A directive to change the wor(l)d of sustainability reporting - An initial examination of non-financial disclosure by Swedish companies in light of the Directive 2014/95/EU

Abstract: In 2014 the European Union officially announced the Directive 2014/95/EU concerning disclosure of non-financial and diversity information, and consequently as of the financial year 2017, certain large undertakings are required to annually report information concerning the impact of their business activities related to the thematic categories ‘environmental matters’, ‘social & employee-related matters’, ‘respect for human rights’ and ‘anti-corruption & bribery matters’. Motivated by the desire to facilitate non-financial reporting practices for disclosure to enhance more sophisticated decision-making by stakeholders, the Directive allows for significant flexibility to capture the multidimensional nature of social and environmental issues for increased relevance, consistency and comparability of disclosures by undertakings in all sectors and across Member states. The purpose of this study is therefore to determine the consequences of the Directive on non-financial information by outlining the regulatory effect on the level of disclosure on the thematic categories, and to examine the objective of ‘comparability’ among Swedish companies with 250-500 employees. For this reason, content analysis of quantitative and qualitative character was conducted on the non-financial disclosure by Swedish firms presented in written reports for 2016 and 2018. The results of this study demonstrate a positive change in the level of disclosure on the thematic categories between 2016 and 2018, illustrating the regulatory effect of the newly implemented regulation on non-financial information in Sweden. Moreover, based on the results of the qualitative content analysis it could not be concluded that non-financial disclosures on ‘respect for human rights’ was comparable as a result of the flexibility given by the Directive. Overall, results indicate that the flexibility given to foster materiality might hinder the comparability of non-financial disclosure. Findings of this study raises questions about the very design of the Directive and its ability to achieve its intended objective of enhanced decision-making for stakeholders.