Corresponding author: Frank Hubers ( frank.hubers@ou.nl ) Academic editor: Karen Maas
© 2020 Frank Hubers, Thomas Thijssens.
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Citation:
Hubers F, Thijssens T (2020) Human rights reporting under increasing institutional pressure. Maandblad Voor Accountancy en Bedrijfseconomie 94(7/8): 303-312. https://doi.org/10.5117/mab.94.50425
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In 2014, the European Union (EU) passed Directive 2014/95/EU (The Directive), requiring Public Interest Entities (PIEs) to disclose specific non-financial information in their annual reports. This study investigates how The Directive influenced sustainability reporting—in particular human rights disclosure—by taking an institutional perspective. This implies that we refrain from viewing The Directive as an isolated event, but rather as a consequence of the ongoing interaction of different forces within the institutional context. Starting from this view, we investigate how human rights disclosure has developed over the years, focussing on the institutional context in which these developments took place. We use a longitudinal research design, using content analysis to observe human rights disclosure in annual and sustainability reports during the 2002–2018 period of the Dutch financial services companies listed on the three most important Dutch stock market indexes. We find that there appears to be an increase in the extensiveness of human rights reporting after the introduction of The Directive, but that these changes in disclosure are better explained by the increasing trend over time than by The Directive itself. Our analysis of 17 years of annual reporting shows a steady linear increase in the extensiveness of human rights disclosure, with no strong deviations during the introduction of The Directive. Notwithstanding an overall increase over the years, the proportion of human rights information in both annual and sustainability reports remains fairly low.
Human rights, sustainability reporting, non-financial disclosure, mandatory disclosure
In 2014, the European Union (EU) passed Directive 2014/95/EU (The Directive), requiring Public Interest Entities (PIEs) to disclose non-financial information in their annual reports. The mandated information includes environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters. The Directive also prescribes the types of information, including policies, and outcomes of those policies, related risks and risk management, and non-financial key performance indicators. Although the mandatory disclosure of environmental and social issues has been part of EU legislation since 2003 (which was included in the Dutch Civil Code in 2005), this directive is more explicit in its requirements regarding the specific types of non-financial information that must be disclosed. Given the unprecedented scope, scale and level of detail of The Directive, its passage and implementation have attracted significant research attention. Most of these studies treat the EU regulation as an exogenous, regulatory shock (
This study refrains from viewing The Directive as an isolated event. Rather, it is based on the idea that mandatory reporting rules, like voluntary reporting rules, form just one of many institutional factors. The institutional context, in which sustainability reporting decisions are taken, is a complex of mutually influential (inter)national institutional forces, which are represented by institutions, including companies, that exercise power via negotiation, persuasion, and confrontation (
Starting from this view, we investigate how sustainability reporting has developed over the years, focussing on the institutional context in which this development has taken place, including the recent EU-directive. Hence, we choose a longitudinal research design, focusing on one country, one sector and one type of sustainability information. That is, we focus on human rights reporting in annual and sustainability reports during the 2002–2018 period of the Dutch financial services companies listed on the three most important Dutch stock market indexes: the AEX, AMX and AScX. With this research design, we seek to discover trends in the development of this specific type of disclosure and assess the potential impact of the recent EU legislation.
We find that overall, disclosure on human rights is fairly low. In addition, the mean values for human rights disclosures after The Directive are significantly greater than before, implying an effect of The Directive. However, the results of regression analyses, in which we control for time trends, show that in fact, there is no such effect; human rights disclosure is associated only with this time trend. This corresponds with our trend analysis, showing a steady increase in human rights disclosure between 2002 and 2018. A detailed analysis of the sample companies shows that causes for these trends may be found in the complex of accumulating (inter)national institutional forces, represented by institutions exercising their powers, that together constitute the context of human rights disclosure by Dutch financial institutions.
This paper will proceed as follows. In section 2 the literature will be reviewed. Section 3 describes the methodology that was applied in this study. As a next step, section 4 will present the results. We end with some concluding remarks in section 5.
Previous research on the implementation (or announcement) of mandatory reporting rules focuses on differences between ex-ante and ex-post periods (or treatment and control groups), suggesting an increase in the actual sustainability activities of firms (
Typically, accounting studies start from the idea that managers respond to regulatory shocks by a rational assessment of the costs and benefits involved in (non-)disclosure decisions. However, an increasing body of evidence challenges the idea that sustainability disclosure decisions are a function of rational cost-benefit evaluations. Recent studies suggest that institutional factors influence these decisions, and show that sustainability reporting decisions are among others the result of mimicking behaviour (e.g.,
In the next section, we will review the sustainability reporting literature. After a broad reflection of some theoretical viewpoints that have been used, a concise review of the literature based on institutional theory will be given. Subsequently, the literature on human rights reporting will be reviewed.
Despite a steady increase in the number of regulations across the world (KPMG et al. 2016), corporate sustainability reporting remained a largely discretionary activity in recent years. The main reason is that most regulation applied to only small fractions of companies (e.g., only the largest stock-listed companies, or companies belonging to one industry in a specific country), and prescribed only the provision of sustainability information, not what information must be provided (KPMG et al. 2016). Hence, one of the central questions for researchers in the field has been why companies engage in this largely voluntarily activity.
Accounting researchers typically consider economic arguments for voluntary disclosure (
In their seminal contribution to institutional theory,
In recent years, empirical studies have provided some evidence for the influence of institutional factors on sustainability reporting.
At the national level, there are studies focusing on differences between country clusters or individual countries. Studies focusing on the difference in sustainability reporting between continental European and Anglo-Saxon countries, point at a comparatively lower reporting level for Continental-European countries in earlier years (
At the organisational level, empirical studies mainly focus on differences in sustainability reporters over time.
A third strand of empirical studies, rather than focusing on national or organizational factors, concentrates on the specific institutional contexts in which managers operate, known as ‘fields’.
As early as the 1970s, the UN have attempted to establish binding international rules governing the activities of firms (
Empirical studies on human rights reporting are scarce. Scant research shows that human rights disclosures are overall low for samples of the top 50 Australian financial service companies for the year 2009/2010 (
This study investigates how sustainability reporting has developed over the years, focussing on the institutional context, including The Directive, in which this development has taken place. Mandatory reporting rules are considered one of many institutional factors that mutually constitute one another (Witt and Miska 2018). We seek to discover trends in the development of disclosure and assess the potential impact of the recent EU legislation. With this aim in mind, the study combines a longitudinal design with a mixed methods approach. First, we analyse the institutional context in which sample companies operate, listing important events that may have influenced reporting over the years. We focus on one particular sustainability topic, human rights, since The Directive is the first reporting regulation in which human rights are mentioned explicitly. Moreover, in The Netherlands there was no legislation on human rights reporting before (
Our sample consists of all financial services companies listed on the three most important Dutch stock market indexes: the AEX, AMX and AScX, resulting in eight banks and insurance companies. All these companies are public interest entities (PIE), which are directly affected by The Directive.
The choice for The Netherlands as the case for our study is driven by the fact that developments regarding non-financial information disclosure in this country started in a rather early stage compared to most other EU-countries (
For each company, we collected the annual reports from 2002 to 2018. Table
Column (5) shows the mean number of human rights mentions in the annual reports. Column (6) shows the main number of mentions when including sustainability reports. Since sustainability reports generally include more words on human rights than the annual report, we will use different panels to compare the two in our main analysis.
Annual reports available | Year of first Integrated Report | Nr. of years Sustainability Reports included | Mean HR count p/y | Mean HR count p/y (incl. SR) | ||
---|---|---|---|---|---|---|
From | To | |||||
(1) | (2) | (3) | (4) | (5) | (6) | |
ABN AMRO | 2002 | 2018 | 2014 | 7 | 10.2 | 16.2 |
AEGON | 2002 | 2018 | 2011 | 8 | 10.0 | 16.0 |
BINCK | 2002 | 2018 | – | 1 | 1.4 | 1.4 |
ING | 2002 | 2018 | 2014 | 9 | 14.0 | 24.0 |
KAS | 2002 | 2018 | – | 0 | 0.3 | 0.3 |
NIBC | 2003 | 2018 | 2012 | 0 | 3.8 | 3.8 |
NN GROUP | 2002 | 2018 | 2014 | 0 | 8.2 | 8.2 |
VAN LANSCHOT | 2002 | 2018 | 2015 | 7 | 5.0 | 8.7 |
Table
(1) | (2) | (3) | (4) | (5) | (6) | ||
Mean | SD | Min | Median | Max | N | ||
Panel 1: Excl. sustainability reports | |||||||
(1) | HR mentioned (y/n) | 0.6 | 0.5 | 0 | 1 | 1 | 135 |
(2) | HR word count | 4.6 | 8.7 | 0 | 1 | 59 | 135 |
(3) | HR count per 10,000 words | 0.5 | 1.1 | 0 | 0.1 | 6.7 | 135 |
(4) | HR index | 245.7 | 45.3 | 18.1 | 247.4 | 382.6 | 126 |
Panel 2: Incl. sustainability reports | |||||||
(5) | HR mentioned (y/n) | 0.6 | 0.5 | 0 | 1 | 1 | 167 |
(6) | HR word count | 7.2 | 12.1 | 0 | 1 | 65 | 167 |
(7) | HR count per 10,000 words | 1.8 | 3.6 | 0 | 0.1 | 22.3 | 167 |
(8) | HR index | 268.0 | 75.5 | 18.1 | 251.4 | 526.8 | 144 |
Table
What Table
Historical developments affecting sustainability reporting by financial institutions in the Netherlands.
Year | Development |
---|---|
1976 | OECD Guidelines for Multinational Enterprises |
1977 | ILO adopts Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy |
1995–1999 | controversies in media about multinationals doing business with dictatorial regimes, such as Turkey, China, Burma, Cuba. |
1998 | Project ‘multinationals and human rights’ with NGOs (Amnesty, Pax Christi), scientists and 9 large listed companies (among which ABN AMRO and ING) |
1999–2005 | Exponential growth of socially responsible investment funds |
2000 | Report Socio Economic Council (SER) on the roles of the various stakeholders, including government, in promoting CSR. Advice to develop sustainability reporting guidelines. |
2000 | GRI G1 (2002: G2 introduced and HQ moved to Amsterdam) |
2000 | UN Global Compact |
2000–2002 | ABN AMRO, ING, Aegon launch socially responsible investment funds |
2001 | Memorandum of the secretary of state to the Dutch house of representatives, based on SER report, expressing government’s view on CSR; goal: stimulating discussion with businesses. |
2003 | Non-binding recommendations on sustainability reporting by the Dutch Accounting Standards Board based on 2000 SER-report and GRI |
2003 | EC Directive 2003/51/EC, which requires inclusion of relevant non-financial KPI’s, including explicitly mentioned only environmental and employee matters, in the consolidated annual report. |
2004 | First Transparency Benchmark by the Ministry of Economic Affairs, naming companies and benchmarking their individual sustainability reporting |
2005 | 2003/52/EC included in Dutch Civil Code (Titel 9 BW2). Comply or explain basis. |
2007–2011 | Credit crisis |
2008 | Dutch Corporate Governance Code: management includes relevant societal aspects of doing business in the annual report. Comply or explain basis. |
2009 | First edition of the Fair Banking Index creates media attention; banks (and in later editions insurers) |
2011 | UN Guiding Principles on Business and Human Rights (UNGP) |
2013 | EU Directive 2013/34/EU, which requires inclusion of relevant non-financial KPI’s, including explicitly mentioned only environmental and employee matters, in the management report. |
2014 | Integrated Reporting Framework by the IIRC |
2014 | EU Directive 2014/95/EU, which requires inclusion of a non-financial statement, containing relevant information on HR policies and due diligence, outcomes of these policies, principal HR-risks and how to manage those, or an explanation why not included |
2015 | 2013/34/EU included in Dutch Civil Code (Titel 9 BW2). Comply or explain basis. |
2016 | Dutch Banking Sector Agreement on international responsible business conduct regarding HR (agreement on adherence to OECD and UNGP) |
2017 | 2014/95/EU included in Dutch Civil Code (Titel 9 BW2). Comply or explain basis. |
2017 | Dutch Corporate Governance Code approved (announced 2016): management report contains vision and strategy on long term value creation, including HR. Comply or explain basis. |
2018 | Agreement on International Responsible Investment in the insurance sector. |
Based on the increasing pressures on financial institutions over the years as shown in Table
Figure
Proportion of firms per financial year that mention ‘human rights’ in their reports. Notes: Graph shows the proportion of reports in our sample that mentioned the term ‘human rights’ [or Dutch equivalent ‘mensenrechten’] at least once in that financial year. Panel 1 only includes the main reports (Annual Report or Integrated Report) of each firm (maximum 1 per year); Panel (2) also includes sustainability reports for the years in which the firm did not publish an integrated report.
Figure
Figure
‘Human Rights’ word count per report per financial year (per 10,000 words). Notes: Graph shows the number of times the term ‘human rights’ [or Dutch equivalent ‘mensenrechten’] is mentioned in the report for that financial year, per 10,000 words. Panel 1 only includes the main reports (Annual Report or Integrated Report) of each firm (maximum 1 per year); Panel (2) also includes sustainability reports for the years in which the firm did not publish an integrated report.
Human Rights index score in annual reports per financial year. Notes: Graph shows the number of times a word from the ‘human rights’ dictionary developed by
Now that we have a better understanding of the institutional pressures and the increasing trend of reporting on human rights over the past two decades, we are able to explore the marginal effect of the new EU Directive. We estimate the effect by comparing the means in annual reporting before and after the announcement date. Table
Human rights reporting (means) before and after year of announcement of EU Directive (2014).
+/- 2 years | + /- 3 years | +/- 4 years | ||||
---|---|---|---|---|---|---|
Before | After | Before | After | Before | After | |
(1) | (2) | (3) | (4) | (5) | (6) | |
Panel 1 | ||||||
Human rights (y/n) | 0.8 | 1.0** | 0.7 | 1.0*** | 0.7 | 1.0*** |
(0.1) | (0.0) | (0.1) | (0.0) | (0.1) | (0.0) | |
HR count per 10,000 words | 0.9 | 1.6 | 0.8 | 1.5 | 0.7 | 1.4 |
(0.5) | (0.5) | (0.3) | (0.3) | (0.2) | (0.3) | |
HR index | 260.0 | 270.4 | 257.6 | 267.7 | 253.3 | 265.2 |
(12.3) | (11.3) | (9.5) | (8.2) | (7.4) | (6.4) | |
Observations | 16 | 16 | 24 | 24 | 32 | 32 |
Panel 2 | ||||||
Human rights (y/n) | 0.8 | 1.0** | 0.8 | 1.0*** | 0.8 | 1.0*** |
(0.1) | (0.0) | (0.1) | (0.0) | (0.1) | (0.0) | |
HR count per 10,000 words | 2.4 | 1.6 | 2.4 | 1.5 | 2.2 | 1.4* |
(0.9) | (0.5) | (0.7) | (0.3) | (0.6) | (0.3) | |
HR index | 272.1 | 270.4 | 271.6 | 267.7 | 266.7 | 265.2 |
(13.8) | (11.3) | (11.5) | (8.2) | (9.3) | (6.4) | |
Observations | 20/18a | 16 | 31/27a | 24 | 41/36a | 32 |
Table
Nevertheless, the analysis in Table
HRit = α + β1Directivet + β2Year + εit
In this equation HRit is natural logarithm of the ‘human rights’ count of company i in annual report of year t; and At a dummy variable equal to 1 if The Directive was first implemented for administrative year t or 0 otherwise. Variable Year represents the year of the annual report and parameter β2 the trend in human rights reporting over time.
The results of this analysis are shown in Table
The estimates in Table
DV: | HR count (Panel 1) | HR count (Panel 2) | ||||
---|---|---|---|---|---|---|
(1) | (2) | (3) | (4) | (5) | (6) | |
2014/95/EU announced | 0.17 | 0.16 | -0.07 | -0.08 | ||
(0.14) | (0.13) | (0.30) | (0.27) | |||
2014/95/EU implemented | -0.05 | -0.02 | -0.24 | -0.25 | ||
(0.15) | (0.14) | (0.31) | (0.29) | |||
Year | 0.05*** | 0.05*** | 0.05*** | 0.03** | 0.04** | 0.04*** |
(0.01) | (0.01) | (0.01) | (0.01) | (0.01) | (0.01) | |
Firm fixed effects | No | No | Yes | No | No | Yes |
Observations | 135 | 135 | 135 | 167 | 167 | 167 |
Adjusted R-squared | 0.30 | 0.29 | 0.43 | 0.02 | 0.03 | 0.21 |
While the introduction of The Directive is often considered ‘an unprecedented act of supra-national disclosure regulation’ (
This study is exploratory. Our sample is relatively small and we should be careful with generalising the results. However, our results imply that, in our sample of financial institutions, The Directive is itself as much a consequence of the institutional context as the reporting practices of the companies are, and is therefore inherently endogenous. This implies that analysing the effects of mandatory reporting via a simple pre-post analyse would give an overestimation of the effect. As with any empirical study, this study has its limitations. First, the sample includes both companies with an international, and (albeit only few) companies with a more national focus; this may have caused a deflated human rights disclosure score. Second, it was not feasible to analyse the reports in more detail, to get an impression on the context of human rights disclosure. This could be an interesting addition for future research, as well as the inclusion of SME’s, or other sectors.
Dr. F. Hubers is assistant professor, Faculty of Management at Open Universiteit
Dr. T. Thijssens is assistant professor, Faculty of Management at Open Universiteit.
Specifically, memoranda of the secretary of state to the house of representatives kst 26485-14 (2001) (https://zoek.officielebekendmakingen.nl/kst-26485-14) and kst 26485-86 (2010) (https://zoek.officielebekendmakingen.nl/kst-26485-86.html), and report b-20644 of the Ministry of the Interior and Kingdom Relations (