey”, Financial Analysts Journal, Vol. 74 No. 3, pp. 87-103.
Arif, M., Gan, C. and Nadeem, M. (2021), “ Regulating non-financial reporting: evidence from European
firms’ environmental, social and governance disclosures and earnings risk”, Meditari
Accountancy Research.
Bachoo, K., Tan, R. and Wilson, M. (2013), “Firm value and the quality of sustainability reporting in
Australia”, Australian Accounting Review, Vol. 23 No. 1, pp. 67-87.
Bayoud, N.S., Kavanagh, M. and Slaughter, G. (2012), “Corporate social responsibility disclosure and
corporate reputation in developing countries: the case of Libya”, Journal of Business and Policy
Research, Vol. 7 No. 1, pp. 131-160.
Bebbington, J., Higgins, C. and Frame, B. (2009), “Initiating sustainable development reporting:
evidence from New Zealand”, Accounting, Auditing and Accountability Journal, Vol. 22 No. 4,
pp. 588-625.
Bellringer, A., Ball, A. and Craig, R. (2011), “Reasons for sustainability reporting by New Zealand local
governments”, Sustainability accounting, Management and Policy Journal, Vol. 2 No. 1,
pp. 126-138.
Brammer, S. and Pavelin, S. (2008), “Factors influencing the quality of corporate environmental
disclosure”, Business Strategy and the Environment, Vol. 17 No. 2, pp. 120-136.
Burhan, A.H.N. and Rahmanti, W. (2012), “The impact of sustainability reporting on company
performance”, Journal of economics Business, and Accountancy Ventura, Vol. 15 No. 2, pp. 257-272.
Campello, M. (2006), “Debt financing: does it boost or hurt firm performance in product markets?”,
Journal of Financial Economics, Vol. 82 No. 1, pp. 135-172.
Carvajal, M., Nadeem, M. and Zaman, R. (2021), “Biodiversity disclosure, sustainable development and
environmental initiatives: does board gender diversity matter?”, Business Strategy and the
Environment, Vol. 31 No. 3, pp. 969-987.
Ceesay, N., Shubita, M. and Robertson, F. (2021), “Sustainability reporting practices in FTSE 100 Financially
companies”, in Topic, M. and Lodorfos, G. (Eds), The Sustainability Debate (Critical Studies on
Corporate Responsibility, Governance and Sustainability, Emerald Publishing Limited, Bingley,
material
Vol. 14, pp. 77-100. sustainability
Chapman, R. and Milne, M.J. (2003), “The triple bottom line: how New Zealand companies measure up”, reporting
(Accountancy Working Paper Series), University of Otago, available at: http://hdl.handle.net/
10523/1547
Chen, S., Lin, B.X., Wang, Y. and Wu, L. (2008), “Cross-listing, corporate governance and operating 963
performance: evidence from the Chinese market”, Advances in Business Management and
Forecasting, Vol. 5, pp. 19-46.
Christensen, H.B., Hail, L. and Leuz, C. (2021), “Mandatory CSR and sustainability reporting: economic
analysis and literature review”, Review of Accounting Studies, Vol. 26 No. 3, pp. 1-73.
Chung, K.H. and Pruitt, S.W. (1994), “A simple approximation of Tobin’s q”, Financial Management,
Vol. 23 No. 3, pp. 70-74.
Collins, E., Roper, J. and Lawrence, S. (2010), “Sustainability practices: trends in New Zealand
businesses”, Business Strategy and the Environment, Vol. 19 No. 8, pp. 479-494.
Cormier, D. and Magnan, M. (1999), “Corporate environmental disclosure strategies: determinants, costs
and benefits”, Journal of Accounting, Auditing and Finance, Vol. 14 No. 4, pp. 429-451.
De Bruin, A. and Lewis, K. (2005), “Green entrepreneurship in New Zealand: a micro-enterprise focus”,
in Schaper, M. (Ed.), Making Ecopreneurs: Developing Sustainable Entrepreneurship, Ashgate,
Hampshire, England, pp. 61-71.
De Klerk, M. and De Villiers, C. (2012), “The value relevance of corporate responsibility reporting: South
African evidence”, Meditari Accountancy Research, Vol. 20 No. 1, pp. 21-38.
De Villiers, C. and Van Staden, C.J. (2012), “New Zealand shareholder attitudes towards corporate
environmental disclosure”, Pacific Accounting Review, Vol. 24 No. 2, pp. 186-210.
Detre, J.D. and Gunderson, M.A. (2011), “The triple bottom line: what is the impact on the returns to
agribusiness?”, International Food and Agribusiness Management Review, Vol. 14 No. 4, pp. 165-178.
Dhaliwal, D.S., Li, O.Z., Tsang, A. and Yang, Y.G. (2011), “Voluntary nonfinancial disclosure and the
cost of equity Capital: the initiation of corporate social responsibility reporting”, The Accounting
Review, Vol. 86 No. 1, pp. 59-100.
Dimitrov, D.K. and Davey, H. (2011), “Sustainable development: what it means to CFOs of New
Zealand”, Asian Review of Accounting, Vol. 19 No. 1, pp. 86-108.
Dobbs, S. and Van Staden, C. (2016), “Motivations for corporate social and environmental reporting:
New Zealand evidence”, Sustainability accounting, Management and Policy Journal, Vol. 7 No. 3,
pp. 449-472.
Dye, R.A. (1985), “Disclosure of nonproprietary information”, Journal of Accounting Research, Vol. 23
No. 1, pp. 123-145.
Eccles, R.G., Krzus, M.P., Rogers, J. and Serafeim, G. (2012), “The need for sector-specific materiality
and sustainability reporting standards”, Journal of Applied Corporate Finance, Vol. 24 No. 2,
pp. 65-71.
Fama, E.F. and French, K.R. (1992), “The cross-section of expected stock returns”, The Journal of
Finance, Vol. 47 No. 2, pp. 427-465.
Farooq, M.B., Ahmed, A. and Nadeem, M. (2018), “Sustainability reporter classification matrix:
explaining variations in disclosure quality”, Meditari Accountancy Research, Vol. 26 No. 2,
pp. 334-352.
Farooq, M.B. and De Villiers, C. (2019), “Understanding how managers institutionalise sustainability
reporting: evidence from Australia and New Zealand”, Accounting, Auditing and Accountability
Journal, Vol. 32 No. 5, pp. 1240-1269.
MEDAR Farooq, O. and Satt, H. (2014), “Does analyst following improve firm performance? Evidence from the
MENA region”, Corporate Ownership and Control, Vol. 11 No. 2, pp. 145-154.
31,4
Freeman, R.E. (1984), Strategic Management: A Stakeholder Perspective, Pitman Publishing, Boston.
Friedman, M. (1970), “A Friedman doctrine: the social responsibility of business is to increase its
profits”, The New York Times Magazine, Vol. 13 No. 1970, pp. 32-33.
Gray, R. and Milne, M. (2002), “Sustainability reporting: who’s kidding whom?”, Chartered Accountants
964 Journal of New Zealand, Vol. 81 No. 6, pp. 66-70.
Grewal, J., Hauptmann, C. and Serafeim, G. (2021), “Material sustainability information and stock price
informativeness”, Journal of Business Ethics, Vol. 171 No. 3, pp. 513-544.
Griffin, P.A. and Sun, Y. (2013), “Going green: market reaction to CSRwire news releases”, Journal of
Accounting and Public Policy, Vol. 32 No. 2, pp. 93-113.
Guidry, R.P. and Patten, D.M. (2010), “Market reactions to the first-time issuance of corporate
sustainability reports”, Sustainability Accounting, Management and Policy Journal, Vol. 1 No. 1,
pp. 33-50.
Guthrie, J. and Parker, L.D. (1989), “Corporate social reporting: a rebuttal of legitimacy theory”,
Accounting and Business Research, Vol. 19 No. 76, pp. 343-352.
Hackston, D. and Milne, M.J. (1996), “Some determinants of social and environmental disclosures in
New Zealand companies”, Accounting, Auditing and Accountability Journal, Vol. 9 No. 1,
pp. 77-108.
Hales, J. (2018), “Global issues call for global standards”, available at: www.sasb.org/blog/global-issues-
call-for-global-standards/
Healy, P.M. and Palepu, K.G. (2001), “Information asymmetry, corporate disclosure, and the capital
markets: a review of the empirical disclosure literature”, Journal of Accounting and Economics,
Vol. 31 Nos 1/3, pp. 405-440.
Ilyukhin, E. (2015), “The impact of financial leverage on firm performance: evidence from Russia”,
Journal of Corporate Financial Research/Rjpgjpanbdyse abyaycs, Vol. 9 No. 2, pp. 24-26.
Jain, A., Islam, M.A., Keneley, M. and Kansal, M. (2021), “Social contagion and the institutionalisation of
GRI-based sustainability reporting practices”, Meditari Accountancy Research,
Jones, P., Comfort, D. and Hillier, D. (2016), “Materiality in corporate sustainability reporting within UK
retailing”, Journal of Public Affairs, Vol. 16 No. 1, pp. 81-90.
Khan, M., Serafeim, G. and Yoon, A. (2016), “Corporate sustainability: first evidence on materiality”,
The Accounting Review, Vol. 91 No. 6, pp. 1697-1724.
KPMG (2017), KPMG International survey of corporate responsibility reporting 2017.
KPMG (2020), KPMG New Zealand’s Survey of Sustainability Reporting 2020.
Kuzey, C. and Uyar, A. (2017), “Determinants of sustainability reporting and its impact on firm value:
evidence from the emerging market of Turkey”, Journal of Cleaner Production, Vol. 143,
pp. 27-39.
Lee, J. (2009), “Does size matter in firm performance? Evidence from US public firms”, International
Journal of the Economics of Business, Vol. 16 No. 2, pp. 189-203.
Lopez, M.V., Garcia, A. and Rodriguez, L. (2007), “Sustainable development and corporate performance:
a study based on the Dow Jones sustainability index”, Journal of Business Ethics, Vol. 75 No. 3,
pp. 285-300.
Lys, T., Naughton, J.P. and Wang, C. (2015), “Signaling through corporate accountability reporting”,
Journal of Accounting and Economics, Vol. 60 No. 1, pp. 56-72.
McGuinness, W. and Bradshaw, N. (2011), Integrated Annual Report Survey of New Zealand’s Top 200
Companies: Exploring Responses from Chief Financial Officers on Emerging Reporting Issues.
McGuinness Institute.
McWilliams, A. and Siegel, D. (2000), “Corporate social responsibility and financial performance: Financially
correlation or misspecification? ”, Strategic Management Journal, Vol. 21 No. 5, pp. 603-609.
material
Margaritis, D. and Psillaki, M. (2010), “Capital structure, equity ownership and firm performance”,
Journal of Banking and Finance, Vol. 34 No. 3, pp. 621-632. sustainability
Ministry for the Environment (2001), “Our clean green image: What’s it worth?”, reporting
Mola, S., Rau, P.R. and Khorana, A. (2013), “Is there life after the complete loss of analyst coverage? ”,
The Accounting Review, Vol. 88 No. 2, pp. 667-705.
965
Morhardt, J.E. (2009), “Corporate social responsibility and sustainability reporting on the internet”,
Business Strategy and the Environment, Vol. 19 No. 7, pp. 436-452.
Murray, A., Sinclair, D., Power, D. and Gray, R. (2006), “Do financial markets care about social and
environmental disclosure? Accounting”, Accounting, Auditing and Accountability Journal,
Vol. 19 No. 2, pp. 228-255.
Nadeem, M. (2021a), “Corporate governance and supplemental environmental projects: a restorative
justice approach”, Journal of Business Ethics, Vol. 173 No. 2, pp. 261-280.
Nadeem, M. (2021b), “Board gender diversity and managerial obfuscation: Evidence from the
readability of narrative disclosure in 10-K reports”, Journal of Business Ethics, pp. 1-25.
Ngwakwe, C.C. (2009), “Environmental responsibility and firm performance: evidence from Nigeria”,
International Journal of Humanities and Social Sciences, Vol. 3 No. 2, pp. 97-103.
Othman, R., Nath, N. and Laswad, F. (2017), “Sustainability reporting by New Zealand’s local
governments”, Australian Accounting Review, Vol. 27 No. 3, pp. 315-328.
Pervan, M. and Višic, J. (2012), “Influence of firm size on its business success”, Croatian Operational
Research Review, Vol. 3 No. 1, pp. 213-223.
Qiu, Y., Shaukat, A. and Tharyan, R. (2016), “Environmental and social disclosures: link with corporate
financial performance”, The British Accounting Review, Vol. 48 No. 1, pp. 102-116.
Raza, M.W. (2013), Affect of Financial Leverage on Firm Performance, Empirical evidence from Karachi
Stock Exchange, Shaheed Benazir Bhutto University, Sheringal.
Reddy, K. and Gordon, L. (2010), “The effect of sustainability reporting on financial performance: an
empirical study using listed companies”, Journal of Asia Entrepreneurship and Sustainability,
Vol. 6 No. 2, pp. 19-42.
Rezaee, Z. (2016), “Business sustainability research: a theoretical and integrated perspective”, Journal of
Accounting Literature, Vol. 36 No. 1, pp. 48-64.
Rodriguez, A., Cotran, H. and Stewart, L.S. (2017), “Evaluating the effectiveness of sustainability
disclosure: findings from a recent SASB study”, Journal of Applied Corporate Finance, Vol. 29
No. 2, pp. 100-108.
Ruiz-Lozano, M., De Vicente-Lama, M., Tirado-Valencia, P. and Cordobés-Madueño, M. (2021),
“The disclosure of the materiality process in sustainability reporting by Spanish state-
owned enterprises”, Accounting, Auditing and Accountability Journal, Vol. 35 No. 2,
pp. 385-412.
Schiehll, E. and Kolahgar, S. (2021), “Financial materiality in the informativeness of sustainability
reporting”, Business Strategy and the Environment, Vol. 30 No. 2, pp. 840-855.
Schneider, A., Samkin, G. and Davey, H. (2014), “Biodiversity reporting by New Zealand local
authorities: the current state of play”, Sustainability accounting, Management and Policy Journal,
Vol. 5 No. 4, pp. 425-456.
Schooley, D.K. and English, D.M. (2015), “SASB: a pathway to sustainability reporting in the United
States”, The CPA Journal, Vol. 85 No. 4, p. 22.
Stubbs, W., Higgins, C. and Milne, M. (2013), “Why do companies not produce sustainability reports? ”,
Business Strategy and the Environment, Vol. 22 No. 7, pp. 456-470.
Sustainability Accounting Standards Board (2017a), “SASB conceptual framework”.
MEDAR Sustainability Accounting Standards Board (2017b), State of Disclosure 2017.
31,4 Sustainability Accounting Standards Board (2018), “SASB’S sustainable industry classification system
(SICS)”.
Taiwo, O.J., Owowlabi, B.A., Adedokun, Y. and Ogundajo, G. (2021), “Sustainability reporting and
market value growth of quoted companies in Nigeria”, Journal of Financial Reporting and
Accounting.
966 Tilling, M.V. (2004), Refinements in Legitimacy Theory in Social and Environmental Accounting, School
of Commerce, Flinders University.
Uwuigbe, U., Teddy, O., Uwuigbe, O.R., Emmanuel, O., Asiriuwa, O., Eyitomi, G.A. and Taiwo, O.S.
(2018), “Sustainability reporting and firm performance: a bi-directional approach”, Academy of
Strategic Management Journal, Vol. 17 No. 3, pp. 1-16.
Verrecchia, R.E. (1983), “Discretionary disclosure”, Journal of Accounting and Economics, Vol. 5,
pp. 179-194.
Waddock, S.A. and Graves, S.B. (1997), “The corporate social performance – financial performance
link”, Strategic Management Journal, Vol. 18 No. 4, pp. 303-319.
Wolfe, J. and Sauaia, A.C.A. (2014), “The Tobin q as a company performance indicator”, in
Developments in Business Simulation and Experiential Learning: Proceedings of the Annual
ABSEL conference, Vol. 30.
Yu, M. and Zhao, R. (2015), “Sustainability and firm valuation: an international investigation”,
International Journal of Accounting and Information Management, Vol. 23 No. 3, pp. 289-307.
Zaman, R., Nadeem, M. and Carvajal, M. (2021), “Corporate governance and corporate social
responsibility synergies: evidence from New Zealand”, Meditari Accountancy Research, Vol. 29
No. 1, pp. 135-160.
Ziegler, A., Rennings, K. and Schroder, M. (2002), “The effect of environmental and social performance
on the shareholder value of European stock corporations”, Centre for European Economic
Research, ZEW, Mannheim.
Appendix 1 Financially
material
sustainability
reporting

967

Figure A1.
SASB’s Sustainable
Industry
Classification System
(SICS)
MEDAR Appendix 2
31,4

968

Figure A2.
Sector-level
materiality map

Appendix 3
Example of How the Sustainability Reporting Score (SRINDEX) is created for a single NZ company
The Warehouse Group belongs to the Food and Beverage sector and Food Retailers and
Distributors industry according to the Sustainable Industry Classification System (SICS). In the
sustainability map, each industry has different disclosure items. Among 26 general issue categories,
the ones that should be disclosed in Food Retailers and Distributors are highlighted. For The
Warehouse Group, the issues to be disclosed are as follows: GHG Emission, Energy Management,
Waste and Hazardous Materials Management, Data Security, Product Quality and Safety, Customer
Welfare, Selling Practices and Product Labelling, Labour Practice and Supply Chain Management.
These categories are coloured in the map, and for each category, the score that The Warehouse
Group achieves is recorded. For example, in the Environment dimension, it should disclose GHG
Emission, Energy Management and Waste and Hazardous Materials Management because these are
material sustainability disclosure topics. However, they do not need to disclose Air Quality, Water
and Wastewater Management and Ecological Impacts because these are not material issues in the
Food Retailers and Distributors industry. Therefore, for The Warehouse Group, there are a total of 22
accounting metrics to be disclosed. Then, a possible full score of 66 can be achieved, which is 22
multiplied by 3, the highest score between zero to three.
Particularly in the year 2017, it scores 7 points in GHG Emission, 3 points in Energy
Management, 3 points in Waste and Hazardous Materials Management and 5 points in Supply Chain
Management, as recorded in the index. The total sum of WHS2017 is 18 points out of 66 total points
possible, the disclosure rate is then 27.78% calculated as the total scores obtained divided by full
marks.
Using the same method, the other firm-years are calculated. WHS2018 is 27.28% and WHS2019
is 34.85%. These numbers are the final figures used as a proxy of disclosure of material
sustainability information (SRINDEX).
 Example of material sustainability disclosure rate
Financially
WHS2017 WHS2018 WHS2019 material
sustainability
Dimension General Issue Category
Environment GHG Emissions 7 5 5 reporting
Air Quality
Energy Management 3 2 2
Water and Wastewater 969
Management
Waste and Hazardous Materials 3 3 3
Management
Ecological Impacts
Social Capital Human Rights and Community
Relations
Customer Privacy
Data Security 0 0 3
Access and Affordability
Product Quality and Safety 0 0 0
Customer Welfare 0 0 0
Selling Practices and Product 0 0 0
Labelling
Human Capital Labour Practices 0 0 2
Employee Health and Safety
Employee Engagement, Diversity
and Inclusion
Business Model Product Design and Lifecycle
and Innovation Management
Business Model Resilience
Supply Chain Management 5 8 8
Materials Sourcing and Efficiency
Physical Impacts of Climate
Change
Leadership & Business Ethics
Governance Competitive Behaviour
Management of the Legal and
Regulatory Environment
Critical Incident Risk
Management
Systemic Risk Management
Total Scores Obtained 18 18 23
Full Marks for each industry 66 66 66
Disclosure Rate 27.27% 27.27% 34.85%

Corresponding author
Mariela Carvajal can be contacted at: mariela.carvajal@otago.ac.nz

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com