Sustainability Reporting Practices of Emerging Markets’ Companies Cross-Listed on the London Stock Exchange

Abstract

This study examines sustainability reporting practices (2010–2023) of emerging markets’ companies cross-listed in London as Global Depositary Receipts (GDRs). Despite the voluntary nature of sustainability reporting, all examined companies issued a corporate social responsibility (CSR) report. Additionally, 90 percent of companies hired an external auditor to provide assurance for CSR disclosure. Further, 99 percent of examined GDRs relied on the Global Reporting Initiative guidelines when preparing CSR reports, and 90 percent had a sustainability committee. Overall, cross-listed companies demonstrated an impressive level of CSR reporting. However, the gender diversity or independence of the board of directors is unrelated to the extent of CSR disclosure. Next, sustainability reporting scores are associated with lower liquidity position and are negatively related to reported earnings. This evidence supports the agency theory perspective in that executives of GDR cross-listed companies may use enhanced CSR reporting practices to divert attention from poor financial performance. The findings stand in contrast to previously documented results for New York cross-listed firms and have implications for regulators and global investors of European stock exchanges.

1. Introduction

A growing body of literature has investigated the association between the internationalization efforts of companies and corporate social responsibility (CSR) performance and reporting. This increasing interest can be explained by the exponential growth in green investments on a global scale and unprecedented investor attention towards companies’ sustainability activities [1,2]. A recent survey indicates that chief financial officers of US companies that integrate CSR into their business strategy are more likely to realize increased revenue and profitability than those that do not [3]. Moreover, for companies tapping into international markets, CSR performance and reporting have a positive spillover effect on the CSR practices of their alliance partners and domestic peer firms [4,5].

Studies document a positive association between cross-listing activities, CSR performance, CSR ratings, and company valuation [6,7]. Additionally, mandatory CSR reporting requirements facilitate cross-listing practices worldwide [8], indicating a stronger need for sustainability mandates. CSR activities signal positive reputation, and adopting a serious CSR approach can help foreign companies reduce the liability of foreigners and enhance legitimacy [6,9]. In summary, studies support the notion that CSR benefits diverse stakeholders and helps companies achieve their internationalization goals, consistent with the stakeholder and bonding perspectives [10,11].

Conversely, several studies challenge the validity of the value creation potential of CSR performance and reporting [12,13]. The pessimistic view, known as the agency perspective, contends that CSR signals the presence of agency problems in a company, and that managers adopt enhanced CSR reporting practices to cover up poor performance and enhance their own reputation [14,15]. Moreover, companies are increasingly involved in greenwashing, making unsupported sustainability claims in their reports and engaging in CSR decoupling practices [16]. Greenwashing negatively affects the quality of financial statements and disclosure, misleads market participants, and undermines the public’s trust in CSR reporting [17]. Emerging markets’ companies experience significant pressure from global stakeholders to demonstrate serious commitment to CSR, as they are characterized by underdeveloped infrastructure and lack credibility from foreign investors [10]. As noted in Boubakri et al. (2020) [18], CSR can help emerging markets’ companies overcome institutional voids and achieve greater legitimacy and recognition on the global arena. Indeed, executives of emerging markets’ companies are more concerned about CSR than their peers in developed markets [19]. Additionally, customers in emerging markets value sustainability commitment to a greater extent than those in developed markets [20].

Motivated by the conflicting evidence on CSR for emerging markets’ companies, this study examines the CSR reporting practices in a novel setting: the CSR reporting of companies cross-listed on the London Stock Exchange (LSE). As documented in Kim and Pinnuck (2014) [21], cross-listing opportunities on the LSE’s Main Market are pursued via Global Depositary Receipt (GDR) instruments by companies from emerging, rather than developed, markets. Since its inception in 1990s, GDRs have developed into a convenient, cost-efficient, cross-listing mechanism for emerging markets’ companies that allows them to tap into the global investor pool at an affordable cost of compliance with reporting and governance regulations [22]. According to the LSE (2016) [23], GDR cross-listed companies are rewarded with greater liquidity and tradability of their stocks, increased recognition on international capital markets, and access to a global investor base. Companies cross-listed as GDRs have to demonstrate commitment to enhanced reporting obligations and governance standards and have strong incentives to engage in CSR activities and reporting.

Extant research has examined the association between CSR performance and reporting, and cross-listing on the New York Stock Exchange (NYSE). The roster of cross-listed companies via American Depositary Receipt (ADR) programs includes both developed and emerging countries’ companies. However, the corporate governance and reporting obligations are higher than those of international markets where GDRs are pursued [24], and the US reporting environment is more stringent than that of the UK [25]. Accordingly, compared to previously examined ADRs, GDR cross-listed companies may have a lower incentive to engage in CSR reporting. Moreover, the extent to which these companies use CSR reporting as a source of legitimacy is an open empirical question. In addition, the high cost of CSR reporting commitment affects the extent of sustainability reporting in emerging markets [20]. Because the composition, geography, and post-listing obligations of ADRs and GDRs are fundamentally different [21,26], extant findings on ADR cross-listed firms may not be generalizable to GDRs.

This study aims to address the following questions: (1) What are the properties of CSR reporting practices among GDR cross-listed companies? (2) What are the firm-level financial and governance features that determine the extent of their sustainability disclosure? (3) Are CSR reporting practices of London-listed GDRs consistent with the bonding or agency theory perspective?

To address the aforementioned research questions, I draw data from 94 companies cross-listed as GDRs in London, representing 14 emerging markets, over the 2010–2023 period. I find that all examined companies issued a CSR sustainability report. Additionally, 90 percent of companies hired an external auditor to provide assurance for CSR disclosure quality. Further, 99 percent of GDRs relied on the Global Reporting Initiative (GRI) guidelines when preparing CSR reports. Next, 90 percent had a sustainability committee of the board of directors, while 88 percent reported on ESG activities in the global context. Overall, the GDR cross-listed companies examined in this study demonstrated an impressive level of CSR reporting that far exceeds that of emerging markets’ companies in general [2]. The findings also indicate that board gender diversity or board independence does not impact the extent of sustainability disclosure, while the size of the board of directors is positively associated with the CSR reporting score. Meanwhile, sustainability reporting scores are associated with lower liquidity position and are negatively related to reported earnings per share. This evidence is in line with the agency theory perspective, indicating that managers of GDRs exhibit managerial opportunism and use enhanced CSR reporting practices to mask poor financial performance [27,28]. This is contrary to extant findings that report a positive association between CSR and firm valuation for New York cross-listed ADRs [6].

This study contributes to the cross-listing literature by providing the first evidence, to my knowledge, on the CSR reporting practices of companies cross-listed in London as opposed to New York. The US regulatory and compliance framework, and investor base are very distinct from those of European regulated stock exchanges [22]. Prior studies noted that global investors had expressed concerns regarding “light touch” regulations that London-listed GDRs are subject to and that exempt them from some reporting and governance obligations that their ADR peers must comply with [21,26]. Importantly, I find that, although GDR cross-listed companies adhere to impressive CSR reporting practices consistent with reputational bonding [9,29,30], this appears to divert attention from poor performance. This finding contributes to the debate regarding the stakeholder versus agency perspective on CSR activities and reporting, wherein I find supporting evidence for the latter hypothesis.

Finally, this study contributes to the literature on the mechanisms that help emerging markets’ companies gain investor trust by engaging in non-financial disclosure, such as CSR reporting. It appears that GDR cross-listed firms successfully meet investor expectations on form (ex ante bonding through enhanced CSR reporting) but fail in substance (ex post reduced financial performance). Investors need to interpret the CSR communication of cross-listed emerging markets’ companies with caution, as impressive CSR reporting practices of GDRs may conceal underlying financial weaknesses.

Financial markets regulators should consider implementing standards aimed at ensuring the high quality of CSR disclosures, rather than their mere existence. The results of this study indicate that external CSR assurance of sustainability disclosure (private enforcement) may not be sufficient to prevent greenwashing practices, and that additional mechanisms at country- and market-levels are warranted (public enforcement).

2. Related Literature

2.1. Cross-Listing on Foreign Markets, Benefits, and Costs

Cross-listing is a phenomenon whereby a company, whose shares are listed on a domestic market, begins offering (listing) shares in one or more foreign markets. Cross-listing is a strategic decision that is associated with a significant preparation process and involvement of numerous external parties such as auditors, consultants, underwriters, and lawyers [24]. Companies cross-list in the anticipation of enhanced tradability and liquidity for their stocks, increased access to the pool of global investors, improved information environment and analyst following, and a lower cost of capital [29,31,32]. Although cross-listing was initially associated with listing on NYSE, dating back to the 1920s, the LSE created a convenient mechanism for companies to cross-list via GDRs beginning in the 1990s. Both ADRs and GDRs represent ownership of the underlying number of shares of a cross-listed company. ADRs tap into the US investor pool, whereas GDRs are associated with global investors and may be traded on several international stock exchanges outside the US. LSE’s Main Market is commonly the major destination for GDRs, although companies often simultaneously cross-list on the Luxembourg Stock Exchange and German stock exchanges, such as Deutsche Boerse and Frankfurt Stock Exchange.

As noted, cross-listing is associated with an extensive preparation process. Companies have to comply with the stringent reporting and corporate governance obligations of foreign markets. Compared to domestic markets, both ADR and GDR cross-listing practices are associated with reporting under US Generally Accepted Accounting Principles (US GAAP; for ADRs) or International Financial Reporting Standards (IFRS; for ADRs and GDRs), extensive disclosure, and higher litigation risk. ADRs are represented by companies from both developed and emerging markets, whereas GDRs are commonly a tool for emerging markets’ companies to cross-list. This is mainly because of a streamlined approach created by the LSE and other European markets that allows for a shorter preparation period and less extensive reporting obligations which emerging markets’ companies find affordable and convenient [22,23]. The burden of reconciling financial statements to US GAAP, high reporting frequency, the highly litigious environment of the US, and corporate governance obligations under Sarbanes-Oxley Act (2002) make ADRs less attractive for emerging markets’ companies [26]. Compared to the NYSE, European stock exchanges that host GDRs allow for flexibility in reporting and disclosure. Regardless of the differential degrees of compliance, extant studies found strong evidence that cross-listing is associated with enhanced valuation for companies cross-listed in both New York and London [21,25,33].

2.2. Bonding Hypothesis and CSR

Studies have relied on the bonding hypothesis to explain the valuation benefits upon cross-listing. Coffee (1999) [34] and Stulz (1999) [35] posited that cross-listing “bonds” managers and shareholders of cross-listed companies by subjecting them to strict regulations and enhanced corporate governance requirements. An improved information environment, increased enforcement, and higher risk of litigation at cross-listing destinations offer enhanced investor protection upon cross-listing [36]. Indeed, cross-listing in the US is associated with a valuation premium and long-term increase in firm value [29,37]. For GDRs, studies have documented the cost of capital decline upon cross-listing, and noted the significant role of both legal and reputational bonding mechanisms through which cross-listing benefits occur [22]. In summary, cross-listing is associated with the increased monitoring of managers and shareholders; moreover, the enhanced governance obligations are highly valued by investors.

More recently, studies have explored whether the CSR performance of cross-listed companies is associated with higher firm value. Boubakri et al. (2016) [6] found support for the bonding hypothesis and documented that CSR performance is greater for cross-listed firms and positively associated with investor valuation. Yu and Luu (2021) [38] documented that compared to domestic firms, cross-listed companies cared more about sustainability reporting and provided greater ESG disclosure. Shi et al. (2018) [19] reported that companies cross-listed in Hong Kong exhibited greater CSR performance. Importantly, the aforementioned studies emphasized the relevance of the origins and level of corporate governance protection in the domestic market. Specifically, companies from countries with weaker institutions, those with weaker governance mechanisms, and those operating in high-litigation industries had a greater increase in CSR performance. These findings provide additional support to the bonding hypothesis and are consistent with the stakeholder view on CSR, whereby the expanded commitment to CSR reporting is favorably viewed by stakeholders.

Extant research has also addressed the notion of the “liability of foreignness” when examining the reporting practices of cross-listed firms. Cross-listed companies from emerging markets seek to overcome liability of foreignness which stems from their association with foreign markets. CSR activities and reporting are valuable mechanisms for cross-listed companies to enhance legitimacy and signal credibility to foreign investors [6]. Accordingly, cross-listing as GDRs should be positively associated with enhanced CSR activities.

Further, differences arise when it concerns the regulatory approach and the stakeholder expectations pertaining to CSR reporting in Europe as opposed to the US. Recent reports indicate that UK firms are more likely to “bond” with various stakeholder groups on CSR topics, compared to their North American counterparts, and that the double-materiality concept has become an integral part of UK companies’ reporting practices [39]. This is in contrast to the shareholder-oriented business model of the US that views investors as the main decision makers, and where the nature and extent of non-financial disclosure are dictated by investors’ demand for information. The UK’s Companies Act (2006) [40] introduced the first formal requirements for large companies to publish sustainability disclosure as part of their strategic report [40]. Specifically, Chapter 4A of the Act provides that companies shall address environmental impacts, social issues, human rights, and anti-corruption, and provide climate risk-related assessments and disclosure. The UK’s listed companies fall under the sustainability reporting mandate that is consistent with the Task Force on Climate-related Financial Disclosures [41]. Overall, companies that have presence in the UK and that are subject to public scrutiny by global investors are expected to demonstrate significant levels of CSR reporting.

2.3. The Agency Perspective on CSR

Despite the overwhelming support that the concept of CSR found in empirical research, some studies have challenged the value creation potential of CSR performance and activities. It is argued that, in the presence of weak corporate governance, such as in the case of emerging markets, managers may opportunistically engage in greenwashing and use CSR practices and reporting to cover up poor performance [42,43]. For instance, managers of companies operating in low-litigation settings tend to overinvest in CSR projects in order to enhance their own reputation and create a positive image without real action. CSR decoupling also has negative implications for a multitude of stakeholders, such as customers, employers, society, and investors [44]. Moreover, when the controlling shareholder is the government, as is the case in several emerging markets, CSR’s role may be less pronounced and companies may be less inclined to report on CSR activities [13]. As such, from the agency perspective, the CSR reporting of cross-listed companies may be negatively associated with firm performance.

A related stream of research addresses the debate of whether external assurance of CSR reporting successfully mitigates information asymmetry created by agency problems. Despite the global shift towards employing third parties to certify CSR disclosure [2], there remains a concern of misplaced trust on external auditors and the universally accepted guidelines (GRI), due to lack of standardization and significant variation in CSR benchmarks [45]. Accordingly, impressive on-form CSR reports may not necessarily reflect the underlying economics of companies producing them. Moreover, as indicated in the prior research examining disclosure practices of GDR cross-listed companies, these firms often have to satisfy disclosure requirements of their domestic markets, and, therefore, the CSR disclosure levels of GDRs may vary from that of native UK companies [21]. Lastly, additional uncertainty regarding the extent and quality of CSR reports and their association with financial performance is presented by the “comply or explain” nature of sustainability reporting in the UK. In summary, it is an open empirical question: to what extent GDR cross-listed companies are engaged in CSR reporting, and whether CSR disclosure levels are associated with financial performance. The present study attempts to address these important questions.

3. Research Design and Methods

I first examine the factors that affect the extent of sustainability reporting for GDR cross-listed companies in cross-section, particularly the extent of companies’ practices to communicate CSR/ESG information to the public:

CSRSTRATSCORE [ESGREPORTSCOPE] = f(SUSTMETRICS, BOARD, FIRMCONTROL, FIXEDEFFECTS)

(1)

where CSRSTRATSCORE is a score that reflects a company’s practice to communicate that it integrates the sustainability dimensions into its day-to-day operations. Alternatively, ESGREPORTSCOPE represents the percentage of the company’s activities covered in its environmental and social reporting. These two sustainability reporting metrics, available in Eikon (Refinitiv), differ in scope and have a correlation coefficient of 12 percent. The independent sustainability metrics (SUSTMETRICS) that are valid candidates for empirical examination, based on prior research [46], are the presence of a sustainability committee on the board of directors (SUSTAINCOM), whether a company publishes a separate sustainability report or section in its annual report (CSRSUSTAINREPORT), the presence of an external auditor providing assurance for sustainability reporting (CSRAUDIT), whether a company’s additional report covers global operations (CSRGLOBAL), and whether a company relies on GRI guidelines when preparing its sustainability report (GRIGUIDE). Next, consistent with extant research examining sustainability performance determinants [6], I incorporate several financial regressors in model (1): leverage (LEVERAGE), size (SIZE), performance indicator (ROA), a liquidity metric (CURRENT), and an assets turnover ratio (ATO). Lastly, I incorporate characteristics of the board of directors, such as the number of directors at year end (BOARDSIZE), a diversity ratio representing female directors on the board of directors (BOARDGENDER), and the percentage of independent directors on the board (BOARDINDEP). Independent directors and larger boards can be effective monitoring mechanisms; additionally, female directors are tough monitors when it concerns CSR activities and reporting [47,48]. Model (1) is estimated using an ordinary least squares (OLS) regression with standard errors clustered at a firm level, and industry- and year-fixed effects.

Table 1. Variable definitions.

Variable	Definition
SUSTAINABILITY METRICS:
CSRSTRATSCORE	A score that reflects a company’s practice to communicate that it integrates the economic (financial), social, and environmental dimensions into its day-to-day decision-making process.
CSRSUSTAINREPORT	A dummy variable which equals 1 if a company publishes a separate CSR/sustainability report, or publishes a section in its annual report on CSR/sustainability, and 0 otherwise.
CSRAUDIT	A dummy variable which equals 1 if a company has an external auditor for its sustainability report, and 0 otherwise.
SUSTAINCOM	A dummy variable which equals 1 if a company has a CSR committee or a team, and 0 otherwise.
CSRGLOBAL	A dummy variable which equals 1 if a company’s extra-financial report considers the global activities, and 0 otherwise.
ESGREPORTSCOPE	A percentage of the company’s activities covered in its environmental and social reporting.
GRIGUIDE	A dummy variable which equals 1 if a company’s CSR report is published in accordance with GRI guidelines, and 0 otherwise.
OTHER VARIABLES:
LEVERAGE	Total liabilities/total assets.
SIZE	Natural logarithm of total assets.
ROA	Return on assets, defined as net income/average total assets.
CURRENT	Liquidity ratio, defined as current assets/current liabilities.
ATO	Asset turnover ratio, defined as revenue divided by year-end total assets.
EPS	Earnings per share, defined as income before extraordinary items divided by number of shares of common stock outstanding.
INDUSTRY, YEAR	A set of dummy variables created for industry sectors and years 2010–2023, according to Datastream’s classification.
BOARDSIZE	Number of directors on the board of directors.
BOARDGENDER	Percentage of female directors on the board of directors.
BOARDINDEP	Percentage of independent directors on the board of directors.

Note: Financial and governance variables were collected from Eikon.

provides the definitions of the variables.

4. Data Collection Process

The data collection process for this study followed a two-step procedure. First, from Datastream, I obtained the list of companies cross-listed on the LSE’s Main Market as GDRs over the 2010–2023 period, corresponding to 94 companies from 14 countries. Second, I used this list of GDRs to download CSR/ESG metrics, the variables of the board of directors, and financial control regressors required for estimating model (1), using the Eikon (Refinitiv) database. This procedure resulted in 682 company-year observations. To account for industry-fixed effects, I relied on Datastream’s industry sectors that are based on the Global Industry Classification Standards.

Table 2. GDR sample composition by country and industry sector.

Country of Origin/Company Name	Industry Sector (Datastream)
Bahrain	3
Aluminium Bahrain BSC	Consumer Staples
China	9
Chia Hsin Cement Corp	Basic Materials
China Steel Corp	Utilities
Czech Republic	1
O2 Czech Republic as	Basic Materials
Greece	25
Helleniq Energy Holdings SA	Energy
Public Power Corporation SA	Energy
Hungary	2
Richter Gedeon Vegyeszeti Gyar Nyrt	Healthcare
India	158
ACC Ltd.	Industrials
Ambuja Cements Ltd.	Industrials
Ashok Leyland Ltd.	Industrials
Bharat Forge Ltd.	Basic Materials
Century Textiles and Industries Ltd.	Basic Materials
Gail (India) Ltd.	Energy
Grasim Industries Ltd.	Industrials
Hindalco Industries Ltd.	Basic Materials
Indian Hotels Company Ltd.	Consumer Services
ITC Ltd.	Consumer Staples
Larsen and Toubro Ltd.	Consumer Services
Mahindra and Mahindra Ltd.	Energy
Reliance Industries Ltd.	Energy
Steel Authority of India Ltd.	Basic Materials
Tata Consumer Products Ltd.	Consumer Staples
Tata Motors Ltd.	Consumer Services
Tata Power Company Ltd.	Utilities
Tata Steel Ltd.	Basic Materials
Kazakhstan	4
NAK Kazatomprom AO	Basic Materials
Poland	24
KGHM Polska Miedz SA	Basic Materials
Orange Polska SA	Telecommunication
Orlen SA	Energy
Romania	3
OMV Petrom SA	Energy
Russia	135
En+ Group MKPAO	Basic Materials
Etalon Group PLC	Real Estate
FSK-Rosseti PAO	Energy
Globaltrans Investment PLC	Industrials
Gruppa LSR PAO	Real Estate
Inter RAO YEES PAO	Energy
Magnit PAO	Consumer Staples
Magnitogorskiy Metallurgicheskiy Kombinat PAO	Basic Materials
Mobil’nye Telesistemy PAO	Telecommunication
NK Lukoil PAO	Energy
NK Rosneft’ PAO	Energy
Novatek PAO	Energy
Novolipetsk Steel PAO	Basic Materials
PhosAgro PAO	Basic Materials
Polyus Gold International Ltd.	Basic Materials
Polyus PAO	Basic Materials
Ros Agro PLC	Consumer Staples
Rossiyskiye Seti PAO	Utilities
Severstal’ PAO	Basic Materials
Uralkaliy PAO	Basic Materials
VK MKPAO	Technology
X5 Retail Group NV	Consumer Staples
South Korea	100
Hyundai Motor Co	Consumer Services
Hyundai Steel Co	Basic Materials
KT&G Corp	Consumer Staples
LG Chem Ltd.	Industrials
LG Electronics Inc	Consumer Services
Lotte Shopping Co Ltd.	Consumer Services
Samsung Electronics Co Ltd.	Telecommunication
Samsung SDI Co Ltd.	Industrials
SK Hynix Inc	Technology
Taiwan	189
Accton Technology Corp	Telecommunication
Acer Inc	Technology
Asia Cement Corp	Basic Materials
Chunghwa Picture Tubes Ltd.	Technology
CMC Magnetics Corp	Technology
Delta Electronics Inc	Technology
Ennostar Inc	Technology
Evergreen Marine Corp Taiwan Ltd.	Industrials
Far EasTone Telecommunications Co Ltd.	Telecommunication
Farglory Land Development Co Ltd.	Real Estate
Gigabyte Technology Co Ltd.	Technology
Hannstar Display Corp	Technology
HTC Corp	Telecommunication
Innolux Corp	Technology
Lite-On Technology Corp	Technology
Powertech Technology Inc	Technology
Qisda Corp	Technology
Realtek Semiconductor Corp	Technology
Sino-American Silicon Products Inc	Technology
Standard Foods Corp	Consumer Staples
Synnex Technology International Corp	Technology
Systex Corp	Technology
Tatung Co	Industrials
TECO Electric Machinery Co Ltd.	Industrials
Walsin Lihwa Corp	Industrials
Winbond Electronics Corp	Technology
Yageo Corp	Technology
Yang Ming Marine Transport Corp	Industrials
Turkey	26
Coca-Cola Icecek AS	Consumer Staples
Tofas Turk Otomobil Fabrikasi AS	Consumer Services
Turkiye Petrol Rafinerileri AS	Energy
Vestel Elektronik Sanayi ve Ticaret AS	Technology
Ukraine	3
Mhp Se	Consumer Staples
Total company-year observations	682

provides the details of the GDR sample, partitioned by country and industry sector. Consistent with studies examining the cross-listing practices of companies from emerging markets [21], the sample is dominated by companies from India, Russia, South Korea, and Taiwan. Companies from Poland and Turkey are also represented well, whereas several countries have only 1 or 2 GDRs in the sample. The main industry sectors that attract GDR listings are technology, energy, and basic materials.

5. Empirical Results

Table 3. Descriptive statistics.

Variable	Mean	Median	Maximum	Minimum	Std. Dev.
CSRSTRATSCORE	71.36	77.27	99.64	7.58	21.09
CSRSUSTAINREPORT	1.00	1.00	1.00	1.00	0.00
CSRAUDIT	0.90	1.00	1.00	0.00	0.30
SUSTAINCOM	0.90	1.00	1.00	0.00	0.29
CSRGLOBAL	0.88	1.00	1.00	0.00	0.32
ESGREPORTSCOPE	85.39	100.00	100.00	5.74	24.30
GRIGUIDE	0.99	1.00	1.00	0.00	0.09
LEVERAGE	2.90	2.36	32.22	1.17	2.53
SIZE	23.17	23.03	26.61	20.46	1.20
ROA	0.06	0.04	0.46	−0.14	0.07
CURRENT	1.50	1.31	4.85	0.28	0.74
ATO	0.77	0.69	2.64	0.06	0.39
BOARDSIZE	11.09	11.00	22.00	2.00	2.90
BOARDGENDER	0.09	0.08	0.60	0.00	0.09
BOARDINDEP	43.30	43.75	93.75	0.00	15.88

Note: The table reports the descriptive statistics for the main variables. The examined period is 2010–2023, n = 682. The data were collected from Eikon. The GDR sample composition is reported in Table 2 and variable definitions are reported in Table 1.

presents the descriptive statistics for the main variables. Impressively, all examined GDRs had issued a CSR/sustainability report to the public, and there is no variation in the CSRSUSTAINREPORT metric. Further, the CSR strategy score (CSRSTRATSCORE) has a substantial variation from 7.58 to 99.64, with an average score of 71.36 for the examined companies. In unreported results, the lowest CSR score was observed for Accton Technology incorporated in Taiwan, whereas the highest score was reported for China Steel of China. The alternative metric, ESGREPORTSCOPE, also experienced significant variation during the examined period, with an average value of 85.39 reported for the GDR sample.

Next, 90 percent of sampled companies had an external auditor for their CSR sustainability reporting (CSRAUDIT metric), which is very impressive, given that hiring an external auditor for non-financial reports is generally not required worldwide [2]. Similarly, 90 percent of companies had a sustainability committee of the board of directors. Further, 99 percent relied on GRI guidelines when preparing their sustainability reports, which is also an impressive indicator exceeding the benchmarks for emerging markets in general (not limited to cross-listed firms), according to KPMG (2024) [2]. Turning to the characteristics of the board of directors, the average size of the board was 11 individuals, in line with global practices [49]. The maximum board size of 22 directors was observed for India’s Larsen and Toubro, whereas the smallest board size of 2 directors was reported for Russia’s Polyus Gold. Further, the board independence of 43.3 percent, on average, is another impressive indicator that exceeds the value for many emerging markets, although some sampled companies had no independent directors. Lastly, the board gender diversity metric of 9 percent is low, on average, compared to studies examining corporate governance in emerging markets [49]. Overall, several unique findings are observed on the sustainability reporting practices of GDRs from emerging markets.

Table 4. Correlation analysis results.

Variable	CSRSTRATSCORE	CSR AUDIT	SUSTAIN COM	CSR GLOBAL	ESGREPORTSCOPE	GRI GUIDE	LEVER AGE	SIZE	ROA	CURR ENT	ATO	BOARD SIZE	BOARD GENDER
CSRAUDIT	0.347 ***	1
	[9.65]	-----
SUSTAIN COM	0.330 ***	0.334 ***	1
	[9.23]	[9.26]	-----
CSRGL OBAL	0.126 ***	−0.062	−0.086 **	1
	[3.31]	[−1.62]	[−2.26]	-----
ESGREPO RTSCOPE	0.116 ***	−0.077 **	−0.137 ***	0.779 ***	1
	[3.05]	[−2.01]	[−3.61]	[32.41]	-----
GRIGUIDE	0.169 ***	0.197 ***	0.206 ***	−0.031	−0.05	1
	[4.48]	[5.26]	[5.50]	[−0.81]	[−1.30]	-----
LEVERAGE	−0.014	−0.023	0.031	−0.148 ***	−0.080 **	−0.007	1
	[−0.37]	[−0.60]	[0.79]	[−3.91]	[−2.09]	[−0.17]	-----
SIZE	0.123 ***	0.179 ***	−0.029	0.003	−0.002	0.031	−0.019	1
	[3.24]	[4.75]	[−0.78]	[0.07]	[−0.06]	[0.82]	[−0.48]	-----
ROA	−0.011	0.025	0.063 *	0.118 ***	0.129 ***	−0.03	−0.169 ***	−0.01	1
	[−0.29]	[0.63]	[1.66]	[3.09]	[3.39]	[−0.79]	[−4.48]	[−0.25]	-----
CURRENT	−0.228 ***	−0.075 **	0.005	0.087 **	−0.003	0.052	−0.25 ***	−0.162 ***	0.387 ***	1
	[−6.09]	[−1.96]	[0.13]	[2.28]	[−0.09]	[1.37]	[−6.94]	[−4.27]	[10.94]	-----
ATO	0.019	0.027	0.059	−0.113 ***	−0.029	−0.073 *	−0.029	−0.046	0.158 ***	−0.082 **	1
	[0.50]	[0.69]	[1.54]	[−2.97]	[−0.77]	[−1.90]	[−0.74]	[−1.21]	[4.18]	[−2.14]	-----
BOARD SIZE	0.264 ***	0.112	−0.008	0.017	0.006	−0.003	−0.046	0.082 **	−0.025	−0.15 ***	−0.138 ***	1
	[6.34]	[0.31]	[−0.20]	[0.45]	[1.45]	[−0.09]	[−1.19]	[2.13]	[−0.65]	[−4.03]	[−3.62]	-----
BOARD GENDER	−0.058	−0.081 **	0.084 **	0.006	−0.03	0.041	0.011	−0.137 ***	−0.001	0.122 ***	−0.070 *	−0.086 **	1
	[−1.52]	[−2.13]	[2.19]	[0.16]	[−0.77]	[1.06]	[0.28]	[−3.62]	[−0.29]	[3.21]	[−1.83]	[−2.24]	-----
BOARD INDEP	0.062	0.082 **	0.088 **	−0.02	−0.015	0.108 ***	0.011	0.286 ***	0.04	0.043	0.026	−0.125 ***	0.193 ***
	[1.63]	[2.13]	[2.29]	[−0.51]	[−0.38]	[2.83]	[0.30]	[7.79]	[1.02]	[1.13]	[0.67]	[−3.19]	[5.14]

Note: The table reports the ordinary correlation among the variables. The GDR sample composition is reported in Table 2 and variable definitions are reported in Table 1. *, **, and *** denote statistical significance at the 10, 5, and 1 percent levels, respectively.

reports the ordinary correlations among the study variables. CSRSTRATSCORE is positively associated with the presence of the sustainability committee of the board, external CSR audits, reliance on GRI guidelines, and board size. In addition, larger companies are likely to report more extensively on CSR, whereas companies with poor liquidity are more likely to achieve high CSR reporting scores. Next, ESGREPORTSCOPE is positively associated with reporting on global sustainability activities and company performance. It is negatively related to a company’s leverage, presence of the sustainability committee, and external CSR assurance. The latter findings are difficult to explain without further looking at the effect of control regressors and fixed effects. Interestingly, neither CSRSTRATSCORE nor ESGREPORTSCOPE is associated with the independence or diversity of the board of directors, contrary to findings of prior research that documented a positive impact of these attributes on the sustainability performance of public companies [50]. Lastly, as expected, companies subject to external audits of CSR reporting are more likely to use GRI guidelines.

Next, I report the results from estimating model (1) in

Table 5. Determinants of CSR strategy score.

	DV: CSRSTRATSCORE
Variables	Coefficient	t-Stat
SIZE	−0.283	−0.25
LEVERAGE	−0.408	−1.42
CURRENT	−7.082 ***	−3.87
ROA	6.548	0.47
ATO	−3.320	−1.15
BOARDSIZE	0.876 **	2.06
BOARDINDEP	−0.045	−0.62
BOARDGENDER	9.592	0.73
CSRAUDIT	19.362 ***	5.26
SUSTAINCOM	20.141 ***	4.96
CSRGLOBAL	12.335 ***	3.75
Industry, year-fixed effects	Yes
No. Obs.	682
Adj. R-sq.	0.43

Note: The table reports the results of estimating model (1) using an ordinary least squares regression with standard errors clustered at the firm level. The variable definitions are reported in Table 1. *, **, and *** denote statistical significance at the 10, 5, and 1 percent levels, respectively.

when CSRSTRATSCORE is a dependent variable. Due to lack of variation, the variables CSRSUSTAINREPORT and GRIGUIDE are excluded from regression estimation. Consistent with the above correlation results, the size of the board of directors, presence of the sustainability committee, and external assurance of CSR reporting are associated with a higher CSR score. For example, an increase in board size by one director results in a 0.88 point increase in CSR reporting score. The largest increase in the CSR score is driven by the presence of a sustainability committee of the board of directors (20-point increase) and CSR audit (19.3-point increase). Companies that cover global activities in their reports also score higher. Among the financial indicators, less liquid companies are more likely to report on CSR activities, whereas size, performance, or assets turnover are not associated with the CSR score. In the results in

Table 6. Determinants of ESG reporting scope.

	DV: ESGREPORTSCOPE
Variables	Coefficient	t-Stat
SIZE	−1.258	−1.22
LEVERAGE	0.339	1.52
CURRENT	−3.066 **	−2.10
ROA	18.183 *	1.70
ATO	2.844	1.15
BOARDSIZE	0.008	0.02
BOARDINDEP	0.047	0.79
BOARDGENDER	−2.439	−0.21
CSRAUDIT	1.225	0.47
SUSTAINCOM	−5.065 *	−1.92
CSRGLOBAL	59.189 ***	17.85
Industry, year-fixed effects	Yes
No. Obs.	682
Adj. R-sq.	0.64

Note: The table reports the results of estimating model (1) using an ordinary least squares regression with standard errors clustered at a firm level. The variable definitions are reported in Table 1. *, **, and *** denote statistical significance at the 10, 5, and 1 percent levels, respectively.

for ESGREPORTSCOPE, the ESG score’s major driver is a company’s extent of covering global operations in their sustainability reports. As reported above, the presence of the sustainability committee of the board of directors is negatively associated with global ESG reporting, which is contrary to expectations. Consistent with the evidence in Table 4, board independence or its gender diversity has no association with the extent of sustainability reporting.

Table 7. The relationship between reported earnings and CSR/ESG metrics.

	DV: EPS
Variables	Coefficient	t-Stat
SIZE	1.570 ***	3.40
LEVERAGE	−0.068	−0.94
CURRENT	0.354	0.93
ATO	0.219	0.21
BOARDSIZE	−0.358 ***	−2.79
BOARDINDEP	0.021	1.08
BOARDGENDER	−0.777	−0.25
CSRSTRATSCORE	−0.030 **	−2.01
CSRAUDIT	0.943	1.25
SUSTAINCOM	−0.317	−0.23
CSRGLOBAL	3.788 ***	2.42
ESGREPORTSCOPE	−0.019	−0.98
Industry, year-fixed effects	Yes
No. Obs.	682
Adj. R-sq.	0.27

Note: The table reports the results of estimating a modified model (1) using an ordinary least squares regression with standard errors clustered at a firm level. The variable definitions are reported in Table 1. *, **, and *** denote statistical significance at the 10, 5, and 1 percent levels, respectively.

presents the results of examining the association between reported earnings per share (EPS) and sustainability metrics. Larger companies report higher EPS numbers, while board size is negatively related to EPS. Companies that cover global activities in their reports are associated with higher reported earnings. Interestingly, EPS is negatively related to the CSR strategy score metric. This evidence leans towards the agency perspective in that companies tend to mask their poor performance with extensive CSR reporting [13]. Overall, the findings reported in Table 5, Table 6 and Table 7 provide a unique insight into sustainability reporting determinants and its association with performance for the GDRs of emerging markets.

5.1. COVID-19 Pandemic and the CSR Reporting of GDR Cross-Listed Companies

Recent studies have examined the changes in CSR performance and reporting as a result of the global disruptions caused by the COVID-19 pandemic. As argued by Lins et al. (2017) [28], during economic uncertainties, when businesses experience a decline in public trust, companies with a high value of social capital, as proxied by CSR activities, are more likely to overcome economic hardship due to greater stakeholder support. In line with this notion, studies found that during the COVID-19 pandemic, many organizations took a proactive approach to CSR and increased their involvement in community initiatives and responsible investments [48,51]. Bahadar and Zaman (2022) [52] reported a steady increase in the CSR disclosure of New Zealand firms during the pandemic, which can be explained by managers’ attempts to resolve information asymmetry presented by economic disruption and sustain public trust. Conversely, CSR disclosure may decline post pandemic as it is costly and requires significant resources that have become scarce. During the pandemic, financial performance metrics rather than non-financial disclosure, such as CSR, were of major concern to the public, potentially reducing demand for CSR information [53].

Accordingly, I examine whether the sustainability reporting of GDRs declined post pandemic. A modified model (1) is estimated after including a dummy variable PANDEMIC that equals 1 for financial years 2019–2023, and 0 otherwise. The results in

Table 8. COVID-19 pandemic and sustainability reporting.

Variables	CSRSTRATSCORE	ESGREPORTSCOPE
PANDEMIC	−6.020 ***	−2.14
Control regressors included	Yes	Yes
Industry, year-fixed effects	Yes	Yes
No. Obs.	682	682
Adj. R-squared	0.42	0.64

Note: The table reports the results of estimating a modified model (1) using an ordinary least squares regression with standard errors clustered at a firm level. The variable definitions are reported in Table 1. *, **, and *** denote statistical significance at the 10, 5, and 1 percent levels, respectively.

show that the CSR reporting score declined post pandemic. In unreported results, both the liquidity position (CURRENT) and operating performance (ROA) of the cross-listed companies improved post pandemic. Therefore, GDR cross-listed firms prioritized financial performance and reporting over non-financial disclosure, such as CSR, that is costly for emerging markets’ companies.

5.2. Additional Tests: Regional Fixed Effects and Endogeneity Concerns

Prior research examining the association between corporate governance characteristics and reporting quality controlled for country-level fixed effects, as a rule. The examined sample of GDR cross-listed companies spans several emerging markets with distinct institutional arrangements and varying levels of investor protection. Although in the main empirical tests, year- and industry-fixed effects were included, country-level fixed-effect estimation may not be efficient, because some countries have 1–2 company observations (see Table 2 for details). Nevertheless, I introduce region-level fixed effects in model (1): a dummy variable MIDDLEEAST includes GDRs from Bahrain and Turkey; a dummy variable EASTERNEUROPE includes GDRs from Czech Republic, Hungary, Kazakhstan, Poland, Romania, Russia, and Ukraine.

Table 9. Additional tests: regional fixed effects and GMM estimation.

Panel A: Regional Fixed Effects
	DV: EPS
Variables	Coefficient	t-Stat
CSRSTRATSCORE	−0.035 **	−2.38
ESGREPORTSCOPE	−0.023	−1.18
MIDDLEEAST	−0.348	−0.21
EASTERNEUROPE	1.450 *	1.72
Control regressors included	Yes
Industry, year-fixed effects	Yes
No. Obs.	682
Adj. R-squared	0.28
Panel B: GMM estimation
	DV: EPS
Variables	Coefficient	t-Stat
CSRSTRATSCORE	−0.503 **	−2.18
ESGREPORTSCOPE	−0.022	−0.59
Control regressors included	Yes
Industry, year-fixed effects	Yes
No. Obs.	682
Cragg–Donald F-stat:	19.827
Stock–Yogo critical values (size):
10%	16.38
15%	8.96
20%	6.66
25%	5.53

Note: The table reports the results of estimating a modified model (1) using an ordinary least squares regression with standard errors clustered at a firm level. The variable definitions are reported in Table 1. Additionally, in Panel A, dummy variables MIDDLEEAST and EASTERNEUROPE are equal to 1 if a GDR cross-listed company belongs to a particular region. In Panel B, an instrumental variable is a dummy variable COMMONLAW that is equal to 1 for GDRs with common law origins, and 0 otherwise. *, **, and *** denote statistical significance at the 10, 5, and 1 percent levels, respectively.

(Panel A) presents the results from estimating a modified model (1) with regional fixed effects. The results are consistent with those reported above, and there is a negative association between reported earnings and CSR reporting score.

Further, corporate governance studies point to serious empirical concerns when it comes to estimating the association between reporting quality and firm-level corporate governance characteristics. As stated in Wintoki et al. (2012, p. 3) [54], “We often cannot ascertain if the causation is actually reversed (e.g., performance drives governance) or if governance is merely a symptom of an underlying unobservable factor, which also affects performance”. The results of the empirical tests reported above establish the association between reported earnings and CSR reporting levels, with no evidence of causality. Following suggestions of prior studies, I replicate the results reported in Table 7 using the Generalized Method of Moments (GMM) technique. The key to such estimation is to identify a valid instrument that would be correlated with an endogenous variable (CSRSTRATSCORE in this study) but would not affect the dependent variable, EPS.

Research studies conducted in international settings recognize that country-level legal traditions (common versus civil law partitioning) establish a pattern that predicts a higher level of CSR commitments in civil law countries due to their stakeholder orientation (e.g., [55]). Accordingly, I re-estimate a modified model (1) using the GMM technique and employing the common/civil law dummy variable (COMMONLAW) of GDRs’ origins as an instrument for CSRSTRATSCORE. This variable is likely correlated with the extent of CSR reporting, based on extant research, but there is no reason to believe that companies from common law countries systematically perform better and report higher EPS. Panel B of Table 9 reports the GMM estimation results, which are consistent with previously documented findings in that there is a negative association between reported EPS and the CSR strategy score. The Cragg–Donald statistic exceeds Stock–Yogo critical values, indicating that COMMONLAW is a strong instrument. In summary, the results of the additional tests are in line with those reported above.

6. Conclusions

This study examines the sustainability reporting practices of companies cross-listed in London. Since their inception in the 1990s, GDRs have become a popular cross-listing mechanism for companies from emerging markets. Extant research investigates the determinants and implications of CSR activities for firms cross-listed as ADRs in New York. However, to my knowledge, no study provides evidence on sustainability reporting for firms cross-listed as GDRs on European stock exchanges that are characterized by less demanding but nevertheless rigorous reporting and governance obligations. As noted, emerging markets’ companies have lagged behind developed markets and are under increased pressure to engage in CSR activities and supplement their financial reports with sustainability disclosure.

I document that GDR cross-listed firms had an impressive level of CSR reporting, as measured by their CSR/ESG reporting scores, high level of CSR assurance, and adherence to GRI guidelines. All examined companies issued sustainability reports, while 90 percent had a sustainability committee of the board of directors. These metrics far exceed the average indicators for emerging market companies in general [2]. Nevertheless, the findings indicate that the extent of CSR reporting is negatively related to a firm’s liquidity position and reported earnings, lending support to the agency perspective on CSR reporting. Overall, although GDRs meet investor expectations via enhanced sustainability reporting (ex ante bonding), the negative association between the CSR score and EPS suggests that they may fail in substance (ex post bonding). In addition, contrary to findings in prior studies, there is no evidence that board independence or gender diversity is associated with CSR reporting. Finally, GDR cross-listed companies engaged less in CSR reporting post pandemic; plausible explanations include the extensive cost of CSR disclosure for emerging markets’ companies and a shift in priorities towards economic targets. This study is the first empirical work to examine factors associated with the extent of sustainability disclosure for firms cross-listed in Europe. It also complements the ongoing debate regarding the stakeholder–agency perspective on CSR reporting, providing support to the latter theory.

The study is subject to several limitations. The empirical tests documented above establish an association between sustainability metrics and performance indicators, but little can be inferred about causality. Although the GMM test addressing endogeneity concerns returned consistent results, this technique is sensitive to linearity assumption and sample construction. Further, country- and firm-fixed effects were not efficient estimation techniques, due to lack of variation across several companies and countries. I attempt to address this issue by estimating a regional fixed-effect model. Although the availability of sustainability performance indicators for emerging markets has improved in major financial databases, it still lags behind the coverage for developed countries, potentially resulting in bias in the reported results. However, this issue is common to studies on emerging markets and can be addressed in future research.