The Readability of Non-Financial Information. The Role of Stakeholders' Pressure in the European Setting

Abstract

This study explores the factors that may explain the readability of non-financial information (NFI) disclosure through the interpretive lens of legitimacy theory. In particular, it investigates whether the readability of the NFI disclosure, prepared under Directive 2014/95/EU, is affected by the pressure of certain stakeholders and by the presence of a corporate social responsibility committee (CSRc). The sample is based on 9,218 European listed firms, covering the period 2017-2020. The results show that pressure from environmentally sensitive industries, consumers, and some investors plays a crucial role in improving the readability level of NFI, while employees and the State owner do not exercise an influence on the level of readability. In addition, the presence of a CSRc is not only relevant per se, but also acts as a moderator in enhancing the association with these stakeholders on the readability of NFI disclosure.

Keywords:

• readability
• stakeholders
• Directive 2014/95/EU
• non-financial information
• sustainability information
• CSR committee

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 See the report of the European Parliamentary Research Service (EPRS) https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/654213/EPRS_BRI(2021)654213_EN.pdf

2 In this paper we refer to NFI and SR interchangeably.

3 In June 2022, the Council and the European Parliament achieved political agreement on the final text of the CSRD; it was finally published in December. See: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32022L2464

4 The EC published the draft European Sustainability Reporting Standards (ESRS) on the 31st of July 2023. See: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13765-European-sustainability-reporting-standards-first-set_en In October 2023, the ESRS passed the scrutiny period by the Council and the European Parliament and were published as Commission Delegated Acts in December 2023. https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:32023R2772

5 See https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/ifrs-s1-general-requirements/

6 To accommodate the new mandate, EFRAG reorganised its structure and established a sustainability pillar, including a new Sustainability Reporting Board (EFRAG SRB), and Technical Expert Group (EFRAG SR TEG).

7 See https://www.ifrs.org/groups/international-sustainability-standards-board

8 See https://efrag.org/news/public-515/IFRS-Foundation-and-EFRAG-publish-interoperability-guidance

9 We also did this with 2.5% on each side and the results are consistent, meaning that they are not sensitive to the choice of threshold.

10 NACE is the statistical classification of economic activities in the European Community. More details are available at the following link: https://ec.europa.eu/competition/mergers/cases/index/nace_all.html

11 All of these readability indices, as well as their explanation and functioning, are available at https://readable.com/

12 For a discussion, see Kothari (2001).