A Systematic Review of the Effects of Mandatory Corporate Sustainability Reporting

Abstract

An increasing number of countries are introducing regulations on mandatory sustainability reporting, while researchers from various disciplines are trying to evaluate the effects of rendering sustainability reports mandatory. We conducted a review of 171 articles in Scopus-indexed journals, aiming to identify the most prominent topics and key research outputs. Our findings are categorized into four broad themes: the effects of legislation on the quality and quantity of the reports, the effects of financial performance on firms, the effects of ESG performance on firms and other effects. This is the first review to include a large number of empirical and non-empirical studies from various disciplines, including law. The positive effect of legislation on the quality, credibility and comparability of reports is more pronounced for countries outside Europe. The effects related to the financial performance of firms are positive in the long run. At the same time, regulation induces companies to adopt more CSR initiatives and may therefore be seen as an effective tool in rendering businesses more sustainable. Other perceived effects of increasing regulation are the fragmentation, complexity and rapid evolvement of the legislative framework on sustainability reporting, as well as the role of the institutional environment.

1. Introduction

A growing number of countries are introducing legislation on mandatory corporate sustainability disclosures. In the European Union, the Corporate Sustainability Reporting Directive has replaced the 2014 Non-Financial Reporting Directive and established uniform reporting standards and compulsory external assurance. At the same time, the introduction of binding rules on corporate sustainability reporting is under rigorous discussion in the US. China, Indonesia, Japan, Canada and Australia are also among the countries requiring companies to report on their social, environmental and governance matters. Regulation is considered an effective means of improving the quality and quantity of sustainability reporting [1], while it also increases the companies’ CSR activities [2]. Reporting is recognized as one of the elements for the accomplishment of the UN Sustainable Development Goals (SDGs), since one of the SDGs targets on sustainable consumption (12.6) explicitly refers to the encouragement of companies to adopt sustainable practices and disclose sustainability information.

Given the increasing interest in sustainability reporting, the literature has provided reviews on the consequences of rendering sustainability reporting mandatory. Christensen et al. [3] focused on the economic effects of CSR reporting regulations, as indicated in the accounting, finance, economics, and management literature. They found that mandatory CSR disclosure has beneficial effects for capital markets and stakeholders, although there are several issues with implementation and enforcement. Haji et al. [4] reviewed empirical papers on the effect of CSR reporting regulations worldwide and concluded that there is no concrete evidence on the improvement of reporting quality, while the capital markets effects of regulations are both positive and negative. Moharamm et al. [5] also provided a review of Scopus and Web of Science-indexed articles, concluding that mandatory ESG disclosures may have beneficial informational and real effects, if combined with appropriate standards and mechanisms for enforcement and assurance.

The above-mentioned prior literature reviews on the effects of mandatory sustainability reporting exclude non-empirical [4] or legal literature [3,5]. A broader review including non-empirical and interdisciplinary literature, especially legal literature, may therefore provide further insights into the matter. To this end, we conduct a review of 171 journal articles from various disciplines published since 2015, with the objective of investigating whether the introduction of legislation on sustainability reporting around the world has met its pronounced goals, namely, to make corporate reports more informative and transparent and businesses more sustainable, as well as whether legislation has significant negative effects on firms. Our results reveal several aspects of the research on CSR reporting regulations that are relevant for researchers, businesses and policy makers not previously identified in literature, such as the lack of research on certain countries, the limited credibility of reports, the complexity and disparity of regulation, and the role of additional requirements, such as effective enforcement frameworks.

The next section presents the research protocol of the study. Section 3 highlights the findings of the study, divided into four parts: (a) effects on quality and quantity of the reports, (b) effects on financial performance of firms, (c) effects on ESG performance of firms and (d) other effects. Section 4 discusses the findings and concludes with suggestions for further research.

2. Materials and Methods

The study followed the systematic literature review methodology [6,7] by first developing a suitable review protocol. The research was conducted in accordance with the PRISMA systematic review protocol and the PRISMA flowchart, PRISMA checklist, and an appendix table categorizing the included articles by subject are available in the Supplementary Materials.

We limited our study to research published after 2015, because as Tsang et al. [8] demonstrate, the last decade has marked a significant growth in CSR studies. Taking into consideration that most regulations have been developed after 2010 [4], the rest of our inclusion criteria were the following:

• The review excluded literature discussing non-binding governmental guidelines and frameworks or international reporting standards, such as the Global Reporting Initiative (GRI), because our research question focused only on mandatory disclosure regimes. Similarly, articles discussing voluntary reporting or invariably referring to voluntary and mandatory reporting were not included.
• The literature on the driving forces for the introduction of regulations was also excluded, because the objective of the research was to identify the effects of mandatory reporting.
• All types of papers—conceptual/exploratory and empirical—discussing the potential or real impact of regulations were included, because the objective of the review was to cover as many aspects of the literature as possible, with an interdisciplinary perspective.
• For quality and concision purposes, only articles published in peer-reviewed journals were included, therefore excluding working papers, master’s and PhD theses, and book chapters [7].

Google Scholar and Scopus were selected as the appropriate databases for this survey because few legal journals are indexed in other large databases (e.g., Web of Science). Google Scholar was used as the primary search tool (as in [4]), with four different sets of keywords in all possible combinations, in order to ensure that the majority of the terms used in the literature were covered. In line with previous literature reviews on the topic (e.g., [3,4,8]), we use the terms ‘CSR’ reporting, ‘ESG’ reporting and ‘sustainability’ reporting interchangeably to both describe corporate CSR disclosures and conduct the literature review. The sets of keywords were ‘effect/impact/consequences’, ‘mandatory/regulations/legislation’, ‘ESG/CSR/sustainability’ and ‘reporting/disclosure’. This resulted in 54 unique sets of keywords and 2700 articles for initial screening, since we limited our screening to the first 50 results for each set of keywords. After removing articles not included in the Scopus database, articles not satisfying the inclusion criteria and duplicate entries, our search resulted in 171 articles. The survey was conducted from July to September 2024.

The articles were manually inserted into a database, and both authors studied them thoroughly, focusing on their abstracts and findings, because the aim of the review was to identify articles discussing or delivering results on the effect of reporting regulations, and not to investigate or evaluate their applied methodology. The articles were then categorized into four broad groups: (a) articles referring to the reports themselves, i.e., articles discussing the effect of regulation on the quality, quantity, transparency or credibility of CSR reports, (b) articles discussing the impact of mandatory regimes on firms’ economic condition and performance, (c) articles discussing the effect of mandatory disclosures on CSR performance and the broad notion of sustainability matters, and (d) other articles discussing impacts which did not clearly fall in one of the three previous categories. The articles in each category were further classified into sub-groups, according to their main findings and whether similarities and differences could be identified (e.g., articles discussing the quality of reports, finding a positive/negative effect).

3. Effects of Sustainability Reporting Regulations

3.1. Effects on Quality, Quantity, Transparency, Credibility or Comparability of CSR Reports

3.1.1. Evidence from Europe and the Non-Financial Reporting Directive

The majority of studies on mandatory ESG reporting regulations focus on the effects of regulation on corporate reports, seeking to answer the question of whether the reports have improved. Most researchers investigate the amount and quality of sustainability reports after the regulations (e.g., [9,10]), while fewer focus on issues of transparency and credibility. More than half of the studies we found to fall into this category (39 out of 79) examine EU countries within the NFRD framework, while another eight additional studies focus on individual European countries before the NFRD implementation.

A significant number of earlier articles express skepticism about the NFRD or attempt to predict its results. Various commentators are of the opinion that the private sector’s costs, government pressure, and reliance on voluntary reporting standards may undermine the goals of the NFRD to enhance disclosure comparability and corporate accountability [11,12,13]. Nonetheless, there are also predictions that the NFRD will significantly improve the disclosures [14], especially in highly polluting sectors [15]. The positive role of prior reporting regimes [16] and the limited ex ante compliance (particularly regarding disclosures on human rights and anti-corruption matters) was also emphasized [17].

The first empirical surveys on the actual effects of the NFRD on corporate reports showed that the quality of reports had improved, the differences in quality among reports had reduced [18], and large companies showed a high level of compliance, which preceded the Directive [19]. However, it was also found that the level of compliance was heavily dependent on the business sector [20].

More recent studies appear to be divided on whether the NFRD has actually improved corporate sustainability disclosure. On the one hand, several studies report positive effects of the NFRD on corporate disclosures, both in terms of quantity and quality [9,10,21] or otherwise, effectiveness [22], but also with regard to their credibility [10,23]. In addition, the uniform European framework was found to reduce ESG decoupling, regardless of national enforcement systems [24].

On the other hand, the majority of studies cast doubt on the positive effects of the NFRD on the quality of CSR disclosure. Four studies focusing on individual countries found that the Directive brought an increase in the quantity of provided information, but no clear improvement in quality [25,26,27,28], while it was also argued that the value relevance of ESG information has not increased [29]. The level of disclosure of state-owned enterprises was equally found to remain stable [30]. Prior skills and experience of the reporters contributed to better reports, but there was a lack of a shared understanding of the term ‘non-financial’ [31].

The studies focusing on the comparability of disclosures after the NFRD conclude that the Directive failed to introduce a comprehensive regime that would allow comparisons between reports. The Directive increased the quality and credibility of European firms’ reports, but not their comparability, because it did not influence the firms’ decision to use acclaimed reporting standards [10]. Corporate reports were found to lack convergence and harmonization [32] and showed dramatic differences in quality [33].

The literature has also expressed skepticism about the way that firms understood their reporting obligations and their tendency to be selective on the matters they choose to report. Caputo et al. [34] argued that the NFRD has brought an increase in sustainability information, but not an organizational change, because companies fulfill their disclosure obligations in a ‘tick-the-box’ mode in order to be compliant with the law. It is also evidenced that companies tend to avoid the disclosure of unfavorable or unavailable environmental information [35] and that the amount of used indicators was reduced, since companies only disclose the indicators they consider to be ‘relevant’ with the Directive [36], with limited attention to human resources matters [37].

A group of studies interestingly focused on the relationship between sustainability reporting under the NFRD and Sustainable Development Goals (SDGs): the Directive has brought a positive change to references to the SDGs in corporate reports [38], while it also affected the company’s decision to seek external assurance of its reports [39]. There are only two studies on compliance of mandatory reports with the SDGs, with contradictory findings [40,41].

3.1.2. Evidence from Preceding National Legislations and Other Countries Worldwide

A few earlier studies on individual European countries investigated national legislation that preceded the NFRD and found that it did not clearly result in quality improvement: for example, Hąbek and Wolniak [42] examined selected European member states and found that legislation improves the quality of CSR reports. France was one of the first European countries to introduce legislation on CSR reporting since 2001; scholars found that the French law contributed to the standardization and comparability of reports [43], but the quality and transparency of reports remained low [44], while there was also a low level of substantive environmental reporting in relation to Canadian firms [45]. Studies on Spain [46] and Denmark [47] also concluded that regulation alone did not improve the quality of CSR disclosures, while Arvidsson and Dumay [48] who investigated Swedish companies from 2008 to 2018, maintain that, although the quality of reports has steadily improved, ESG performance has stagnated around 2015.

The number of studies examining the impact of regulation on corporate sustainability reports outside Europe is significantly lower, as 32 out of a total of 79 articles in our study refer to other countries. China, where CSR reporting became mandatory in 2008, offers an intriguing case for research. With regard to the effect of reporting regulations on the quality of reports in China, some scholars argue that mandatory regulations led to an overall improvement in reporting quality [49,50] while others find that, despite the legislative pressure, the quality of reports remained low [51]. Additionally, research suggests that mandatory reporting improves a firm’s information environment and reduces the information gap [52], but also that it may be sufficient to induce conservative financial reporting [51].

Australia has had a mandatory sustainability disclosure regime for listed companies since 2014, based on the ‘comply-or-explain’ principle. A study focusing on mandatory disclosure of greenhouse gas emissions found that firms subject to the legislation report more on their emissions, but also that high polluters tend to report voluntarily [53]. Researchers also highlight the need for a global framework to improve the comparability and transparency of the reports [54] and the necessity of reporting regulations, especially for the extracting industry in Australia [55].

Studies focusing on Indonesia and Malaysia generally found that the introduction of regulations increased both the quantity and quality of CSR reporting [56,57,58,59]. India is a very interesting case, since legislation not only requires CSR reporting, but also mandates CSR expenditure. Nonetheless, limited evidence is available for the effects of this legislation on the quality of disclosures, indicating that it remains low and diverse [60] and also that it is positively affected by corporate governance variables [61]. On the contrary, in Bangladesh, disclosure regulations had a positive effect on the nature and extent of CSR reporting and improved the transparency of business [62].

In the UK, requirements related to CSR disclosure have been in place since 2006; Jiang and Tang [63] report that legislation has brought an increase in the quantity and quality of voluntary carbon disclosures, while Hummel and Rötzel [64] similarly concluded that disclosure quantity has increased, although less for firms that already had reporting incentives. A similar conclusion was reached for Peru, where an improvement in CSR reporting was not attributed to regulation [65]. In South Africa, where reporting is also mandatory, the adoption of international standards has been identified as the key factor that enhanced the transparency of the reports [66]. Limited information is available for the US, since reporting is not mandatory throughout the country: a study focusing on the California Transparency in Supply Chains Act in the US concluded that firms exhibited a high degree of compliance with the law, but their compliance was rather symbolic and not substantive [67]. Finally, in a cross-country survey on the world’s largest financial institutions, Sethi et al. [68] argue that legislation improves CSR disclosures and that common law countries have a higher level of disclosures.

Overall, it appears that the beneficial effect of regulation on the quality of CSR reports is more pronounced in studies focusing outside the European Union. This may be explained by the fact that national regimes are more integrated and comprehensive, with clearer oversight and enforcement mechanisms. Nonetheless, it is worth noting that our review did not identify any studies in a number of countries, for example, Brazil, Thailand and Japan. At the same time, the number of studies in countries with established mandatory regimes, such as Australia, South Africa and India, is disproportionally low. Although the amount of research on Europe may be partially attributed to the fact that the European regime affects 27 countries, the lack of data or the existence of biases may also be responsible for the disproportionally limited research in a number of countries.

3.2. Financial Implications of ESG Disclosures Mandate

3.2.1. Effect on Firm Performance

A significant number of studies focus on the financial performance of firms after the implementation of CSR reporting regulations and find positive effects. Empirical research focusing on European firms concluded that mandatory reporting had a positive effect on overall firm performance measured by EBIT [69] and financial performance in particular [70]. In addition, although the NFRD was found to negatively affect operating profitability and shareholder value, while producing no effects on debtholders’ returns, it exerts a positive moderating influence on the connection between non-financial and financial performance, helping to offset the direct costs associated with achieving non-financial performance [71].

Studies on other individual countries also highlighted positive effects on financial performance: an Indonesian study examined natural resource-based firms, which were the first companies that were obliged to publicly disclose CSR-related information. The sample included Indonesian firms listed on the Indonesian stock exchange between 2009 and 2019, and using the difference-in-differences method highlighted the positive impact of mandatory CSR disclosure on firm efficiency [72]. Evidence from Hong Kong also showed that mandatory ESG reporting requirements did not appear to negatively affect shareholder value [73].

3.2.2. Effect on Access to Capital

The effect of mandatory CSR disclosure on investors’ behavior and access to capital is equally important for firms: the hypothesis that firms that disclose environmental and social information raise more equity capital is confirmed by the literature. Cross-country evidence suggests that disclosure appeals to institutional investors with long-term orientations and preferences for environmental and social (E&S) considerations, which, in turn, influence firm decision-making [74]. The findings imply that jurisdictions focusing exclusively on financial materiality disclosure standards introduce non-financial information gaps, leading to significant consequences for investors and corporate decision-making. In addition, it is argued that mandatory CSR assurance on CSR disclosures when provided by accounting firms tends to reduce the cost of debt capital, although the reputation of the accounting firm is insignificant [75].

With the exception of the above-mentioned studies, research on access to capital focuses on Chinese reporting regulations: in a study on the impact of mandatory CSR disclosures on cost of debt (COD) using a quasi-natural experiment that mandated a subset of listed firms to issue CSR reports, researchers found that these firms exhibit cheaper debt financing after the CSR mandate and easier access to long-term bank loans. Also, they revealed that the decrease in the COD is more pronounced among firms with longer CSR reports and higher CSR scores that follow Global Reporting Initiative (GRI) guidelines [76]. Therefore, it may be argued that mandatory CSR reporting improves access to capital and appeals to institutional investors. An additional study in China empirically examined the way the mandatory reporting of corporate social responsibility (CSR) affects the investment behavior of foreign institutional investors as measured by Qualified Foreign Institutional Investors (QFIIs). The researchers used a difference-in-differences design by exploring the enactment of China’s 2008 CSR mandatory disclosure requirement. The results revealed that companies with mandatory CSR reporting experience an increase in their QFII ownership percentage, while local institutional investors’ ownership and investment weight also increased [77].

Consequently, evidence in the literature unilaterally suggests that CSR reporting within a mandatory regime can help firms improve their information environment and attract international and local institutional shareholders. Nonetheless, evidence from other countries on this particular aspect would contribute to an extension of the discussion.

3.2.3. Further Implications for Firms and Shareholders

A small number of studies have explored the effect of reporting regulations on dividend payouts: Fonseka & Richardson [78] showed that mandatory Corporate Social Responsibility Disclosures (CSRD) and Corporate Social Responsibility Performance (CSRP) have important consequences for firms’ dividend decisions. Using 14,065 firm-year observations in China over the 2006–2016 period, the study concluded that mandatory CSRD and CSRP increased firms’ inclination to pay dividends, amount of dividend payouts, and decisions about dividend payouts, and decreased dividend reductions. Nonetheless, further studies on Chinese firms showed that dividend payout ratios were reduced immediately after implementing reporting regulations [79]. In addition, this result was more pronounced for firms with weaker corporate governance mechanisms [80]. Thus, the effect of reporting regulations on dividend payouts appears to be mixed, dependent on firm governance and more clearly positive in the long term.

Wider positive implications for firms operating in a mandatory disclosure environment have also been highlighted in the literature: a well-recognized worldwide study found a positive impact of ESG disclosure mandates on firm-level stock liquidity, especially in the presence of a non-comply-or-explain basis and strong enforcement. The study concludes that ESG disclosure regulation improves the information environment and has beneficial capital market effects [81]. Further evidence from China shows that investment inefficiency decreases subsequent to the mandate, especially in cases of overinvestment [82]. Regulation of CSR reporting has also been found to reduce the firm’s default risk in 17 emerging markets, because it improves corporate transparency and serves as a substitute for corporate governance mechanisms [83]. In addition, it alleviates agency problems [84].

Apart from the obvious effects on firm performance, ESG disclosures may have further complementary functions in mitigating financial irregularities, because they strengthen internal controls, increase public scrutiny, and reinforce government regulation [85]. Overall, the literature has highlighted various positive effects of reporting regulations for firms and shareholders.

3.2.4. Studies Highlighting Negative Effects on Firms and Profitability

Despite the number of studies on the positive effects of CSR mandates on firms, there are also numerous studies advocating for negative effects. A study focusing on the Chinese mandatory environmental disclosure regime revealed that it has a positive impact on the firm’s environmental performance, but at the same time, it has a negative impact on the firm’s economic performance [86]. The study used the 2008 Guidelines of the Shanghai Stock Exchange for Listed Companies issued in 2008 as a quasi-natural experiment with the difference-in-differences model. It is also interesting that, while both voluntary and mandatory CSR disclosure were found to have a negative effect on firm profitability, voluntary disclosure had a stronger negative effect. The reasoning behind the negative effect on profitability, which is more pronounced for voluntary disclosures, is that disclosers are willing to attract more long-term investors, so they spend more on CSR activities. At the same time, companies have higher stock returns but raise more debt [87].

Other studies identify further negative effects for firms: most of them focus on China. For example, a study on listed Chinese companies found that the implementation of reporting regulations resulted in firm’s increased operating costs, reduced R&D investment and sales revenues and unwillingness to take risks because of financial constraints [88], and also that companies’ Stock Price Informativeness (SPI) decreased significantly, while information asymmetry between investors and managers increased [89]. Evidence from Europe on these aspects is limited: only one study highlights a significantly negative association between the firms’ share price and CSR disclosure [90], while another study on Italian companies did not trace any linkage between non-financial CSR disclosures and financial or market performance [91].

Therefore, a significant number of studies show a negative effect of CSR on firm performance, which is more pronounced immediately after the implementation of regulations, and this may be attributed to increased costs and unwillingness to take risks. In addition, it is remarkable that the vast majority of studies investigating the impact of regulations on firm performance examine the Chinese case; further research could reveal whether the results would be validated in different institutional contexts.

3.3. Effect on Firms’ ESG Performance

3.3.1. Studies Highlighting the Positive Effect of Legislation on ESG Performance

The compliance-driven pressure imposed by legislative frameworks creates favorable conditions for integrating sustainability into the core of business operations. As a result, an increasing number of companies are engaging in corporate social responsibility (CSR) initiatives, which, in theory, should lead to improved CSR performance. Numerous studies have examined this assumption. In our sample, 29 papers investigated the impact of legislation on CSR performance. While some found that regulatory pressure contributes to measurable improvements in CSR outcomes, others reported only a rise in the volume of CSR activities or disclosures, with limited evidence of substantive changes in firms’ behavior. A recurring concern is that the mandatory nature of CSR reporting may lead companies to do only the bare minimum, focusing their efforts on meeting “minimal compliance requirements” rather than driving meaningful change.

Within the European context of the NFRD, the majority of researchers claim that the new regime brought an improvement in ESG performance. The types of studies vary, from individual case studies confirming that the NFRD pushed the company towards sustainability through greater stakeholder engagement and transparent disclosures on sustainability strategy [32], to surveys on very large samples of EU firms for large time spans, which also conclude that the NFRD brought improvements in overall CSR performance [92,93], as well as direct and meaningful increases in CSR activity [2]. Consequently, there appears to be a consensus on the positive effects of the European Directive on ESG performance, with one exception emphasizing slow progress on the integration of human rights and environmental due diligence issues [94].

Further and numerous studies from other jurisdictions also highlight that even the announcement of mandatory sustainability disclosure policies positively affects Corporate Sustainability Performance [95,96]. Studies focusing on China showed that Chinese policies drove an increase in CSR expenditures [97], encouraged the creation of many green invention patents [98] and caused substantially higher green innovation performance for reporters [86]. Even a semi-mandatory “comply or explain” ESG disclosure requirement can markedly strengthen corporate ESG performance, as also evidenced in Hong Kong [99]. The assumption that mandatory CSR reporting leads to an increase in CSR expenditure was also found to be valid for Indian listed firms, where it was additionally positively associated with financial performance [100].

A limited number of studies focus on one aspect of mandatory disclosures, namely, environmental and climate-related disclosures and their effects. Brown [101] examined the UK climate-related financial disclosure regulations 2022 and found that it is in the right direction to enhance the ESG agenda in the private sector, as mandating the disclosure of the companies’ climate change risk contributes to them understanding the need for a robust ESG strategy within their overall risk management approach. Nonetheless, in a study on Italian companies, it was also evidenced that companies tend to omit unfavorable or unavailable environmental disclosures through “impression management strategies” [35].

3.3.2. Studies Discussing Further Institutional Factors Affecting ESG Performance

The institutional environment is an important factor in enhancing corporate CSR performance, since a study on 27 countries showed that the performance of corporate governance is higher in countries with higher levels of regulatory quality, political stability and democracy [102]. In addition, countries with mandatory ESG disclosure frameworks are more favorable for ESG investments, because investors find transparent and reliable ESG data, as also shown by cross-country evidence [103]. It is worth noting that, with the exception of the two above-mentioned examples, cross-country studies on the effect of reporting regulations on ESG performance are rare. In a similar vein, there is a lack of studies investigating real effects of mandatory disclosures on health and safety issues: one single study in our sample interestingly examined the effects of a limited mandatory regime (the SEC-registered mine-owners obligation to include mine-safety information in financial reports) and found that the requirement decreases mining-related health incidents and injuries [104]. This means that the specific legal requirement achieves better social performance outcomes directly.

At the same time, there are studies reminding that regulation alone does not suffice; regulatory quality, the rule of law and the level of accountability at a given country level can positively affect CSR disclosures, and companies are more likely to perform transparent and responsible CSR initiatives in environments with strong institutions [105]. The beneficial effects of regulation for society as a whole depend on additional conditions, namely that the indicators used are well suited for the intermediaries or other intended users; the right combination of information is provided; the data can be comparable to benchmarks and/or other corporations; the information is connected to other relevant information and sufficient popular and political support is provided [106].

3.3.3. Studies Not Finding a Clear Positive Effect on ESG Performance

There is, however, a substantial proportion of researchers who claim that making CSR mandatory does not improve companies’ CSR performance; for example, Oranburg [107] uses legal argumentation to show that mandatory CSR disclosures could lead to fewer CSR initiatives. Rojas et al. [108], report a significant positive association between legitimacy of existence and reputation as associated factors for developing CSR practices, whereas they find that regulation is one of the factors with an insignificant positive association. A study focusing on UK-listed companies obliged to disclose their greenhouse gas emissions and their efforts to fight climate change showed that, despite the increase in public disclosures that this law brought, there is limited evidence that reporting on carbon is driving considerable reductions in emissions [109]. Similarly, ESG performance in Sweden appears to be unchanged for years [48].

Further studies also show how mandating CSR disclosures is not effective in making companies more responsible: in a widely recognized survey on firms in 24 OECD countries, Jackson et al. [110], concluded that companies in countries that require non-financial disclosures engage in a greater number of CSR initiatives, but, at the same time, the obligation of publishing non-financial disclosures does not lead to lower levels of corporate irresponsibility or greater variance of reports. The pressure for further disclosures is not enough to create conditions for better ESG performance; this could only be achieved if the legal context promotes policies that are convenient, credible and comparable [111].

Consequently, while the vast majority of the literature suggests that mandatory CSR disclosures lead to a meaningful increase in firms’ engagement with CSR and improved CSR performance, research also points out that other factors, such as the institutional environment and reputation considerations, significantly affect CSR initiatives. At the same time, there remains the potential of a ‘tick-the-box’ approach to CSR without actual change in the firm’s strategy towards an overall improvement of CSR performance.

3.4. Other Effects of CSR Reporting Legislation

3.4.1. Studies Discussing the Effectiveness of Legislation

A number of studies pose more general questions with regard to the regulation of CSR reporting and its effect. Some researchers are concerned with the issue of regulatory convergence across different jurisdictions; for example, Sulkowski and Jebe [112] explain how reporting is fragmented because of voluntary frameworks and disparities in regulation and how a uniform framework for the EU and the US is needed. A similar conclusion on the lack of harmonization in reporting regulations worldwide is reached by Afolabi et al. [113] who further identified the various actors shaping CSR regulation worldwide, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and the European Financial Reporting Advisory Group (EFRAG). Singhania and Saini [114] compared different ESG frameworks and suggested that countries with new ESG systems need to understand countries with well-developed ESG systems. Halkos and Nomikos [115] examined regulations worldwide and argued that more regulations on environmental impacts are needed; a similar conclusion is reached by Maalouf [116].

In a similar vein, other studies focus on the complexity and rapid evolvement of CSR regulations: The difficulty of following and applying the various interconnected layers of the European regulation (CSRD, Taxonomy and Sustainable Finance Disclosures Regulation) was highlighted by a number of researchers [117,118,119]. Regulation in China is also scrutinized as failing to really distinguish what is mandatory and voluntary [120]. Gatti et al. [121] review CSR definitions and find that, despite the prevalent perception of CSR as voluntary, CSR in the Indian legislation appears to have a different meaning. The common ground arising from these studies is that the fast development, the absence of sufficiently clear rules and the lack of coherence in disclosure regulations impede comprehensive and effective sustainability reporting.

The role of different institutional environments in CSR reporting has also been investigated, and it was found that there is a more obvious link between institutions and CSR reporting in the Anglo-American countries than in continental Europe [122]. This issue is directly related to the role of other institutional factors in enhancing corporate sustainability, as highlighted above in Section 3.3.2. European regulations are often seen as particularly impactful for worldwide regulation, but it is also observed that this fact may lead to regulatory arbitrage [123].

The possibility of introducing mandatory CSR regulation in the US and its potential results is a matter that also troubles the literature. In one view [124], legislative reform is inevitable due to investor needs, even if it may be challenged in court. The current US regime does not easily allow the establishment of liability for misleading sustainability claims in corporate disclosures and further substantive criteria should be developed [125].

Studies discussing the effectiveness of regulations based on the views of users of non-financial information were almost absent from our findings, with only one exception: Stubbs and Higgins [126] investigated the opinion of 22 members of the financial and investment community and concluded that there was no strong support for regulatory reform, but the participants were of the view that voluntary reporting was ineffective.

3.4.2. Studies Discussing Other Effects of Mandatory CSR Disclosure

A small number of studies have discussed the effects of CSR reporting regulations at the country level, beyond the obvious effects on reports, firms and the firm’s sustainability performance. Plastun et al. [127] have investigated whether legislation on ESG disclosure affects a country’s Sustainable Development Goals Index (SDGI) ranking, with evidence from the world’s top 50 economies, and found a clear positive connection between the two. In addition, ESG disclosure regulations increase a country’s competitiveness [128] and have caused a positive reaction in the equity share market in India [129].

Finally, two studies in China have explored the effect of CSR reporting regulations on firms’ tax behavior: it was found that mandatory CSR disclosures cause firms to become less tax aggressive and pass tax burdens to other stakeholders [130], but also that it increases corporate tax avoidance [131]. The latter finding is more evident for firms with weaker profitability and poorer ESG performance, and is attributed to the firms’ attempts to reduce their costs. To sum up, mandatory reporting positively affects a country’s competitiveness and SDGs ranking, but its effect on tax avoidance is debated.

Table 1. Findings framework.

	Years	Indicative Papers	Key Takeaways
Effects on Quality, Quantity, Transparency, Credibility or Comparability of CSR Reports
1. NFRD			Initially positive effect of the NFRD, but latest research is divided on whether regulation improved reports
Skepticism on whether the NFRD would improve reports	2017–2020	[11,12,13]
Positive role of prior reporting regimes	2017	[17]
First empirical evidence that the quality of reports have improved and they have become more uniform	2018–2019	[18,19,20]
More evidence of improvement in quantity and quality	2021–2024	[9,10,21,22,23]
The Directive increased the quantity but not the quality of the reports	2020–2024	[25,26,27,28]
The reports lack comparability and harmonization	2019–2022	[10,32]
Businesses do not understand their obligations and follow a ‘tick-the-box’ approach	2020–2022	[34,35,36]
Limited research on compliance of reports with the SDGs	2020–2023	[40,41]
2. Other national regimes			Positive effect of legislation in individual countries Lack of cross-country studies and studies on a Number of countries
European countries: national legislations did not clearly result in quality improvement	2015–2018	[42,44,45,46,47,48]
China: Mixed results with regard to an obvious improvement in quality of reports	2016–2021	[49,50,51,52]
Positive effect of regulations on the quantity of reports for Australia, Indonesia, Malaysia, India, Bangladesh, Peru, South Africa, UK	2015–2023	[53,56,57,58,59,62,66]
Financial implications of ESG disclosures mandate
1. Positive effects of mandatory reporting on firms’ financial performance			Positive effect on financial performance of firms and access to capital
In Europe	2022	[69,70,71]
In Indonesia and Hong Kong	2016, 2022	[72,73]
2. Effect on a firm’s access to capital
Unilaterally positive with evidence from Taiwan, China and cross-country	2019–2023	[74,75,76,77]
3. Further implications for firms and shareholders			A variety of positive effects for firms and shareholders-again evidence mainly from China
Mixed results for the inclination and amount of dividend payouts (China)	2019–2024	[78,79,80]
Positive effect of strict regulation on firm-level stock liquidity worldwide	2024	[81]
CSR reporting regulations reduced investment inefficiency, default risk and agency problems, and mitigated financial irregularities-mainly in China	2021–2024	[82,83,84]
4. Negative effects for firms’ financial performance			Regulations decreased firm profitability, especially in the short run
Regulations increased operating costs, reduced firm profitability, and resulted in unwillingness to take risks	2018–2024	[86,87,88]
Effect on firms’ ESG performance
1. Studies finding clear positive effects			There is a prevalent positive effect of regulation on CSR performance evidenced in various jurisdictions
Regulation increases stakeholder engagement and transparency, leads to increased CSR expenditure, CSR activity, CSR performance around the world	2020–2023	[92,93,95,96]
2. The role of further institutional factors
Regulatory quality, the rule of law, political stability and support are equally important for enhanced ESG performance	2018–2022	[102,105,106]
3. Studies focusing on the insignificance of regulation
Regulation did not lead to less corporate irresponsibility or improved environmental performance	2020–2023	[35,107,108,109,110]
Other effects of CSR reporting legislation
1. Effects on firms’ regulatory compliance			Firms and enforcers find it hard to follow the developments or apply the regulations
The complexity, rapid evolvement, lack of harmonization of regulations impede meaningful compliance, especially in the European Union	2016–2022	[112,117,118,119]
2. Other general effects
Regulation positively affects a country’s SDGs rankings and competitiveness-mixed results for the levels of tax avoidance	2022–2024	[126,127]	Further positive effects at the country level

offers a framework of key findings with some indicative examples of the papers that support the relevant key takeaways. This visual presentation of the findings aims to offer a synopsis of the above analysis.

4. Discussion and Avenues for Further Research

Our findings demonstrate that a significant portion of the literature has examined the impact of European Union legislation, particularly the Non-Financial Reporting Directive of 2014. This is particularly true for research exploring the effects of legislation on the quantity and quality of reports, as more than half of the studies in this category focused on the NFRD. This may be attributed to the fact that the NFRD was the first and most significant piece of legislation affecting a large number of countries and undertakings.

The Non-Financial Reporting Directive introduced for the first time reporting requirements in different national jurisdictions, although on a ‘comply-or-explain’ basis and without particular standards and assurance obligations. The literature appears to be divided on whether the Directive has improved the quality and the credibility of corporate sustainability reports; in this sense, our findings are more in line with Haji et al. [4], at least concerning research in the European Union. In any case, the prevailing opinion suggests that the NFRD has been ineffective. The new European Corporate Sustainability Reporting Directive introduces mandatory reporting and uniform standards; therefore, comparisons between the pre-CSRD era and the post-CSRD era would be of great research interest.

Evidence from other countries shows a clearer degree of consensus on the beneficial effects of regulation for the quality and credibility of reports, in line with findings of extant literature [3,5]. It is worth noting that, for a number of countries with a mandatory reporting regime, the evidence is limited (e.g., India, Canada, South Africa), while for other countries, such as Brazil, Japan and Thailand (as reported by [4], no relevant literature was found. The effect of regulation on the reports in the above-mentioned countries is therefore a topical subject to be addressed with further research. In addition, comparative cross-country surveys are rare, despite the fact that they would highly contribute to the advancement of the discussion. More studies based on stakeholders’ views about the effectiveness of mandatory frameworks (e.g., [125], would also be useful in order to elucidate the real effects of regulation for recipients of sustainability information.

Researchers find a clear positive relationship between ESG disclosures and financial performance, including better access to capital and reduced cost of debt (e.g., [69,70]). Under mandatory reporting regimes, firms attract more institutional and international investors. Several studies also highlight the role of external assurance in strengthening the positive results of CSR reporting for firms. At the same time, a significant number of studies observed decreases in profitability: a company’s compliance with legal requirements through the disclosure of its corporate responsibility performance entails operational costs in the short term. Nevertheless, such disclosures can function as a long-term investment, since reporting can serve as a decision-making tool to identify risks and opportunities on time and at the same time achieve cost savings, for example, through the reduction of energy consumption. Our findings on the long-term beneficial effect of regulation are therefore in line with previous research in this respect [3,4].

The overall effect of sustainability reporting regulations on ESG performance is beneficial, according to the majority of researchers. Mandating disclosures appears to increase ESG expenditure and improve overall ESG performance [4] as firms respond to regulation by engaging in more ESG activities. Nonetheless, our review has also revealed the role of institutional environment, social pressure and regulatory quality for the increase in companies’ ESG performance (e.g., [105,106]).

Although, as mentioned above, legislation may be seen as an effective tool to make businesses more sustainable and drive them towards the accomplishment of the UN 2015 Sustainable Development Goals, research on compliance of reports with the SDGs or enhancement of corporate performance towards the SDGs is rare, as only eight studies in our sample investigated such questions (e.g., [40,41]). Sustainability reporting is particularly relevant for the accomplishment of the SDGs, as evidenced in SDG target 12.6. Further research in this respect would therefore be particularly relevant.

An issue that frequently emerges in the literature is the risk of a symbolic or ‘tick-the-box’ approach on behalf of firms. Different researchers in different contexts (e.g., [35,67,110]) have implied that regulation does lead to the provision of substantive sustainability information, a phenomenon which is also described by Christensen et al. [3] as ‘boilerplate’ disclosures. This issue is also related to the numerous surveys reporting an increase in quantity but not in quality of reports [25,26]. The literature also highlights that a number of companies envisage CSR reporting as a compliance exercise rather than a strategic, transformative, long-term planning [35,110]. The reasons behind this stance (e.g., lack of resources or experience, limited understanding of business benefits) are not always clear and further research with a clear focus on the effect of regulations regarding the substance and credibility of reports would cast light on this matter.

The fragmentation of the regulatory frameworks, which is also related to the comparability of reports, is barely mentioned in the literature. Sustainability reporting used to be mainly voluntary in nature, and this fact has led to the development and implementation of various non-binding standards, with the GRI being the most prominent. In Europe, separate uniform standards namely the European Sustainability Reporting Standards were recently adopted in 2023. The profusion of different standards can potentially be disorienting: it is not uncommon for different standards to require varying KPIs for similar ESG areas; for instance, one standard may demand the disclosure of a company’s performance on ESG issues that other standards deem non-material based on their materiality analysis. A few studies in our review have focused on the issue of a fragmented legal framework (e.g., [112]) and comparability of reports (e.g., [10,32,111]). Therefore, studies on how a harmonized and comprehensive reporting framework affects the quality of reports would highly contribute to the advancement of the discussion.

An additional issue that has been highlighted by Christensen et al. [3] is the need for an effective enforcement framework of CSR reporting regulations, ranging from assurance requirements to public oversight and private enforcement. Regulation alone, without enforcement and common standards, does not seem to improve sustainability reporting. Research highlights that the level of enforcement varies significantly among countries, and it is remarkably weak in most jurisdictions [4]. The inadequacy of enforcement may be attributed to the inequality of involved parties, but also to the lack of resources and expertise, especially on behalf of assurance providers [3]. Another reason may be the dominant perception of CSR reporting as a voluntary and flexible process. The review has revealed that the role of enforcement in the implementation of reporting regulations has not been significantly explored in the literature, with the exception of a few studies [24,57,81]. Indeed, the new European CSRD includes an adequate public enforcement framework, but the possibility of private enforcement by stakeholders remains low [132]. Research on individual enforcement frameworks pertinent to each regulation and their effectiveness would meaningfully enrich the discussion on sustainability reporting.

Our study reviews a large number of articles and topics related to the consequences of mandatory sustainability reporting since 2015. As a result, the analysis could not adequately focus on particular issues, while at the same time covered a rather limited time period. Future reviews exploring specific results of CSR disclosure regulations on individual topics and within certain geographical settings would further contribute to the discussion.

5. Conclusions

In view of the discussion on mandatory sustainability reporting, the aim of our study was to identify the consequences of regulating corporate disclosures around the world. By reviewing a large number of studies from various disciplines, including business, economics, accounting and law, the review revealed further research insights on the topic. The majority of research focuses on the European Union reporting regime, and, while it initially concludes that the Directive has improved the quantity and quality of reports, there are serious doubts that the credibility and comparability of information were affected. Evidence from other countries suggests more clearly that legislation improves the quality, credibility and comparability of reports. The effects related to the financial performance of firms are positive in the long run. At the same time, mandatory reporting regulation induces companies to adopt more CSR initiatives and may therefore be seen as an effective tool in rendering businesses more sustainable. Other perceived effects of increasing regulation are the fragmentation, complexity and rapid evolvement of the legislative framework on sustainability reporting, as well as the role of the institutional environment.

Several gaps and avenues for further research were identified in our study: research on individual countries with a mandatory reporting regime; comparative cross-country surveys that would provide a better understanding of the functioning of each legislation; surveys based on the views of stakeholders and users of sustainability information; further studies on how corporate reports incorporate Sustainable Development Goals; reasons and drivers of ‘symbolic’ or ‘tick-the-box’ approaches to sustainability reporting and whether they could be improved by legislation; research on the effect of harmonized reporting frameworks, including studies comparing the pre- and post-Corporate Sustainability Directive era; and, finally, further research on other institutional aspects affecting sustainability reporting, most importantly the role of an effective enforcement framework.