The Evolution of Sustainability Reporting and the Digital Transformation of Financial Statements – A Comprehensive Study

This dissertation comprises six essays that address key research questions in the realm of sustainability reporting and digital transformation of financial reports. The work is divided into four main subjects: The initial subject area explores voluntary sustainability reporting in the United States (US). The aim is to investigate the relationship between the environmental, social, and governance (ESG) performance and voluntary sustainability reporting of US companies. The second subject area concerns mandatory reporting in the European Union (EU). As part of the second study, a content analysis of non-financial statements is proposed to quantify the informative value of these reports, with an additional essay examining the determinants of this value. The third subject area contains two studies in which current reporting practices in Germany are compared with the forthcoming reporting regulations under the Corporate Sustainability Reporting Directive (CSRD). The fourth and final subject area deals with the digital transformation of financial reports, with a specific focus on the introduction of the European Single Electronic Format (ESEF). The first empirical study examines the relationship between the ESG performance and the characteristics of voluntary sustainability reporting of US companies. This study extends the existing academic literature by using an innovative methodology based on automated text mining to analyse textual characteristics of a sustainability report. The examined characteristics are quantity, calculated as the number of words, and quality, defined as the specificity of a report. The findings indicate that both characteristics are significantly correlated with sustainability performance. More specifically, superior ESG performance is positively impacting the quality and quantity of sustainability disclosure. Further analyses reveal that the environmental performance is the primary driver of the quality, while for quantity, all ESG dimensions exert an influence. The next part of this dissertation focuses on the examination of non-financial statements from companies in selected EU countries. The EU established the Non-Financial Reporting Directive (NFRD) in 2014, which mandates sustainability reporting for large, listed companies. However, the requirements in terms of form, content, and structure are limited to a minimum, which restricts the comparability of the reports. The second essay therefore introduces a novel approach for analysing the content of sustainability reports. First, by employing an inductive and deductive approach, three dictionaries encompassing the individual areas of ESG, as well as three dictionaries covering time perspectives concerning past, present, and future, are developed. The study thus combines key aspects of sustainability reporting that have only been separately considered in previous literature. Second, a text mining approach, including the ESG and time dictionaries, is applied, which results in the “Sustainable Fingerprint”. This approach enables the generation of a comprehensible scheme to display the structure of a non-financial statement and quantify its informative value. In a subsequent analysis, the Sustainable Fingerprints are analysed with respect to country- and industry-specific characteristics, thereby revealing significant differences in the informative value of non-financial statements. The results provide further evidence that ESG dimensions are covered relatively balanced in the analysed non-financial statements. However, when considering temporal perspectives, it becomes evident that the majority of sections are future-oriented, while the present and the past constitute a smaller proportion of the content. Following the adoption of the NFRD, EU member states had to transpose these requirements into their national legislation. This resulted in the emergence of varying requirements, particularly concerning the disclosure format as well as internal and external audits. Building on the previously introduced text mining approach, the third study examines the impacts of different national NFRD implementations on the informative value of non-financial statements. Accordingly, a panel regression with fixed effects is employed. This essay contributes to the existing literature by providing insights into the determinants that influence the informative value, and thus the reliability, of non-financial statements. The findings indicate that the disclosure format has an impact on the informative value. In particular, the incorporation of the non-financial statement into the annual report results in a higher informative value. Additionally, the presence and expertise of an internal audit committee enhances the informative value of non-financial statements. The fourth and fifth studies provide a comparative analysis of the status regarding sustainability reporting under the NFRD and the emerging regulations of the CSRD, specifically focusing on companies included in the Deutscher Aktienindex (DAX) family. First, the legal requirements currently enforced under the NFRD and the forthcoming CSRD regulations are presented. Next, an analysis of DAX companies’ current reporting practices, in comparison to the CSRD regulations, is conducted, focusing on several key aspects: the disclosure format, the application of a framework, the assurance of the non-financial statement, and the EU taxonomy. The assessment of the conformity of the forthcoming reporting requirements with the existing status quo reveals that a considerable number of DAX companies have yet to implement the changes necessary for compliance. The objective of the final essay is to provide a comprehensive overview of the digital transformation of EU financial statements. In doing so, this research contributes to the existing literature by examining the initial years of ESEF. The study uses a descriptive analysis of the eXtensible Business Reporting Language (XBRL) application in ESEF filings to assess the effectiveness of the directive in meeting its objectives: transparency, comparability, accessibility, and ease of analysing. The results indicate significant variations in the application of taxonomy and extension elements across countries, industries, and company sizes. Textual analysis focusing on element names reveals questionable use of taxonomy elements as extension elements, the (dis)aggregation of elements, and the embedding of national languages. These findings suggest that the transparency, comparability, accessibility, and ease of analysis of ESEF reports are currently limited.