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Sustainability Reporting Quality and Stakeholder Engagement Assessment: The Case of the Paper Sector at the Iberian Level

ADVANCE/CSG & ISEG Business School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 Lisboa, Portugal
ISEG Business School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 Lisboa, Portugal
Author to whom correspondence should be addressed.
Sustainability 2022, 14(21), 14404;
Submission received: 30 July 2022 / Revised: 20 September 2022 / Accepted: 25 October 2022 / Published: 3 November 2022
(This article belongs to the Special Issue Environmental Disclosure and Global Reporting)


Materiality assessment identifies the main issues to be disclosed in non-financial reports to respond to the concerns of stakeholders, thus improving the quality of those reports. The purpose of this research is to understand whether there is a relationship between the quality of non-financial reports and the application of standards such as the Global Reporting Initiative (GRI) and the International Integrated Reporting Council (IIRC), as well as between the impact of stakeholder engagement and the adoption of the materiality principle. To do so, manual content analysis was performed on companies from the paper industry in the Iberian Peninsula that published non-financial reports in accordance with the GRI and/or IIRC standards during the period between 2015 and 2020. The sample consists of 133 company-year observations, and data were collected through content analysis of the reports. The results show that companies that more scrupulously follow the GRI and/or IIRC standards and those that pay more attention to the relationship with their stakeholders show higher levels of materiality, meaning higher quality of reports. In addition, it is also noticeable that, over the years, the concern with these disclosures has increased, reflecting an increase in attention given to materiality.

1. Introduction

With the climate and environmental changes that have occurred in recent decades, the issue of sustainability and sustainable development has gained increasing attention from individuals, companies, government institutions, and international organizations, highlighting the importance that corporate social responsibility (CSR) should have and the role of businesses in promoting social and environmental well-being.
This increased attention has encouraged the disclosure of non-financial reporting by companies [1]. In fact, a good CSR disclosure can improve returns, create new market opportunities, reduce risks, and improve the company’s reputation, promoting customer–company identification [2,3]. Non-financial reporting also promotes comparability among companies and economies, due to increased transparency and reliability, contributing to the rationale for decision making and for differentiation based on social concerns [4,5].
However, there are companies where these reports are nothing more than statements of policies and intentions, without real substance, and where no environmental and social data are presented. According to [2], these reports are not expected to prevail over time. The trend of reporting non-financial information is increasing and likely to continue [2,6], and companies seek to improve their environmental performance and disclosure to gain a competitive advantage [7]. Even if there are no direct benefits from disclosure, there may be disadvantages to not doing so [8]. There are different frameworks that guide the production of these reports, such as the European Directive 2014/95/EU, the Global Reporting Initiative (GRI) standards for sustainability reporting, and the IIRC guidelines for integrated reporting. The GRI standards provide clear indications on how to identify and prioritize relevant issues through stakeholder engagement [9]. Since 2014, and due to the European Directive 2014/95/EU, non-financial disclosure is mandatory for large companies and public interest entities, but still voluntary for any company not covered by the Directive.
Corporate sustainability requires companies to orient their social, environmental, and economic responsibilities in accordance with their stakeholders [10]. Thus, the stakeholder engagement process is essential for the quality of the materiality analysis process [1], which consists of determining the relevance and importance of an issue, both for the company and for its stakeholders, prioritizing these issues [11], and promoting the disclosure of the most relevant ones [9]. Thus, stakeholder engagement becomes crucial in sustainability reporting [1,12].
This study we analyze whether there is a better application of the materiality principle when the involvement of stakeholders in the materiality analysis process is in the form of direct involvement through participatory activities, and when GRI and/or IIRC standards are fully adopted.
A sample of 31 companies from the paper industry, operating in Portugal and Spain, which disclosed a CSR report in the period between 2015 and 2020 were analyzed, resulting in a set of 133 company-year observations. The choice of this activity sector relates to the environmental challenges it faces, being considered one of the most polluting sectors in the world [5,13,14]. For this reason, companies tend to focus more attention on the disclosure of non-financial information.
The paper industry has a strong environmental impact, being considered one of the most polluting industries in the world, as it is the industry responsible for the fourth largest greenhouse and carbon emissions worldwide. In addition, the paper industry has been considered a major consumer of natural resources, specifically wood, water, and energy such as fossil fuels and electricity [14]. As a result, water and energy use, as well as waste creation, is becoming an increasingly important concern [15]. This industry has a crucial role in global sustainable development because of the raw material basis and increasing internationalization.
The paper industry, together with others such as oil, gas, chemicals, mining and steel, are identified as sensitive industrial sectors due to their high socio-environmental impacts [5,13]. Previous research has shown differences in the level of sustainability disclosure between companies belonging to these sensitive sectors compared with companies from non-sensitive industries. Companies within the first group tend to disclose non-financial reports mostly on a voluntary basis, but in a proactive way, presenting better CSR disclosure [5] and more environmental data [13] when compared with companies that operate in the second group.
However, companies belonging to sensitive sectors tend to apply the principle of materiality in a less complete and careful way, since they are familiar with the issues considered problematic due to society and stakeholders’ pressure for information on these topics [1]. Additionally, these companies tend to show lower levels of financial performance [13].
Therefore, this study contributes to a sector-specific analysis of one industry that is frequently under-represented.
This study contributes to the literature on stakeholder engagement in materiality analysis in several ways. First, it provides current evidence on the influence of stakeholders on the application of the materiality principle. Second, it provides a better understanding of the influence of legislation on reporting practices. Thirdly, it discusses the topic of social responsibility in countries such Portugal and Spain, not so commonly addressed in previous literature, particularly concerning the adoption of sustainability frameworks in the recent years and the quality of non-financial reporting. Finally, it adds value through the extension of the existing literature, addressing the lack of studies on how exactly stakeholders take part of the materiality analysis process. Although the importance of meeting stakeholders’ expectations is well known, the way this process is accomplished, the activities developed to collect stakeholders’ opinion and the impact of these activities in raising material issues, have not yet been the subject of research [1].
In short, this study develops existing literature by extending the knowledge on the materiality theme and providing insights into companies’ stakeholder engagement processes in times when non-financial reporting is moving from a voluntary to a legislative perspective.
Regarding practical implications, this study contributes helping managers use different instruments of action when interacting with stakeholders, improving the way managers handle stakeholders’ needs, expectations, and demands.
This study is divided into five sections. In the second section, we present the literature review, where the theoretical framework for the principles of materiality, stakeholders’ inclusion, CSR practices, and sustainability reporting in the paper sector is provided. The third section describes the methodology used, and the fourth section explores the analysis of the results. Finally, in the last section, the main conclusions, research limitations, and suggestions for future research are presented.

2. Literature Review

2.1. Corporate Social Responsibility

There is no single and precise definition, or global standard, for the concept of CSR [16]. Indeed, due to its dynamism and variability, CSR is highly dependent on the context [16,17,18,19].
CSR derives from the idea that business and society are truly interconnected, and that companies should be responsible for the impact of their activities on society and the environment [20]. Some authors highlight that companies should promote social welfare beyond the level required by law [21], and for others, CSR is even described as a moral obligation [16,18,20].
Ref. [22] has grouped the various definitions of CSR into five different dimensions—environmental, social, economic, stakeholders, and voluntariness—and concluded that the European Commission provides the most comprehensive and complete definition, considering CSR as “a concept whereby companies integrate social and environmental concerns in their business and in their interaction with their stakeholders on a voluntary basis” [23] page 1.
This responsibility is defined by the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time [9]. In more concrete terms, the outcome varies according to historical events, political systems, ideologies, geography, social expectations, global economic, and financial pressures [16].
Still, CSR has not generated a consensus among authors and, consequently, has received several criticisms regarding the impact of CSR disclosure on profits, its usefulness or relevance, and the exploitation by companies. The main criticism raised is the impact on profits, as companies should not assume responsibility for solving all social problems [8]. This author argued that CSR arises from a political interest, since social and environmental goals may undermine the economic goal, due to the financial burden that CSR practices entail. Additionally, the opportunity cost is relevant, since the company is not investing these sums in income-generating activities [8].
In addition, the usefulness or relevance of the sustainability topics also raises doubts, since companies are looking for the approval of their stakeholders and tend to invest funds in the most popular and socially relevant topics. Thus, the most controversial issues end up not being a priority [24].
Finally, there is the argument of corporate exploitation, as companies feel motivated to develop social actions seeking their own benefit and reputation and are not truly oriented towards society, increasing the risk of their actions being seen as hypocritical [8]. In this way, stakeholders easily mistrust the extrinsic reasons that led companies to promote CSR efforts [25].

2.2. Sustainability Reporting

Corporate reporting is the main way to communicate a company’s performance to third parties, but it also works as a tool for managers and investors’ decision-making [26].
Although the financial reports still maintain a prominent role, the recent economic crisis and the failure to reflect the financial problems through the reporting systems in an environment in constant change have caused uncertainty and dissatisfaction in the market, leading investors to require complementary information such as: environmental information, social information, business models, and policies [6,27]. To provide for these growing informational needs, non-financial reporting emerged. This reporting is more suitable to disclose relevant information for stakeholders’ decision-making, while financial reporting is aimed at the owners of financial capital [7,28].
Non-financial reporting contains information that enables the understanding of firms’ evolution, performance, position, and the impact of its activities concerning environmental, social, and employee-related issues. It usually includes a brief description of the company’s business model, the policies followed and the results of these policies, the due diligence processes applied, and the main risks associated with the company’s activities, business relationships, products or services and the way these risks are managed by the company. This report can be presented separately, usually called the sustainability report, or together with the financial report in a single document—the Integrated Report. The Integrated Report is a concise document about an organization’s strategy, governance, performance, and drivers of value creation in the short, medium, and long term; combining financial statements and sustainability reporting [29].
In terms of sustainable reporting practices, the evolution has not occurred in the same way in the Iberian Peninsula. In Spain, the sustainable reporting rate has been increasing since 2013, with 98% of the 100 largest companies disclosing a Sustainability Report in 2020, a percentage well above the European average (77%) [30]. On the contrary, in Portugal, the reporting trend in the 100 largest companies has been decreasing since 2015, currently standing at 72%, below the European average [30].
Specifically in the paper industry, the rate of sustainability disclosure has recorded an increase in recent years. In 2020, 80% of the top 100 companies in the forestry and paper sector disclosed based on the Restriction of Hazardous Substances Directive (RoHS), making this the sixth highest disclosure rate [30].

2.3. Materiality

The main challenge for companies is to recognize which issues are relevant to disclose in sustainability reports and how to prioritize the issues identified as material, according to stakeholder needs [11]. In non-financial information, which is often entirely voluntary, it is essential to establish guidelines with precise indications that guide companies through the materiality analysis. This process is necessary to clarify which topics are material and, among these, which are the most relevant and require a greater level of development within the report [1].
A topic is considered as material if it can significantly affect the organization’s ability to create value in the short, medium, or long term [29] and if its omission or misstatement influences the decisions, actions, and performance of the company or its stakeholders [1,31,32,33]. According to [32], namely in the AA1000SES standard, materiality analysis consists of clearly determining the relevance and importance of an issue, promoting its disclosure [9]. Issues that have critical impacts, both positive and negative, on the environment, society, the economy, or stakeholders’ decisions are material issues [4].
The perception of materiality may vary depending on the stakeholder group under analysis, since an issue may be material to some stakeholders but not to others [32], and may also vary across countries, sectors, legal environments, and company strategies [1,34].
Materiality analysis is essential for issue prioritization, particularly in sustainability reporting, as regulatory guidelines on the non-financial content to be reported are very scarce and diverse [1,11], making it challenging to determine materiality for non-financial issues [33].
To bridge this gap, the GRI offers some guidelines on how to determine materiality, standardizing and prioritizing issues, risks, and opportunities, using stakeholder input and the company’s own perception to identify the material topics to business and stakeholders [4,29]. The main goal is to ensure the disclosure of these topics [4,9,29].
In general, the existence of legislation contributes to the quantity and quality of reporting [2]. Given the importance of GRI guidelines and based on the literature review, it is expected that the level of application of GRI standards and/or IIRC guidelines has a significant and positive relationship with the level of application of the materiality principle. Therefore, Hypothesis 1 is formulated as follows:
Hypothesis 1 (H1):
There is a positive relationship between the level of application of GRI/IIRC guidelines and the level of application of the materiality principle.

2.4. Stakeholder Engagement

A proper understanding of stakeholder needs by the company is essential to ensure the effectiveness of sustainability reporting [1], as well as to improve the quality of and enhance the credibility of disclosures [3]. However, as noted before, defining materiality for social and ethical issues is complex and requires a process called stakeholder engagement, which provides comprehensive, balanced, and responsible engagement with stakeholders [31,32].
Indeed, the stakeholder engagement process is crucial to understanding stakeholders’ expectations and needs in order to determine material issues, as well as to prioritize them and to define the report content and the organization’s sustainability activities [4].
Stakeholders are individuals, groups of individuals or organizations that may be affected by the organization’s activities, products or services or affect the organization’s performance [4,32].
With stakeholders playing such a central role in the life of organizations, stakeholder engagement assumes greater importance. It is a process, used by organizations, based on stakeholders’ CSR expectations and perceptions that promotes stakeholder communication and engagement to identify, understand, and respond to material sustainability concerns [32]. Non-financial reporting should explain and respond to the issues identified during this process, generating strategic value and operational excellence [32].
Proper stakeholder engagement can lead to a more equitable and sustainable social development, help determine material issues, allow the pooling of resources (knowledge, people, money and technology) to solve problems and achieve goals, and can also contribute to the development of trusting and transparent relationships with stakeholders [32]. Therefore, systematic stakeholder engagement is necessary to improve stakeholders’ perceptions of CSR and to strengthen trust between the organization and its stakeholders, for example in the form of customer–company matching [3]. As a result, the credibility of sustainability reporting is reinforced [4].
The details of the stakeholder engagement processes should be included in the reporting, namely the approach used to identify critical stakeholders to communicate with them, and the way this engagement influenced the content of the report as well as the organization’s activities, products, and services [4].
The stakeholder engagement process is a guarantee for the quality of the materiality analysis process [1], confirming the importance of stakeholder relationships for value creation and differentiation from competitors [9]. Although guidelines have been developed to increase stakeholder communication and engagement, these are still insufficient [3].
According to Stakeholder Theory, companies develop diverse types of relationships with their stakeholders and managers must find the appropriate level of engagement to be able to allocate priorities to competing shareholders’ views and demands. The construction of dialogue and involvement with stakeholders is an antecedent of disclosure that contributes to our knowledge of the preparation of sustainability reports, and increases our vision of stakeholder engagement as a procedural and strategic phenomenon for organizations. Therefore, this paper explores the level of stakeholder engagement as a driver to enhance the level of quality in non-financial reporting, so that companies can improve their decisions regarding both the level of involvement with stakeholders and the design of stakeholder engagement strategies.
The Stakeholder Theory argues that the ability of a company to generate sustainable and long-term value is determined by its relationships with multiple stakeholders [5]. Thus, managers should satisfy all of the stakeholders who can influence the company’s outcomes, from workers, customers, and suppliers to local community organizations. In other words, it may be beneficial for the company to engage in certain CSR activities that stakeholders perceive as important; otherwise, there is a risk of stakeholders withdrawing their support from the company [19].
Although this theory was created by Freeman in 1984, it was expanded by Donaldson and Preston in 1995 [19,35], who considered two distinct views: the moral view and the strategic view [12,19]. The moral view suggests that stakeholders affected by an organization have the right to be informed and to demand certain performance standards, indicating a balance between interests and benefits. On the other hand, the strategic view tends to focus on the benefits that stakeholders can provide to the organization, such as: validation in the eyes of society, risk management, and learning, thus helping the organization to meet strategic goals. Stakeholders can be managed in various ways, depending on the organizational values, but there are cases of organizations taking advantage of and dominating stakeholders in immoral and unethical ways [12]. Furthermore, it has been found that reports do not address less powerful stakeholders, such as suppliers [9].
Following the majority of the literature, which argues in favor of a positive relationship between the stakeholders’ engagement and the quality of non-financial disclosure, which consequently translates into higher levels of application of the materiality principle, Hypothesis 2 is formulated as follows:
Hypothesis 2 (H2):
There is a positive relationship between stakeholder engagement in the materiality analysis process and the level of application of the materiality principle.

3. Methodology

3.1. Sample and Data Collection

The sample under analysis was made up of companies belonging to the forestry and paper industry and operating in the Iberian Peninsula that published at least one CSR report between 2015 and 2020. The Sustainability Disclosure database of the GRI and Bureau Van Dijk’s Orbis were used to select the sample. Data collection was conducted until September 2021.
In the first phase, 49 organizations were identified through the Sustainability Disclosure database. In the second stage, through Bureau Van Dijk’s Orbis, 2681 companies from the paper sector (NACE Rev. 2 primary code) operating in Portugal and Spain were identified. From these companies, only 33 were listed in both databases. However, two companies were excluded due to being in liquidation, culminating in the final sample of 31 companies and a set of 133 company-year observations. Data collection was carried out through a content analysis of the GRI and/or IIRC reports. The process of reading the non-financial reports and further analyses for the engagement section of the reports was all done manually.
Content analysis is a method based on categorizing and coding textual information into different groups or categories based on selected criteria [36]. This method is widely used, being the dominant research method in CSR, having already proven its effectiveness in discovering patterns in non-financial reporting [36]. In addition to the content analysis of the CSR reports, contact was established with some companies to request some missing information.
Similarly, to the studies from [1,37] we investigated the relationship between stakeholder engagement process and the application level of the materiality principle in non-financial reports and we followed these authors in choosing not to use any qualitative analysis software for text analysis purposes. The main reason for this choice arises from the absence of mandatory terms or expressions, nor any structured layout for the non-financial reports, despite existing frameworks. Thus, we chose to manually explore all the information regarding materiality, followed guidelines for stakeholder engagement, and chose not to use specific keywords or phrases.

3.2. Model

We developed our models based on previous research in order to highlight the importance of applying IIRC/GRI standards and stakeholder engagement in the reporting process, particularly in materiality analysis, to achieve a high level of materiality application and a good reporting quality for stakeholders [1]:
Qualityit = α + β1IIRCit + β2ROAit + β3Sizeit + β4Experit + β5Revit + β6Levit + β7Publicit + β8Countryi + β9Yeart + εit
Qualityit = α + β1GRIit + β2ROAit + β3Sizeit + β4Experit + β5Revit + β6Levit + β7Publicit + β8Countryi + β9Yeart + εit
Qualityit = α + β1StakeEngit + β2ROAit + β3Sizeit + β4Experit + β5Revit + β6Levit + β7Publicit + β8Countryi + β9Yeartit
Qualityit = α + β1IIRCit + β2GRIit + β3StakeEngit + β4ROAit + β5Sizeit + β6Experit + β7Revit + β8Levit + β9Publicit + β10Countryi + β11Yeart + εit
As a dependent variable, materiality relevance (Quality) was included. This variable measures the quality of the report through the level of application of the materiality principle. It is an ordinal categorical variable, composed of six categories, which rank companies’ concern regarding materiality analysis, comprising the degree of breadth and depth of its implementation. The categories are as follows: “1” if there is no reference to materiality; “2” if the report only states that materiality principle was followed; “3” if the report includes a brief discussion of the topics considered material; “4” if the report includes, in addition to the discussion of the material topics, the material issues emerging from the analysis; “5” if the report describes the process and results in greater detail; and “6” if the report devotes significant attention to materiality. These 6 categories allowed us to see how far the company has progressed in applying the materiality principle and what types of processes have been implemented. Data were collected through a careful reading of the companies’ reports, with particular attention to the methodological note, the chapter on materiality analysis, and the materiality matrix.
As variables of interest, IIRC directives (IIRC), GRI guidelines (GRI) and stakeholders’ engagement (StakeEng) were considered, in models (1), (2) and (3), respectively; in order to test Hypotheses 1 and 2 Regarding the variable IIRC, the guidelines proposed by the International Integrated Reporting Council are related to Integrate Reporting and establish the structure and principles to be followed in case of a single report. It is an ordinal categorical variable that classifies the level of application of the IIRC reporting principles and their publication into 4 categories, being: “1” if there is no reference to the IR and IIRC; “2” if there is a statement expressing the aim to produce, soon, a first Integrate Reporting and/or there is a partial application of the IIRC principles; “3” if there is simultaneously an IR and a traditional set of IFRS; and “4” if the report is integrated and prepared according to the IIRC principles. Data were collected by analyzing the paragraph on methodology at the beginning or end of the report.
Regarding the GRI variable, companies that follow GRI guidelines have higher quality levels in their reports [38], and we found it pertinent to include this ordinal categorical variable. Thus, after analyzing the paragraph on methodology at the beginning or end of the report, it was possible to classify the variable into three categories: “1” if there is no declaration of the level applied; “2” if it uses the option “compliance” in Version 4 and “essential” in Version 5; and “3” if it uses the option “comprehensive” in both Versions 4 and 5. “Version 4” should be considered the GRI G4 standards and “Version 5” should be considered the GRI Standards adopted in 2016.
Furthermore, the StakeEng variable is an ordinal categorical variable that aims to assess the extent and type of events/actions that promote stakeholders’ engagement in the materiality analysis process. Therefore, in view of the analysis of the reports, namely regarding the processes of materiality analysis and stakeholder relations, the variable can be classified into the following 3 categories: “1” if it is stated that there has been no involvement or if there are no statements on the subject; “2” if there was an indirect or partial involvement through remote activities, such as questionnaires, interviews, surveys, complaints or suggestions; and “3” if there was broader involvement through direct activities, involving participation, such as focus groups and events or meetings intended for this purpose. Following prior studies [1], we considered all the variables of interest together in model (4) in order to increase the robustness of our results.
In terms of control variables, return on assets (ROA), size (Size), experience in voluntary disclosure (Exper), report review (Rev), indebtedness (Lev), and whether the company is listed (Public) were considered. We also controlled for the effects of different characteristics at the country and year level.
ROA, being a traditional measure of profitability, was obtained by dividing pre-tax income by total assets. Size is the logarithm of total assets. Lev represents the level of leverage, meaning the company’s debt or default risk, and it was obtained by dividing total debt by total assets. Public is a dummy variable that assumes value “1” if the company is listed and “0” otherwise. All these variables were calculated based on data from Orbis by Bureau Van Dijk.
Exper is a dummy variable that takes the value “1” if there is some previous experience in publishing sustainability reports and “0” in case there is no such experience. Data were collected by analyzing the introduction of the reports or through companies’ websites.
Rev indicates whether there has been a review of the report by a certified entity, so it is a dummy variable that assumes the value “1” if the report has been assured by a third party and “0” otherwise. The data were obtained from the analysis of the reports, where the auditors’ report is attached, which indicates whether the assurance is present or not.
In order to test the study hypotheses, model (1) was estimated, considering each variable of interest in isolation.

4. Results

Descriptive Statistics

Table 1 shows a higher value of Quality for Portugal (4.26) than for Spain (3.89). The same pattern occurs for GRI guidelines and stakeholders’ engagement, where Portugal registers slightly higher values than Spain. The opposite occurs with the application of the IIRC guidelines, where Spain registers a value of 1.65, higher than the value of 1 recorded for Portugal. In other words, Portuguese companies in the forestry and paper industry tend to follow a higher level of application of the GRI guidelines and engage with their stakeholders in a more direct and participative way, resulting in higher levels of application of the materiality principle when compared to Spain.
As shown in Table 2, the application of the materiality principle (Quality) has increased over time, with an average rating of 3.27 in 2015 and 4.26 in 2020.
About 94% of total observations follow the materiality principle—that is, 125 company-year observations present ratings of the dependent variable between 2 and 6. This variable, denominated as Quality, presents an average rating of 3.94. This means that companies are investing in the discussion of material topics, addressing the most important ones (Table 3).
Regarding the independent variables, GRI presents 1.97 as the average value, StakeEng registers 2.63 and IIRC 1.56 (Table 3). Based on this information, it is possible to observe that, on average, companies in this sample apply the GRI guidelines in the “essential” option and promote stakeholder engagement through direct and participatory activities. The average profitability and indebtedness are 7.74% and 58.3%, respectively.
Table 4 presents the distribution of the different levels of classification of the variables of interest. It is possible to observe that more than half of the sample (60.2%) makes no reference to IIRC principles. Nevertheless, around 86% declares the adopted level of the GRI standards and 72% declares direct stakeholder involvement in sustainability disclosure.
Reading Table 4 it is possible to conclude that most non-financial reports do not refer to IIRC guidelines, instead using the “compliance” (in G4) or “essential” (in G5). Regarding stakeholder engagement, it is important to highlight that around 72% of the companies report broader involvement from stakeholders and the use of direct actions, like focus groups or participation in meetings, to leverage stakeholders’ engagement. Furthermore, according to Spearman’s correlation matrix (Table 5), the correlations between the dependent variable Quality and the variables GRI and StakeEng are positive, as expected, and statistically significant (p < 0.01), suggesting that companies that disclose a CSR report in accordance with the GRI standards and based on greater stakeholder engagement present higher levels of application of the materiality principle. Regarding IIRC, the correlation, although positive, is not statistically significant. The correlations between the independent variables suggest the absence of multicollinearity.
Table 6 presents the results of the ordinal logistic regression models.
The coefficients of the variables IIRC and GRI are positive and statistically significant (p < 0.01), suggesting that the level of application of the IIRC and GRI guidelines has a strong relationship with the quality of disclosures through the level of application of the materiality principle, suggesting that these standards confer a better application of the principle of materiality. These results confirm the H1 and are consistent with those obtained by [2], though contradicting the claims of [24], who believe that the most controversial issues are not reflected in the reports.
There is also a positive and statistically significant association between Quality and StakeEng (p < 0.01), as expected. This result confirms H2, suggesting that the application of the stakeholder inclusion principle has a strong relationship with the application of the materiality principle. Thus, we confirm what is advocated by [1,3], who claimed that a correct understanding of the stakeholders’ needs by the company is fundamental to ensuring the quality and credibility of the disclosures.
When we consider all the variables of interest together in the same model (last column), the coefficients remain positive and statistically significant (p < 0.1), suggesting that the application of reporting standards and stakeholder engagement contribute to the quality of disclosures though the level of application of the materiality principle.
Regarding the control variables that assume statistical significance, there is a negative relationship with ROA (p < 0.1) and a positive relationship with Lev (p < 0.01), as expected, pointing out that companies with a lower return on assets and a higher risk of defaulting verify higher levels of quality of their CSR reports. Additionally, in a statistically significant way (p < 0.05), Size assumes a negative coefficient, contrary to what was expected, indicating that smaller companies are more dedicated to applying the materiality principle, which is not consistent with the results found by [1], who argued that SMEs tend to adopt informal reports, where stakeholders are not always listened to.

5. Conclusions

This study analyzes the level of application of the materiality principle for companies operating in the Iberian Peninsula, belonging to the paper industry and disclosing a CSR report in at least one of the years in the period between 2015 and 2020. To address this topic, we tested the relationship between the quality of the adoption of the materiality principle in CSR reporting, and the application of both the GRI and IIRC standards and the inclusion principle.
The results obtained confirm an increase in non-financial reporting in this activity sector during the period under study, previously suggested by [30]. One of the main reasons for this increase may be linked with the adoption of the European Directive 2014/95/EU which made the disclosure of non-financial information mandatory for large companies and public interest entities [7].
It is also confirmed that this commitment towards CSR disclosure is greater in Spain than in Portugal, with the difference in observations from these two countries being notable, which was also previously pointed out by [30]. Nevertheless, Portuguese companies in the forestry and paper industry tend to engage with their stakeholders in a more direct and participative way, resulting in higher levels of quality in non-financial disclosure when compared with Spain.
This analysis showed that a high level of implementation of international guidelines leads to a higher level of application of the materiality principle, conferring greater quality to the analysis of material topics. In previous studies, there is a lack of consensus on this relationship. While some authors, such as [1,2] argued that international guidelines have a strong relationship with the quality of disclosures, others such as [24] contradicted this by claiming that the most controversial themes end up not being reflected. Thus, this study confirms the arguments pointed out by [1,2].
It was also concluded that most companies engage in a broad and participative way with different stakeholders, and in this way these companies enhance the application of the materiality principle, resulting in higher-quality disclosure. This result is in line with the existing literature which claims that a correct understanding of stakeholders’ needs is fundamental to increasing the quality and credibility of disclosures [1,3]. However, the participatory means of involvement with stakeholders are rare as a form of critical accounting that creates opportunities for stakeholders to express their opinion. Thus, although in most cases within the forestry and paper industry stakeholders appear to provide opinions and feedback in a direct way, it is possible that in some companies they are not directly empowered by being appointed to boards or commissions.
Furthermore, [1] claimed that large companies adopt more structured reporting, contrasting with the informal reporting of SMEs, where external stakeholders are not always heard. This study contradicts these arguments, concluding that smaller companies are more diligent in applying the materiality principle. We also obtained evidence that companies with a higher return on assets and a higher risk of default have higher levels of application of the materiality principle.
The main limitation of this study concerns the size and the composition of the sample used, since it consists of a small number of observations that do not allow for generalization, especially because it illustrates one single sector. In addition, the selection of countries included in the sample may affect the results due to the intrinsic characteristics of the countries in a peripheral region of the EU, which may not fully reflect the reality of this industry.
For future research, we suggest extending the sample in different ways. On one hand, it would be interesting to include all of the main European companies or test a different geographical area, to allow for generalization or to better explore differences between European regions. Based on authors such as [16], the perception of CSR may vary according to variables such as historical events, political systems, ideologies, geography, social expectations, the global economy, and financial pressures. It would also be interesting to enlarge the sample to other activity sectors to test the robustness of the results. Finally, it would be interesting to extend the sample period, including years prior to the introduction of the standards, to properly analyze the differences in the reporting behavior for companies that started to disclose in a mandatory way.
Finally, we suggest that future research widens the study of stakeholders’ engagement, focusing on the type of engagement events/actions for each group of stakeholders separately since many companies listen only to their employees, despite doing so in a direct and participatory way.

Author Contributions

Conceptualization, R.H.; Data curation, M.C.; Formal analysis, M.C.; Investigation, C.G.; Methodology, R.H.; Project administration, C.G.; Writing—original draft, C.G.; Writing—review & editing, R.H. All authors have read and agreed to the published version of the manuscript.


We are gratefully acknowledge financial support from FCT-Fundação para a Ciencia e Tecnologia (Portugal), national funding through research grant UIDB/04521/2020.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

Data supporting reported results can be requested from the authors.

Conflicts of Interest

The authors declare no conflict of interest. The funders had no role in the design of the study; in the collection, analyses, or interpretation of data; in the writing of the manuscript; or in the decision to publish the results.


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Table 1. Mean values by country.
Table 1. Mean values by country.
N° Observations19114
N° Observations (%)14.3%85.7%
Table 2. Mean values by year.
Table 2. Mean values by year.
N° Observations151623252727
N° Observations (%)11.3%12.0%17.3%18.8%20.3%20.3%
Table 3. Descriptive statistics.
Table 3. Descriptive statistics.
N° Observations133133133133133133133133133133
Std. Deviation1.25000.81100.49100.64500.07310.71800.28800.45000.17800.3590
Table 4. Variables of interest by level.
Table 4. Variables of interest by level.
LevelN° ObservationsN° Observations (%)
Table 5. Spearman correlation matrix.
Table 5. Spearman correlation matrix.
GRI0.385 ***−0.0971
StakeEng0.284 ***0.0640.193 **1
Size−0.0450.1220.305 ***0.0380.0641
Lev0.147 *−0.357 ***0.0190.118−0.227 ***0.265 ***1
Exper0.1350.1110.196 **0.224 **−0.0450.310 ***0.0671
Rev0.237 ***0.226 ***0.409 ***−0.0160.0190.431 ***0.0760.332 ***1
Public−0.08−0.0430.102−0.0510.0770.400 ***−0.0930.308 ***0.349 ***1
Note: *, **, and *** denote p-value < 0.1, <0.05, and p < 0.01, respectively.
Table 6. Regression results.
Table 6. Regression results.
IIRC0.449 *1.771----0.885 ***3.092
GRI--1.871 ***4.39--2.194 ***4.588
StakeEng----1.182 ***4.2670.885 ***2.983
ROA−3.323−1.449−5.102 **−2.13−3.366−1.412−4.481 *−1.824
Size−0.260−0.868−0.399−1.32−0.180−0.606−0.834 **−2.45
Rev1.246 ***2.7640.857 *1.911.693 ***3.8640.4550.912
Lev1.99 **2.0131.551 *1.671.0681.1152.798 ***2.604
Public−1.245 **−2.044−1.479 **−2.56−1.584 ***−2.716−0.525−0.82
N° Observations133133133133
R20.0635 ***0.107 ***0.101 ***0.162 ***
Note: *, **, and *** denote p-value < 0.1, <0.05, and p < 0.01, respectively.
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Henriques, R.; Gaio, C.; Costa, M. Sustainability Reporting Quality and Stakeholder Engagement Assessment: The Case of the Paper Sector at the Iberian Level. Sustainability 2022, 14, 14404.

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Henriques R, Gaio C, Costa M. Sustainability Reporting Quality and Stakeholder Engagement Assessment: The Case of the Paper Sector at the Iberian Level. Sustainability. 2022; 14(21):14404.

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Henriques, Rita, Cristina Gaio, and Marisa Costa. 2022. "Sustainability Reporting Quality and Stakeholder Engagement Assessment: The Case of the Paper Sector at the Iberian Level" Sustainability 14, no. 21: 14404.

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