CSR Lectures
Lecture 1; Corporate Reporting:
All the corporate reporting information can be seen in financial statements (e.g., balance sheet,
income statement, cash flow statement, statement of SE). Other statements are for instance the
tax report, social report, governance report, and the sustainability report. Lastly, we have the
integrated report.
Integrated report = a concise communication about how an organization’s strategy, governance,
performance, and prospects lead to the creation of value over the short, medium, and long term.
Reporting is a result of its environment. Reporting practices reflect economic, legal, cultural, and
institutional contexts. The separation of ownership (shareholders and management) creates a
need for transparency and accountability, therefore, financial and corporate reports are being
made.
It also differs between listed and non-listed companies. Listed companies face stricter reporting
requirements due to investor demand and regulatory oversight. Non-listed companies have more
flexibility, but still need to make reports.
However, reporting practices shape the environment too. They are not fully objective or neutral,
since the balance sheet is built on accounting rules, and not just facts. It includes personal
judgment and choices, making it partly subjective.
The reporting environment looks like
this: Regulators make reporting mandatory.
Corporations have a mandatory part, but can also
voluntarily choose to add non-mandatory parts.
Moreover, third parties can add third parties
disclosures like analyst ratings of when they would
advice you to buy or sell, etc.
Corporate reporting evolved through the years. Traditional reporting was purely about the annual
report, which was mainly used by shareholders. The business press was often the one that helped
to spread this information.
However, reporting evolved in more modern reporting. Companies disclose information through a
mix of mandatory and voluntary reports, with the audience expanding to stakeholders who use
these reports. The business press and social media both help to spread this information. This
modern reporting does not only include financial reporting, but also reporting about ESG, CSR,
and content analysis.
The focus becomes less on external investors and just financial result, since ESG is also becoming
more important. This happens because big accounting scandals have made people question current
practices, therefore, shifting the focus from just strict rules to principles and good company
behavior. Tech companies also have harder things to measure, like software and other intangible
assets. This all shows that the focus is shifting to the 3P’s and becomes an holistic approach.
Key functions of corporate reporting are:
- Providing information: it helps both internal and external users to make informed
decisions.
- Accountability (stewardship): corporate reports show how well the company is managing
its resources and responsibilities. It builds trust with stakeholders, regulators, and society.
- Driving change (transformation function): when a company publicly reports on important
topics—like climate goals, employee wellbeing, or supply chain ethics—it creates pressure
to improve in those areas. It also allows stakeholders to track progress and hold the
1
, company accountable. This pushes the company toward long-term improvements, not just
short-term results.
Integrated reporting = a principles-based framework for corporate reporting that goes beyond
traditional financial reporting. It combines financial and non-financial information (like ESG factors)
to show how a company’s strategy, performance, and prospects lead to sustainable value creation.
Integrated reporting framework (IIRC framework) or (IR framework) = a framework
designed to help organizations tell a clear, concise, and integrated story about how they create
value over time. It identifies six types of capital:
- Financial capital: investments made by the partners.
- Human capital: the employees and their skills, including efforts the company makes to
support, train, and motivate them.
- Social and relationship capital: the strength of relationships with suppliers, clients, and
networks the company is part of or contributes to.
- Natural capital: natural resources the company uses, such as fuel for transportation or
infrastructure that impacts the environment.
- Intellectual capital: the company’s know-how, such as expertise in sustainable business
models or innovative practices.
- Manufactured capital: tangible assets like office buildings, company vehicles, or other
physical tools used to deliver services.
The main difference between this IR framework and the GRI is that the IR framework is a more
principle-based framework (e.g., guidelines and flexibility) whereas GRI is a rule-based
framework (e.g., rules and almost no flexibility), which describes exactly what to report.
Corporate and sustainability reporting = creating value for both shareholders and all
stakeholders. It creates value for shareholders (short-term) and also long-term sustainable value for
all stakeholders
There are different levels of reporting that came up in the last years. It all started with
environmental reporting, then corporate sustainability reporting, then the combined report, and
lastly the integrated report.
The Role of the Accountant:
Accounting is often seen as dull or routine, but in reality, accountants play a powerful and
influential role. The information they provide shapes major decisions—like whether a company gets
a loan, pays certain wages, or even goes bankrupt. Accounting doesn’t just reflect what’s
happening in a business; it can drive behavior and influence how companies act. It gives
stakeholders the information they need to demand change or support certain actions. It also grants
legitimacy—if a company reports strong profits, it's often viewed as successful, even if it causes
harm to society or the environment.
Reporting Theories:
Theories help us to understand and explain practice. Theories that explain the existence of
regulation are, for instance, the public interest theory, the private interest theory (interest
group theory), and the capture theory.
Market-oriented theories of corporate reporting are:
- Information asymmetry (agency theory): when managers know more than investors, it
can lead to problems like adverse selection (bad choices due to hidden information) and
moral hazard (risky behavior due to lack of accountability).
- Decision usefulness: reporting helps investors—who are more or less rational—make
informed decisions in more or less efficient markets.
- Contracting usefulness: reports also help other key players, like boards, banks, and large
investors, manage contracts and monitor performance. This can serve both efficient and
self-interested goals.
2
, - Reporting supports markets: good reporting improves how markets work—including
markets for securities, capital, executive talent, and company takeovers.
Theories that explain accounting and disclosure practices are:
- Disclosure theory: based on the idea that companies provide information voluntarily or
because they are required to, in order to reduce information asymmetry. Full disclosure is
likely when:
o Everyone knows the company has private information.
o Sharing that information is easy and free.
o People interpret the information in the same way.
o The company can credibly prove the information is true.
o Managers want to boost the share price.
o There is no fixed rule on what has to be disclosed.
If a company chooses not to disclose, people may assume its hiding something bad. This
leads to the ‘unraveling’ or ‘disclosure principle’ (Grossman & Milgrom, 1981).
Companies voluntarily reveal good information to show they’re not the worst.
This also helps solve the ‘lemons problem’ (Akerlof, 1970) , where buyers fear getting
stuck with low-quality options because they lack information.
Proprietary disclosure cost = not all information is disclosed because sharing it can
come at cost. These costs can stop companies from being fully transparent. Types of
disclosure costs are:
o Direct costs: costs of preparing and sharing the information (e.g., time,
resources).
o Proprietary (indirect) costs: risks of revealing sensitive information that could
harm the company.
Competitor-related costs: competitors might use the disclosed
information to gain an advantage.
Monitoring-related costs: more disclosure can attract extra scrutiny from
regulators, tax authorities, or activists. These might include political
consequences, legal risks or lawsuits, tax investigations, or social and
environmental pressure.
- Signaling theory (Spence, 1973): a signal is an action taken by a high-quality (good)
manager or firm that is too costly or difficult for a low-quality (bad) manager or firm to copy.
The cost of sending the signal is lower for good managers than for bad ones. The bigger the
cost gap, the more credible the signal becomes. For instance, a strong company might
voluntarily disclose more or pay for a third-party audit, because it is confident in its quality.
o The difference between the disclosure theory and the signaling theory is that the
disclosure theory states that firms only share information because its easy and
cheap, so everyone can do it. However, the signaling theory states that firms send
a message through costly actions, which only strong firms can afford, making it
more believable.
o The signaling theory can be used to predict market failure like in the lemon
paradox example of Akerlof (1970):
The signaling theory explains how sellers can try to reduce information asymmetry
by communicating the quality of their products. In markets like the one described in
Akerlof’s lemon paradox, buyers can’t tell the difference between high-quality and
low-quality products and due to that, they are only willing to pay an average price.
This leads to firms with high-quality products being at a disadvantage, since they
can’t charge a higher price because buyers don’t know their products are better.
This is called an opportunity loss. Meanwhile, low-quality sellers benefit by
getting more than their product is really worth—an opportunity gain. To avoid
losing out, high-quality sellers are motivated to signal their quality to buyers.
Without effective signals, they may leave the market, leading to a market failure
where only ‘lemons’ (bad products) remain.
3
, Systems-oriented theories: a group of theories in accounting and corporate reporting that view
organizations as part of a broader social system. These theories suggest that businesses don’t
operate in isolation—they are deeply influenced by, and also influence, society, politics, and the
environment. These theories are:
- Stakeholder theory: organizations are accountable not just to shareholders but to all
stakeholders. Reporting is used to meet different stakeholder expectations and maintain
support from key groups.
- Legitimacy theory: companies report certain information to show they are acting within
the norms and values of society. When their legitimacy is threatened (e.g., after a scandal),
they may use disclosure to rebuild trust.
Legitimacy = means that people believe a company’s actions are appropriate, fair, and
aligned with social value.
- Institutional theory: companies conform to certain reporting practices because they feel
pressure from industry norms, regulations, or cultural expectations—even if it doesn't have
a clear business benefit. They often copy what others do to appear normal, ethical, or
acceptable. Companies use reporting practices to fit in with these expectations and appear
legitimate to society.
Benefits of disclosure (according to the theory) are:
- Increases share price / firm value.
- Decrease financing cost: when companies provide clear, reliable, and timely information,
lenders and investors perceive them as lower risk.
- Improve liquidity (attract more investors): when investors have better information, they
are more confident in trading the stock, leading to higher trading volumes and narrower
bid-ask spreads.
- Improve diversification: clear disclosures attract a broader investor base, including
international and institutional investors.
- Decrease contracting cost: disclosure reduces information asymmetry between a
company and its stakeholders (like lenders, employees, or suppliers). This makes it easier to
write, monitor, and enforce contracts.
Benefits of disclosure (according to empirical evidence) are:
- A larger and more diverse shareholder base helps reduce a company’s cost of capital.
- Cross-listing on U.S. markets, where disclosure standards are higher, is associated with
lower financing costs.
- Better financial analyst coverage—enabled by strong disclosure—can boost share prices,
narrow bid-ask spreads, and lower both debt costs and the risks tied to poor disclosure.
Greenhouse Gas Protocol:
Greenhouse Gas (GHG) Protocol = a widely used international standard for measuring and
managing greenhouse gas emissions. It provides a framework to help organizations measure their
GHG emissions, report them transparently, and manage their impact on climate change. The GHG
protocol consists of 3 type of scopes:
- Scope 1; Direct emissions: emissions from sources owned or controlled by the company.
For instance fuel burned in company cars or factories.
- Scope 2; Indirect emissions: emissions from the generation of purchased energy (mainly
electricity, heating, or cooling). For instance, emissions from the electricity used in offices.
- Scope 3; other indirect emissions: all other emissions that occur in the value chain.
For instance, emissions from suppliers, product use by consumers, business travel, waste
disposal, etc. Often the largest and hardest to measure.
Greenwashing:
4
Lecture 1; Corporate Reporting:
All the corporate reporting information can be seen in financial statements (e.g., balance sheet,
income statement, cash flow statement, statement of SE). Other statements are for instance the
tax report, social report, governance report, and the sustainability report. Lastly, we have the
integrated report.
Integrated report = a concise communication about how an organization’s strategy, governance,
performance, and prospects lead to the creation of value over the short, medium, and long term.
Reporting is a result of its environment. Reporting practices reflect economic, legal, cultural, and
institutional contexts. The separation of ownership (shareholders and management) creates a
need for transparency and accountability, therefore, financial and corporate reports are being
made.
It also differs between listed and non-listed companies. Listed companies face stricter reporting
requirements due to investor demand and regulatory oversight. Non-listed companies have more
flexibility, but still need to make reports.
However, reporting practices shape the environment too. They are not fully objective or neutral,
since the balance sheet is built on accounting rules, and not just facts. It includes personal
judgment and choices, making it partly subjective.
The reporting environment looks like
this: Regulators make reporting mandatory.
Corporations have a mandatory part, but can also
voluntarily choose to add non-mandatory parts.
Moreover, third parties can add third parties
disclosures like analyst ratings of when they would
advice you to buy or sell, etc.
Corporate reporting evolved through the years. Traditional reporting was purely about the annual
report, which was mainly used by shareholders. The business press was often the one that helped
to spread this information.
However, reporting evolved in more modern reporting. Companies disclose information through a
mix of mandatory and voluntary reports, with the audience expanding to stakeholders who use
these reports. The business press and social media both help to spread this information. This
modern reporting does not only include financial reporting, but also reporting about ESG, CSR,
and content analysis.
The focus becomes less on external investors and just financial result, since ESG is also becoming
more important. This happens because big accounting scandals have made people question current
practices, therefore, shifting the focus from just strict rules to principles and good company
behavior. Tech companies also have harder things to measure, like software and other intangible
assets. This all shows that the focus is shifting to the 3P’s and becomes an holistic approach.
Key functions of corporate reporting are:
- Providing information: it helps both internal and external users to make informed
decisions.
- Accountability (stewardship): corporate reports show how well the company is managing
its resources and responsibilities. It builds trust with stakeholders, regulators, and society.
- Driving change (transformation function): when a company publicly reports on important
topics—like climate goals, employee wellbeing, or supply chain ethics—it creates pressure
to improve in those areas. It also allows stakeholders to track progress and hold the
1
, company accountable. This pushes the company toward long-term improvements, not just
short-term results.
Integrated reporting = a principles-based framework for corporate reporting that goes beyond
traditional financial reporting. It combines financial and non-financial information (like ESG factors)
to show how a company’s strategy, performance, and prospects lead to sustainable value creation.
Integrated reporting framework (IIRC framework) or (IR framework) = a framework
designed to help organizations tell a clear, concise, and integrated story about how they create
value over time. It identifies six types of capital:
- Financial capital: investments made by the partners.
- Human capital: the employees and their skills, including efforts the company makes to
support, train, and motivate them.
- Social and relationship capital: the strength of relationships with suppliers, clients, and
networks the company is part of or contributes to.
- Natural capital: natural resources the company uses, such as fuel for transportation or
infrastructure that impacts the environment.
- Intellectual capital: the company’s know-how, such as expertise in sustainable business
models or innovative practices.
- Manufactured capital: tangible assets like office buildings, company vehicles, or other
physical tools used to deliver services.
The main difference between this IR framework and the GRI is that the IR framework is a more
principle-based framework (e.g., guidelines and flexibility) whereas GRI is a rule-based
framework (e.g., rules and almost no flexibility), which describes exactly what to report.
Corporate and sustainability reporting = creating value for both shareholders and all
stakeholders. It creates value for shareholders (short-term) and also long-term sustainable value for
all stakeholders
There are different levels of reporting that came up in the last years. It all started with
environmental reporting, then corporate sustainability reporting, then the combined report, and
lastly the integrated report.
The Role of the Accountant:
Accounting is often seen as dull or routine, but in reality, accountants play a powerful and
influential role. The information they provide shapes major decisions—like whether a company gets
a loan, pays certain wages, or even goes bankrupt. Accounting doesn’t just reflect what’s
happening in a business; it can drive behavior and influence how companies act. It gives
stakeholders the information they need to demand change or support certain actions. It also grants
legitimacy—if a company reports strong profits, it's often viewed as successful, even if it causes
harm to society or the environment.
Reporting Theories:
Theories help us to understand and explain practice. Theories that explain the existence of
regulation are, for instance, the public interest theory, the private interest theory (interest
group theory), and the capture theory.
Market-oriented theories of corporate reporting are:
- Information asymmetry (agency theory): when managers know more than investors, it
can lead to problems like adverse selection (bad choices due to hidden information) and
moral hazard (risky behavior due to lack of accountability).
- Decision usefulness: reporting helps investors—who are more or less rational—make
informed decisions in more or less efficient markets.
- Contracting usefulness: reports also help other key players, like boards, banks, and large
investors, manage contracts and monitor performance. This can serve both efficient and
self-interested goals.
2
, - Reporting supports markets: good reporting improves how markets work—including
markets for securities, capital, executive talent, and company takeovers.
Theories that explain accounting and disclosure practices are:
- Disclosure theory: based on the idea that companies provide information voluntarily or
because they are required to, in order to reduce information asymmetry. Full disclosure is
likely when:
o Everyone knows the company has private information.
o Sharing that information is easy and free.
o People interpret the information in the same way.
o The company can credibly prove the information is true.
o Managers want to boost the share price.
o There is no fixed rule on what has to be disclosed.
If a company chooses not to disclose, people may assume its hiding something bad. This
leads to the ‘unraveling’ or ‘disclosure principle’ (Grossman & Milgrom, 1981).
Companies voluntarily reveal good information to show they’re not the worst.
This also helps solve the ‘lemons problem’ (Akerlof, 1970) , where buyers fear getting
stuck with low-quality options because they lack information.
Proprietary disclosure cost = not all information is disclosed because sharing it can
come at cost. These costs can stop companies from being fully transparent. Types of
disclosure costs are:
o Direct costs: costs of preparing and sharing the information (e.g., time,
resources).
o Proprietary (indirect) costs: risks of revealing sensitive information that could
harm the company.
Competitor-related costs: competitors might use the disclosed
information to gain an advantage.
Monitoring-related costs: more disclosure can attract extra scrutiny from
regulators, tax authorities, or activists. These might include political
consequences, legal risks or lawsuits, tax investigations, or social and
environmental pressure.
- Signaling theory (Spence, 1973): a signal is an action taken by a high-quality (good)
manager or firm that is too costly or difficult for a low-quality (bad) manager or firm to copy.
The cost of sending the signal is lower for good managers than for bad ones. The bigger the
cost gap, the more credible the signal becomes. For instance, a strong company might
voluntarily disclose more or pay for a third-party audit, because it is confident in its quality.
o The difference between the disclosure theory and the signaling theory is that the
disclosure theory states that firms only share information because its easy and
cheap, so everyone can do it. However, the signaling theory states that firms send
a message through costly actions, which only strong firms can afford, making it
more believable.
o The signaling theory can be used to predict market failure like in the lemon
paradox example of Akerlof (1970):
The signaling theory explains how sellers can try to reduce information asymmetry
by communicating the quality of their products. In markets like the one described in
Akerlof’s lemon paradox, buyers can’t tell the difference between high-quality and
low-quality products and due to that, they are only willing to pay an average price.
This leads to firms with high-quality products being at a disadvantage, since they
can’t charge a higher price because buyers don’t know their products are better.
This is called an opportunity loss. Meanwhile, low-quality sellers benefit by
getting more than their product is really worth—an opportunity gain. To avoid
losing out, high-quality sellers are motivated to signal their quality to buyers.
Without effective signals, they may leave the market, leading to a market failure
where only ‘lemons’ (bad products) remain.
3
, Systems-oriented theories: a group of theories in accounting and corporate reporting that view
organizations as part of a broader social system. These theories suggest that businesses don’t
operate in isolation—they are deeply influenced by, and also influence, society, politics, and the
environment. These theories are:
- Stakeholder theory: organizations are accountable not just to shareholders but to all
stakeholders. Reporting is used to meet different stakeholder expectations and maintain
support from key groups.
- Legitimacy theory: companies report certain information to show they are acting within
the norms and values of society. When their legitimacy is threatened (e.g., after a scandal),
they may use disclosure to rebuild trust.
Legitimacy = means that people believe a company’s actions are appropriate, fair, and
aligned with social value.
- Institutional theory: companies conform to certain reporting practices because they feel
pressure from industry norms, regulations, or cultural expectations—even if it doesn't have
a clear business benefit. They often copy what others do to appear normal, ethical, or
acceptable. Companies use reporting practices to fit in with these expectations and appear
legitimate to society.
Benefits of disclosure (according to the theory) are:
- Increases share price / firm value.
- Decrease financing cost: when companies provide clear, reliable, and timely information,
lenders and investors perceive them as lower risk.
- Improve liquidity (attract more investors): when investors have better information, they
are more confident in trading the stock, leading to higher trading volumes and narrower
bid-ask spreads.
- Improve diversification: clear disclosures attract a broader investor base, including
international and institutional investors.
- Decrease contracting cost: disclosure reduces information asymmetry between a
company and its stakeholders (like lenders, employees, or suppliers). This makes it easier to
write, monitor, and enforce contracts.
Benefits of disclosure (according to empirical evidence) are:
- A larger and more diverse shareholder base helps reduce a company’s cost of capital.
- Cross-listing on U.S. markets, where disclosure standards are higher, is associated with
lower financing costs.
- Better financial analyst coverage—enabled by strong disclosure—can boost share prices,
narrow bid-ask spreads, and lower both debt costs and the risks tied to poor disclosure.
Greenhouse Gas Protocol:
Greenhouse Gas (GHG) Protocol = a widely used international standard for measuring and
managing greenhouse gas emissions. It provides a framework to help organizations measure their
GHG emissions, report them transparently, and manage their impact on climate change. The GHG
protocol consists of 3 type of scopes:
- Scope 1; Direct emissions: emissions from sources owned or controlled by the company.
For instance fuel burned in company cars or factories.
- Scope 2; Indirect emissions: emissions from the generation of purchased energy (mainly
electricity, heating, or cooling). For instance, emissions from the electricity used in offices.
- Scope 3; other indirect emissions: all other emissions that occur in the value chain.
For instance, emissions from suppliers, product use by consumers, business travel, waste
disposal, etc. Often the largest and hardest to measure.
Greenwashing:
4
