Responsible investors and the readability of CSR reports

Purpose This study examines whether institutional investors who have signed the principles for responsible investment (PRI), a commitment to responsible investing, encourage firms to enhance the readability of their corporate social responsibility (CSR) reports, thereby promoting greater transparency and stakeholder engagement. Design/methodology/approach Using a Spanish sample from 2018 to 2022, our main findings indicate that socially responsible investment (SRI) ownership is associated with a lower level of linguistic complexity. This association, estimated using generalized method of moments (GMM) analysis techniques, is robust to a range of alternative readability indexes and additional robustness analyses, including difference-in-differences models and the Heckman procedure. Findings We find that socially responsible investment (SRI) owners ensure less linguistic complexity in CSR reporting. We also show that this positive influence is more pronounced (1) in environmentally sensitive firms and (2) when the PRI signatory investor is from Europe. Overall, these results suggest that SRI owners significantly improve CSR report clarity, especially in environmentally sensitive contexts and underscore the impact of investors’ geographic origins on environmental, social and governance (ESG) engagement. Practical implications Our findings suggest that firms seeking to attract European institutional investors should enhance the readability of their ESG disclosures, as these investors value clear and accessible reporting. Our results also emphasize the role of institutional investors in promoting better ESG communication practices, which can enhance credibility among stakeholders and improve market perceptions. Originality/value This study examines how socially responsible investors influence the clarity and understandability of this information, offering a novel perspective on the significance of SRI in advancing ESG practices. Moreover, we contribute to the literature on the readability of CSR reports in the European context and explore how different industries and investor origins affect CSR report readability.