1. Introduction
The concept of Corporate Social Responsibility (herein termed as CSR) and sustainable development is dynamic, multifaceted, and global, and has proven to be a contentious issue across the globe. For instance, it is assumed that CSR is largely a Western phenomenon, and that it is most likely to be found in countries with globally active organisations, democratic political structures, and active civil society organizations [
1]. CSR as a concept has attracted worldwide attention and thus gained global recognition and prominence. The global corporate environment in recent times faces increasing pressure to take up initiatives and recognise its social and environment responsibilities. This has led to a growing interest in the question of whether the adoption of CSR disclosure and strategies by firms that actively support sustainable economic, social, and environmental development can play a key role in the generation of competitive advantage and firm value [
2,
3].
The notion that businesses have a responsibility of maintaining an impartial balanced working relationship among various stakeholders has been relevant to an understanding of a business strategy for the past half a century [
4]. Performance of CSR and disclosure has therefore become an integral part of the corporate fabric [
5]. Organisations disclose their social and environmental performance in many different ways, including annual reports, independent reports, websites and press releases, extra supporting documents for annual reports, advertisements, published articles and booklets regarding corporate social and environmental activities, and video tapes [
6].
The rise of CSR and sustainability issues globally has led to a planetary rise in global standards for information disclosure over the past decades. Thus, there has been a worldwide diffusion of disclosure standards [
7]. A study by Ligteringen and Zadek [
8] identified over 300 global corporate standards that have evolved since the 1990s. These standards include the United Nations (UN) Development Goals and Global Compact, the directory of Organization for Economic Cooperation and Development (OECD) for multinational corporations, ISO 14001, the Global Reporting Initiative (GRI) guidelines, Sullivan Global Principles, SA 8000, Series AA1000, and ISO 26000 [
7]. These standards encourage disclosures of social and environmental issues of corporate sustainability, among others. As a result of the global rise in standards, there have been calls for enhanced CSR and sustainability disclosures as well as any other information that can potentially impact on organisational performance. Consequently, there has been a rise in the number of organisations disclosing their social and environmental initiatives [
9]. According to KPMG reports (KPMG, 2011; KPMG, 2013) 95% of the 250 largest companies in the world (based on the Fortune Global 500 ranking) produced a CSR report in 2011, a 14% increase from 2008. Also, a variety of companies appear to be increasingly engage in CSR disclosure related to environmental and social issues [
10,
11].
In this paper, we provide evidence in line with recent global upsurge of standards on debates within the broader framework of corporate sustainable development, and the social and environmental disclosure literature of CSR. We highlight the importance of expanding existing evidence on the relations among CSR disclosures and firm performance to different institutional settings that may allow for further findings in light of available inconclusive results within the CSR–FP nexus. The aim of this study is to investigate the relationship between the extent of CSR disclosure performance (and its components) on firm value in an emerging institutional setting where investor protection is relatively low, as a result of a weaker external corporate regulatory environment [
12,
13]. This study focus on South Africa, with the application of an internationally accepted standard, the Global Reporting Initiative (herein termed as GRI) 2011 (G3.1) guidelines related to sustainability disclosure, as a measure of CSR disclosure performance of sampled companies from the Johannesburg Stock Exchange (herein termed as JSE), an emerging market in sub-Saharan Africa.
Globally, recent trends indicate that many more organisations are paying increasing attention to CSR disclosure, its related organisational performances, and the issuance of CSR/sustainability reports based on international standards. This has become an important issue for both practitioners and academics, as a result of changing business dynamics and importance of organisations in today’s global environment, that is, the effects of globalisation and global capitalism [
14,
15]. As CSR and sustainability reporting are becoming effectively mandatory for global large multinational corporations (MNCs) it has also attracted a considerable amount of academic literature [
16,
17]. Various stakeholders continue to pressure organisations (i.e., both local and multinational) to improve upon their CSR performances and release the related reports. Such pressures include for instance, public concerns, media interest and advocacy, institutional and regulatory forces, consumer and industrial pressures, reputational concerns, and other perceived market advantages [
18]. On the other hand, organisations may disclose their CSR as a way of sustainability development investment, and thus, an evaluation of their consequences should be relevant. Sustainability reporting guidelines developed by the Global Reporting Initiative (herein termed as GRI) provide a more organised approach for companies to disclose their performance on CSR dimensions of sustainability. The reason for the enormity of the subject is that reporting of a firm’s actions and inactions has become much more central because investors and other stakeholders are demanding greater transparency about business practices. To this end, it has been asserted that CSR disclosure is now a necessity for all kinds of organisations and is no longer a purview of only large corporations [
19]. We argue that the extent of CSR disclosure and its associated transparency should have an impact on the firms’ wellbeing.
South Africa makes an interesting study case from sub-Saharan Africa, due to prior research and developments within its context. South Africa is noted for its long history of racial segregation termed as “apartheid”. Within apartheid, humanity was largely defined on the basis of race. It is well documented in literature that ‘no study of South Africa would be possible without an examination of the regime’s racial classifications’ [
20]. Therefore, it has been argued that the practice of CSR in the context of South Africa was largely “apartheid-induced” [
21]. The post-apartheid era therefore saw the formation of affirmative actions, policies, initiatives, and structures by the ANC government (i.e., ANC—the African National Congress is the Republic of South Africa’s governing political party and it has been the ruling party since the fall of apartheid in South Africa) after it took over power from the apartheid regime as a democratically elected government. One of the aims of the ANC government on assuming power was to rebuild the corporate image of South Africa, which occurred as a result of the racial imbalances that may have been created after the fall of apartheid. One of the most critical structures that have shaped the corporate and economic landscape of South Africa was the coming into force of the South African Corporate Governance Code of practice (popularly known as the King Reports). The first report was produced in 1994 (i.e., King I), the second in 2002 (i.e., King II), the third in 2009 (i.e., King III), and the most recent was produced in 2016 (i.e., King IV). It has been noted that these reports generally adopt the Anglo-Saxon style of corporate governance [
12]; nevertheless, they also included some specific affirmative actions, rules, initiatives and stakeholder provisions.
Firstly, although empirical research on the disclosure of CSR and FP relations has attracted much interest among policy-makers and researchers in the emerging markets context, even so, this relationship seems to be erroneous and to some extent ambiguous. Hence, this relationship remains inconclusive [
22]. As prior research in emerging markets on social and environmental disclosure grows in prominence relative to developed markets, a notable avenue by which emerging markets could demonstrate commitments to the global upsurge of standardisation in CSR disclosure trends and sustainable development is to promote a voluntary (and/or mandatory) use of such global standards among local and multinational corporations operating within their markets. It has been asserted that when organisations integrate, adopt, and disclosure on sustainability issues into their operations in a triple bottom context, it is termed as CSR [
23]. However, social and environmental research has largely focus on the developed and industrialised economies (i.e., where better institutional settings, higher investor protection, relatively better levels of economic development, and sophisticated financial markets are in existence), with relatively limited prior research in emerging economies [
24,
25]. There is therefore a lingering need for improve research in social and environmental disclosure in emerging markets to commensurate the global call for corporate disclosures, in line with international standards.
Secondly, the call for CSR disclosures in line with international standards becomes even more desirable as issues of CSR and sustainability are well grounded in the Corporate Governance Codes of South Africa, making this research study unique from the context of South Africa, and for that matter, sub-Saharan Africa. The South Africa Corporate Governance Codes, since its inception, encourages corporations to integrate sustainability concerns into their operations and to disclosure based on the GRI. The King I and King II Corporate Governance Codes required listed companies on the JSE to report based on the GRI guidelines. Mitchell and Hill [
26] assert that the GRI reporting in South Africa is endorsed by the King Report for Corporate Governance and the Johannesburg Stock Exchange for listed companies. However, the focal point of this study—the King III Corporate Governance Code—went further to encourage all entities in South Africa to integrate sustainability concerns into their operations, and to report based on the GRI guidelines in a triple bottom context of sustainable development. As such, all entities in South Africa are encouraged to integrate sustainability concerns into their operations, irrespective of the company size, nature, or type—see King III Corporate Governance of South Africa [
27]. Therefore, it was timely to undertake research utilising internationally accepted standards (i.e., the GRI guidelines) to investigate the extent of CSR disclosure and its influence on firm value in sub-Saharan Africa, where research is relatively limited. Although literature notes that research on CSR (and disclosure) in emerging markets is relatively limited compared with advanced economies, it is worth recognising the rise in prominence [
28] of CSR research in developing countries, and in particular South Africa [
29,
30,
31,
32]. However, and to the best of our knowledge, no research in today’s modern era in the South African context has utilised the GRI 2011 (G3.1) guidelines to investigate the relations among the extent of CSR disclosure performance (including components of CSR disclosure) of public-companies on firm value. Studies on CSR (and disclosure) in South Africa context have largely used affirmative action Acts [
31] (for example, the Black Economic Empowerment Act—BEE Act and Broad-base Black Economic Empowerment Act—BBBEE Act), organisational survey data [
29] (example, survey data by KPMG International) and other national level instruments [
30] (example, JSE Socially Responsible Investment Index) to measure the extent of CSR disclosure. Also, we recognise that the past decade has witnessed research work exploring the usage of the GRI framework and GRI-guided reports.
Consequently, this study makes unique contribution to literature from South Africa context. To the best of our knowledge, this study is different from a study by Ntim [
33], which examined the social responsibility role of public companies’ contribution towards reducing the negative effects of HIV/AIDS within the realms of social and environmental accounting (SEA), by adopting the GRI 2002 reporting guidelines specifically on HIV/AIDS and how the companies disclose their activities aimed at addressing the menace. Even so, this was a cross-country study within sub-Saharan Africa. Again, this present study is very different from a recent study by Horn et al. [
29], which utilises survey data from KPMG International to investigate CSR disclosure in South Africa. Hence, this present study has a different scope which largely differs from the research works by Ntim [
33] and Horn et al. [
29]. This present study utilises a more recent data and the GRI 2011 (G3.1) of sustainability disclosure, as a measure to investigate the influence of the extent of CSR disclosure performance (and its components) on firm value. In particular, this present study manually collects CSR information disclosed from annual and CSR/sustainability reports of sampled companies to construct three separate disclosure indexes to examine their relations with firm value. In this case, this present study is very unique and different from other research works in the South African context, and as such, makes very substantial contribution to CSR literature in South Africa and in the context of emerging markets.
In this paper, we focus on listed companies on the JSE, South Africa for the following reasons. The rich corporate governance regime has, to a larger extent, shaped the corporate environment of South Africa towards sustainability reporting. In particular, the King III Code on Corporate Governance [
27] explicitly encourages all entities in South Africa to integrate economic, social, and environmental issues of sustainability into their day to day operations, and to report based on the GRI. Lastly, South Africa is noted as one of the most ethnically diverse economies in the world [
34]. For instance, in 2011, South Africa’s population stood at 79% Black Africans, 8.9% were coloured, 2.5% were of Indian/Asian origin, and 9.5% were White (Statistics South Africa, 2012) [
35]; see also Gyapong et al. [
36] p. 374 (to the best of our knowledge these are the most recent census statistics). This diverse nature makes it unique from its peers in the sub-Saharan region, accompanied with its continuous stability and economic landscape makes it a welcoming destination for a variety of multinational corporations (MNCs). The result of this is the significant rise in the number of company listings on the JSE, which has led to the attraction of more foreign direct investments into the country. Furthermore, South Africa has by far the largest financial system, relatively developed, and most sophisticated in Africa, and it compares well with the financial systems of the developed world, and has secured itself a spot among the top-20 stock markets in the world [
37]. The JSE has remained a member of the Federation of International Stock Exchange since 1963, and is the only stock exchange in Southern Africa, but it has gained a mark as one of the largest in the world in terms of market capitalization [
37]. With these dazzling features, South Africa compares well with some developed and middle-income emerging economies, hence exploring the extent of CSR disclosure performance of public companies on the JSE from an internationally accepted standard was not far from reach.
Using a hand collected dataset of 126 listed South African companies over the period from 2010 to 2015 we investigated the relationship between disclosure of CSR performance, based on G3.1 guidelines related to social and environmental performance indicators, and firm value. To do this, we employed a unique disclosure formula to construct three disclosure indexes. This study finds mixed and interesting results which are consistent with findings of prior studies. First, we examine the influence of the extent of CSR disclosure performance (as represented by social and environmental performance indicators of GRI—G3.1) on firm value. We find that CSR disclosure performance has a positive but insignificant influence on firm value. Even so, and with regards to the correlation matrix below, it also indicates a weak negative relation between CSR disclosure performance and firm value. Second, we examine the influence of the extent of environmental disclosure performance (as represented by environmental performance indicators of GRI—G3.1) on firm value. We find that environmental disclosure performance has a negative and an insignificant influence on firm value. Lastly, we investigated the influence of the extent of social disclosure performance (as represented by social performance indicators of GRI—G3.1) on firm value. We found a positive and statistically significant influence of social disclosure performance on firm value. Overall, our findings suggest that CSR disclosure has a limited effect on firm value. However, the influence of environmental disclosure on firm value may be weakening, if not becoming less important in driving firm performance. Our findings are robust after controlling for the potential effects of endogeneity. Our findings have significant implications in the context of an emerging market with weak investor protection. This study provides support for the theoretical reasoning in line with the stakeholder and legitimacy theories. For instance, the Stakeholder theory posits that a firm’s long-term existence depends upon addressing stakeholder concerns, and that CSR has thus expanded the firm’s responsibilities to the wider public. CSR disclosures are therefore ways of providing vital non-financial information of stakeholder needs about the firm, which could influence stakeholders’ perceptions about the firm and their investment pattern. Also, our findings support firms’ legitimacy, that is, where firms use CSR disclosure as a means of legitimising their actions and inactions. Legitimacy theory perceives CSR information as a strategy for managing perceptions of society regarding social and environmental impact on business operations [
38]. This theory holds a widespread view that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, and beliefs [
39]. Therefore the disclosure of CSR has become an integral part of corporate fabric [
5].
This present study contributes to the CSR literature in developing countries, in several ways. Firstly, we consider that previous findings on the value relevance of CSR disclosure on firm performance in the developed/industrialised economies cannot be generalised to the emerging markets context, particularly sub-Saharan Africa. Even so, emerging economies, and for that matter sub-Saharan African countries, exhibit wider differences in development relative to other economies. Again, many local and multinational corporations can be perceived differently in the performance of CSR activities. Additionally, stakeholder demands for social and environmental disclosure may substantially differ within different institutional settings. Secondly, although CSR disclosure research has grown in prominence in South Africa, and that, corporate sustainability issues are well incorporated in Corporate Governance Codes of South Africa, CSR disclosure research utilising internationally accepted standards in a triple bottom context was still relatively limited. Therefore, this study shed light on a growing body of literature on international standardisation [
40,
41,
42] of CSR disclosure towards sustainable development, by utilising the GRI guidelines. Third, and in support of the two points above, our study aims to broaden our understanding and fill an existing gap in literature, by providing new evidence, on the influence of CSR disclosure on firm performance, in line with global debates within the social and environmental disclosure literature, by providing new empirical evidence from a sub-Saharan African context, other than the developed and industrialised markets. Finally, this study makes theoretical contributions, in support of existing literature, that argue for a multi-theoretical perspective to explore the CSR disclosure practice of firms.
Our findings have important regulatory, policy, and research implications. This study suggests that CSR disclosure, on the basis of GRI guidelines, is moderately high for our sampled JSE companies over the period of study. This observation holds that CSR disclosure towards sustainable business operations was progressively being upheld in the South African context, and that, efforts by key stakeholders, like the JSE and the South African Corporate Governance Institute, to improve the adoption and incorporation of sustainable development have had positive impacts on companies’ operations. However, and like most administrative structures which are not without caveats; we suggest that attention be given to the credibility of some information that are disclosed by companies. From our findings we argue that the influence of CSR disclosure performance, on the basis of the GRI guidelines, serves to provide a common playing field to enable companies to be assessed from an internationally accepted standard, which is vital for performance evaluation.
The rest of this paper is organised as follows.
Section 2 provides theoretical background, prior literature, and hypotheses development.
Section 3 introduces the data, research design, and methodology.
Section 4 presents the analyses and discusses the empirical results.
Section 5 presents the robustness test. Finally,
Section 6 presents a summary and conclusion.
6. Summary and Conclusions
Numerous research studies examining the CSR–FP relationship from the perspective of international standardisation, have mainly concentrated on the developed and emerging markets of America, Asia-Pacific, and Europe. This leaves a conspicuous gap within the extant literature with regard to evidence from the sub-Saharan Africa. Nevertheless, some sub-Saharan African countries, particularly South Africa, offer interesting context with regards to investigating CSR disclosure from an international viewpoint. Compared with its peers, South Africa has a matured corporate sector, is ethnically diverse, and has strong regulatory and governance frameworks comparable to those of some developed and other established emerging markets. Therefore this study has attempted to fill the existing gap in the literature from a sub-Saharan African context. This present study has investigated the relationship between CSR disclosure performance (and its components) and firm value. The authors construct three separate disclosure indexes, on the basis of an internationally accepted standard for disclosure of CSR information, to re-examine the questionable CSR–FP relations. Thus, we have investigated the influence of CSR disclosure performance, social disclosure performance and environmental disclosure performance on firm value, in a single study from an emerging economy. We have explored these relations from a multi-theoretical perspective, utilising the stakeholder and legitimacy theories. Hence, this study provides new evidence from an emerging market context with unique institutional setting.
This study supports existing literature which provides evidence that CSR continuous to gain much prominence in South Africa, and for that matter sub-Saharan Africa. Even so, from the descriptive statistics (
Table 2) we find that the mean score of CSR disclosure (and the components of CSR) is approximately 60% and above, which gives an indication that on average, the extent of CSR disclosure performance (as measured by the social and environmental disclosure performance indicators on the basis of the G3.1 guidelines) towards sustainability development is moderately high in South Africa. Our findings of a positive but insignificant relationship between CSR disclosure performance and firm value and a negative and an insignificant relationship between environmental disclosure performance and firm value, may suggest a weakening of the influence of CSR disclosure on firm value. From the legitimacy theoretical perspective, we may conclude that CSR disclosure performances and environmental disclosure are avenues by which organisations turn to legitimise their actions and inactions, notwithstanding its usefulness in explaining the motives behind CSR disclosures. From the stakeholder theoretical perspective, we may conclude that disclosures are ways of providing vital nonfinancial information to stakeholder about the firm, which could influence stakeholders’ perceptions about the firm. Even so, we are of the view that CSR disclosures, on the basis of international standardisation in developing countries, particularly Sub-Sahara Africa, are largely ways by which firms legitimise their actions and inactions towards powerful stakeholders. Our finding of a positive and statistically significant influence of social disclosure on firm value is evident of many efforts by governments in sub-Saharan Africa and corporate bodies’ provision of many social interventions to their communities. For instance, the post-apartheid era saw the formation of many social interventions by the ANC government towards national and corporate rebuilding. Therefore, many different organisations of different sizes and from a variety of different sectors are actively utilising social responsibility policies, not only because of the growing global trends and other external pressures, but also because it could result in efficiency gains. Porter and Kramer [
129] indicate that addressing societal concerns amongst others could increase the levels of company productivity, with the subsequent positive effects in profitability and share value.
Therefore, based on our findings the following insights can be drawn. We argue that disclosure of CSR performance, on the basis of the GRI guidelines, serves to provide a common playing field to enable companies to be assessed from an internationally accepted standard. However, this could merely be ceremonial, mainly done for legitimacy purpose. Prior studies [
130,
131] suggest that companies use several legitimisation strategies to legitimise their actions and inactions. The process of legitimisation can involve real, material change in an organisation’s output, methods, goals and disclosure pattern, which in this case, are needed to inform relevant stakeholders about these changes [38, 49]. On the other hand, disclosures can be symbolic, which means that they are part of a legitimisation process whereby companies try to influence the perception of the public without changing performance [
132]. By fulfilling this however, it allows disclosing companies to benchmark their performance against others, from a global standard. Benchmarking the disclosure of performance is beneficial in allowing companies to communicate to stakeholders the wellbeing of their companies’ operations, as well as, enable their self-assessment [
133].
In the wake of global upsurge in international standards and its adoption on debates within the broader framework of corporate sustainable, and the social and environmental disclosure literature, this study makes significant contributions to the existing literature by pushing forward our understanding of the importance of expanding empirical evidence on the CSR–FP relations to different institutional settings that may allow for further findings in light of available inconclusive results within the CSR–FP nexus. We do so following international standards from an emerging institutional setting, where investor protection is relatively low, as a result of a weaker external corporate regulatory environment [
12,
13].
Although we recognise that our study is not without limitations, nevertheless, our results have important policy implications. It is well recognised that the GRI guidelines is an international and a multi-stakeholder effort to create a common platform for CSR disclosure in line with the economic, environmental, and social impact of organisations. Thus, it seeks to improve the comparability and credibility of sustainability disclosure worldwide. However, GRI guidelines may be far from reach due to the differences in the effects associated with other individual national/institutional settings, culture and social value aspects of markets in developed and developing countries. For instance, research has particularly observed with concerns current CSR approaches and with their origins in developed countries, may not reflect and fully respond to the developing countries’ context and circumstances encountered [
134]. Further, Jones [
135] observed that the national sociocultural environment and level of national economic development are important factors influencing disclosure of CSR and its practice. Thus, international standards for sustainability disclosure, like the GRI, may not fully reflect these observations from different country perspective, and as such rendering such standards relatively less applicable in emerging markets, like sub-Saharan Africa. Thus, we argue that the notion of uniformity for GRI disclosure in line with sustainability, across the length and breadth of organisations globally, may casts serious doubts on its effectiveness to provide a common platform to assess organisations from different institutional contexts. This may lead to impaired outcomes to provide a common platform to assess organisations with similar sectors from different geographical locations. Thus, we find the disclosure parameters lacking specific national and sociocultural value dimensions from different national context, of developed and developing countries. Therefore, we suggest that current regulation and practice in line with international standards (in particular the GRI) should be improved by way of incorporation of other national/institutional outlook and sociocultural value dimensions from the perspective of developed and developing countries to fully reflect the big picture. Therefore, we argue that it is only when these several country level indicators are incorporated that an equitable performance assessment among countries (and within sectorial industries) was fairly possible. Therefore, we assert that the adoption of GRI guidelines for CSR disclosure is inevitably influenced by various institutional locations, regulatory controls, and national sociocultural value dimensions.
Our study has the following limitations, which provide possible future research avenues. First, the process of constructing the disclosure indexes may be bias and potentially subject to measurement error. As such, our results should be interpreted with caution. Even so, we have manually collected the CSR disclosure information from the annual and CSR/sustainability reports of sampled companies and, as such, may result in some omission on our part, although to the best of our knowledge, all relevant information has been captured. Secondly, as we align the CSR information collected with the GRI G3.1 guidelines, to ascertain the extent of disclosure, there could arise elements of subjectivity on our part which could prejudice our results. However, in an attempt to minimise these biases, we acknowledge that every effort were made by the authors to remain objective in the scoring and coding process. As such, all information collected were analysed twice by the authors to ensure that all relevant information are captured and interpreted correctly. Potential research avenues from this paper could be directed at exploring the relationship among the various subcomponents of the individual components of CSR disclosure performance (i.e., environmental and social) and firm value, in order to ascertain further how these other sub-components influence firm value/performance. Also, future research could investigate this relationship within industrial sectors. The future research could also consider other firm value indicators (i.e., both accounting-based and market-based performance, such as ROE and market value) to investigate the relationship between CSR disclosure performance and firm value. Even so, and consistent with prior literature, scholars [
69], [
82], [
136] assert that the CSR–FP relationship depends on various interactions between many different factors, in particular the specific capabilities of the firm and other industrial context. To this end, we postulate that the dynamism that lies within the CSR–FP relations (and its disclosure) research remains inconclusive, owing to the various indirect relations of several indirect variables that have been perceived to influence such relations.