Exploring Sustainability Reporting Practices in an Emerging market: Insights from corporate governance and disclosure tone

The study examines how narrative disclosure tones (NDTs) and corporate governance mechanisms (CGMs) affect sustainability reporting practices (SRP) in an emerging economy. Data from 125 nonfinancial firms in Pakistan, spanning 2011 to 2022, are utilised. SRP is measured using both GRI and the novel IFRS S1 standards-based indices. Three NDTs are identified through sentiment analysis, while six CGMs and three ownership structures are sourced from annual reports. Panel regression is used to test the relationships among NDTs, CGMs, ownership structures, and SRP. Negative and uncertain tones are associated with impression management within SRP, whereas positive tones provide more accurate signals. Additionally, audit committee size, independence, and gender diversity enhance SRP, while concentrated ownership reduces it. By introducing a novel measure based on the IFRS S1 sustainability standards and aligning them with the widely adopted GRI framework, the study provides policymakers with a ready framework for implementing mandatory SRP across most emerging economies. Furthermore, this research advances understanding of the tone-SRP nexus, helping investors distinguish between impression management and authentic signals of SRP, particularly in settings where reporting accuracy is critical. Finally, the study underscores the crucial role that corporate governance and ownership structures can play in enhancing the quality of SRP, particularly in environments with weak governance. Policymakers are encouraged to effectively mandate SRP in line with the IFRS S1 sustainability standards. Furthermore, they are encouraged to promote gender-diverse, independent audit committees, and all stakeholders should monitor the tone of annual reports to evaluate potential misreporting in sustainability disclosures.