Evaluating Corporate Environmental Reporting Practices in NFD: Evidence from Italy

The increasing attention being paid to societal and environmental issues is driving a change in the roles and responsibilities of companies in society, impelling them to adopt new ways of creating and distributing value. Indeed, the pressure to act for the environment has become so intense that companies now choose to adapt to or even anticipate it. This growing awareness and concern about environmental issues has prompted companies to publish environmental information in various media stand-alone environmental reports, triple bottom line reports, sustainability and annual reports ‒ in both printed form and on the internet. In so doing, they exploit communication strategies to satisfy societal expectations and enforce their legitimacy. Utilising the lens of legitimacy theory, a large body of research has investigated the impact of social and political pressure on the level of environmental disclosure by companies. Also employing this theoretical framework, the current research evaluated the extent of environmental reporting that companies convey to the market through their NFD reports. In addition to obtaining an insight into the amount of environmental information presented, we also explored the importance of sectorial differences. To fulfil the primary research aim, we focused on the level of environmental information reported by Italian non-financial listed companies from 2017 to 2021, which is the mandatory disclosure period for several Italian companies. First, we performed a lexicon-based content analysis to determine the portion of environmental reporting included in NFDs, and analysed four linguistic characteristics ‒ logic and hierarchy of thought, authenticity and honesty of disclosure, trust of the reporting entity, and net emotional tone to infer the quality of disclosure. This illuminated the tendency of companies to legitimise their activities in a partially regulated context. Second, we analysed the extent to which environmental reporting by these Italian-listed non-financial companies varied between sectors The results revealed that the level of environmental disclosure was relatively poor during the investigation period. Moreover, significant differences existed across sectors in almost all the years under observation. In this context, institutional pressure might force companies to convey a low level of environmental disclosures to avoid further scrutiny or prevent any call to change the business model, and thus limit the potential for triggering shareholder litigation. These results have both theoretical and practical implications. In particular, the evidence sheds new light on the importance of taking relevant actions to prevent and limit the self-serving strategies employed by companies to gain legitimacy and offers new insights for future research. The remainder of the chapter is organised as follows: Section 2 examines the relevant literature. Section 3 details the research methodology. Section 4 presents the findings. Finally, Section 5 presents a discussion of the results and draws overall conclusions.