Prof. Karin Buhmann

Instrumental Regulation of Sustainable Business and the Role of Non-Financial Reporting: A Case Study of Danish Mandatory CSR Reporting and Corporate Learning for Organisational Change

The legal literature on non-financial reporting of firms’ societal impacts portrays the practice chiefly as an accountability mechanism, whereas some organisational literature approaches the practice as a modality to stimulate organisational change. The accountability-oriented disclosure approach takes an ex-post re-active perspective to the practice, whereas the organisational change oriented approach rather or, at least, also, adopts a pro-active ex ante perspective. Combining both, non-financial reporting, however, may also be perceived as a form of instrumental regulation, which both stimulates change and ensures accountability, which in turn may have both specific and general preventative effects. The achievement of the intended effects obviously depends on reception of the disclosure obligation within the organisation, and therefore on the legislative requirement and its wording.

Non-financial reporting has long been applied by some firms on a voluntary basis as a way to account for their societal impacts, as well as in some cases to ensure ongoing communication with their stakeholders. Mandatory non-financial reporting has been introduced by several jurisdictions for specific firms. The spread of such requirements and their underlying assumptions of organisational change makes it timely to consider the actual effects of mandatory reporting.

The EU’s Non-Financial Reporting Directive (2014) is partly modelled on the Danish Corporate Social Responsibility (CSR) Reporting Act from 2008, but requires more detailed reporting on a number of issues. Like the Danish Act, the Directive counts on economic ‘sanctions’ on firms, without, however, requiring that consistency between firms’ reports and their actual actions be assured. The relative maturity of the Danish CSR reporting requirement offers a good basis for an analysis of the workings of non-financial reporting on organisational change.

Based on analysis of a set of reports produced under the Danish reporting requirement, this paper presents novel insights on the effect of mandatory CSR reporting on firms’ organisational CSR work. The political and legislative history indicates that a key objective of the introduction of mandatory reporting was to stimulate CSR work, in particular through learning in firms and improved understanding of stakeholder concerns and interests. Previous studies have looked at the number of reports, CSR issues addressed and consistency across the three reporting issues. This study addresses the question of whether and how mandatory CSR reporting has affected internal organisational processes on CSR and stimulated organisational change, especially for firms to reduce their adverse impacts on society. The paper offers insights of use to regulators, firms, auditors and other stakeholders with regards to the effectiveness of mandatory non-financial reporting as a change agent.