3.2.3. Global Reporting Initiative

The GRI framework is for non-financial reporting that covers aspects of ESG reporting and performance. The GRI guidelines were initially published in 2000, with the purpose of supporting companies in creating sustainability reports that present the impacts of business operations and activities on society and the environment [72]. The GRI is a voluntary sustainability reporting framework for organizations to prepare their sustainability reports [73]. Previous research indicates that the adoption of GRI sustainability reporting guidelines is on the rise and likely to increase despite current methodological difficulties and information gaps based on its voluntary reporting basis [73,74]. Based on the perspective of legitimacy theory, companies will legitimize their existence by following the GRI sustainability reporting guidelines to communicate their sustainability activities and performance, such as fighting climate change, respecting human and labor rights, fighting corruption, etc., to the public [75]. Similarly, according to signaling theory, companies can use GRI as an effective management tool to signal their commitment to long-term sustainability policies to meet the expectations of their stakeholders. Furthermore, such sustainable disclosure practices signal to stakeholders and society the strong corporate governance practices that are implemented that provide strong transparency, achieve long-term financial and non-financial goals, and improve overall participation of stakeholders [70].

On the basis of the above dialogue, we expect a positive relationship between the adoption of GRI and the ESG disclosure score. Therefore, our third hypothesis is the following.

**H3:** *There is a positive association between the adoption of the Global Reporting Initiative (GRI) and the ESG Disclosure Score.*

### 3.2.4. Country–Cultural Dimensions

Muttakin (p. 23) defines culture as 'the collective programming of the mind that distinguishes the members of one human ground from those of another' [76]. The author stated that these cultural dimensions such as the power distance index, individualism versus collectivism, uncertainty avoidance, masculinity versus femininity, long-term orientation versus short-term orientation, and indulgence versus restraint are integrated into consumer practices and corporate governance [76]. Drawing on these cultural dimensions, the current study encompasses three of the above six dimensions, namely (1) individualism and collectivism; (2) masculinity and femininity; and (3) uncertainty avoidance.

*Individualism and collectivism—*Individualism versus collectivism is related to the degree of independence among people in a society where society is seen as loosely knit and concerned with themselves and the immediate family [77]. Collectivism, in contrast, emphasizes the importance of community and community interest over individual interests and is expected to place the community first [77]. Shin et al. states that countries with higher collectivism, ESG practices are more likely to be embedded in societies obligations [78]. However, an individualism culture receives greater financial gains from disclosing ESG information.

*Masculinity and Femininity*—Raimo et al. notes that masculinity reflects a culture where there are dominant values present such as material goods and success [79]. In contrast, a feminine society reflects a more caring view and harmonization of the values and norms of others. At the firm level, masculine societies consider maximizing profits as social norm compared to feminine societies that focus on society members [79]. A feminine society may see the disclosure of ESG as an obligation to society; therefore, creates less incentive toward the disclosure of ESG as it is to maintain legitimacy rather than to create it [78]. Compared to a masculine society, ESG information is seen as a competitive advantage because the focus is placed on profit maximization for most firms. Shin et al.'s research found that masculine societies exhibit a stronger relationship between ESG performance and financial performance due to the competitive advantage seen by masculine cultures focusing on ESG disclosure cultures characterized by masculinity; thus, they are less likely to perceive ethical transgressions in business transactions, and this tolerance of unethical behavior creates conditions that are conducive to widespread corruption [80]. According to the adopted theoretical framework, institutional theory, for example, is considered ESG disclosure practice as an institutional factor that focusses on the role of social beliefs, values relations, and expectations constraints [80]. This argues that corporations are embedded in a nexus of formal and informal rules [81]. The dimensions of the country–culture are based

on Hofstede's constructs and represent a proxy for the deeper aspects of culture related to differences in institutional functioning. Within a femininity culture, the stakeholder perspective is characterized as femininity representing the social needs and harmonization of stakeholders at a holistic level.

*Uncertainty avoidance low and high*—Hofstede refers to uncertainty avoidance as 'the extent to which members of a culture feel threatened by uncertain or unknown situations' (p. 46). We base our country–culture dimensions on this [77]. Uncertainty avoidance deals with the tolerance of people for ambiguity and uncertainty. There is a strong positive correlation between risk taking attitude (i.e., uncertainty accepting behaviour) and unethical actions [82]. Singhapakdi's article concludes that there is a strong positive correlation between the attitude of people towards risk and unethical actions [81]. Uncertainty avoidant societies mean that risk taking is discouraged and societies are likely to have an increased demand for information. Countries with high uncertainty avoidance, such as Japan, prefer a structured environment such as a clear hierarchy, strict laws, and rules to minimize uncertainty. Therefore, a higher level of information on ESG is significantly associated with cultures characterized by a greater power distance (i.e., less likely to tolerate questionable business practices [83]. Within the theoretical framework adopted and the underpinning of uncertainty avoidance high and low, the institutional perspective is based on Hofstede's cross-country–cultural dimensions to successfully be perceived as legitimate actors [84].

Based on the above discussion, we expect a positive relationship between the cultural dimensions of the country and the ESG disclosure score. Consequently, our fourth hypothesis is divided into three sub-hypotheses as follows:

**H4a:** *There is a positive association between the country-level cultural dimension of individualism and the ESG disclosure score.*

**H4b:** *There is a positive association between the country-level cultural dimension of femininity culture and ESG disclosure score.*

**H4c:** *There is a positive association between the country-level cultural dimension of low uncertainty avoidance culture and ESG disclosure score.*

#### **4. Research Methodology**

*4.1. Sample and Data*

This study aims to investigate the ESG disclosure quality practices and its determinants in Europe. Europe was chosen on the basis of EU directive 95/2014. The introduction of this mandatory reporting for certain large organizations allows for their transition from voluntary to mandatory non-financial disclosure [85]. The current research is based on panel data from 784 companies covering the period 2011–2020. These sampled firms represent the highest market capitalization firms in each country headquartered in Europe as classified by the Refinitiv Eikon database. The sample represents the available data from 2011 to 2020 from Refinitiv Eikon based on highest market capitalization at the individual country of headquarters. For example, more data was available from companies with headquarters in the UK, than ones with company headquarters in the Czech Republic based on the highest market capitalization representative of each of the countries. The sample also includes Eastern and Western Europe, further affecting the distribution of the number of companies represented in each country. There are three main data sources used for the construction of the dataset. First, we gathered financial and non-financial information from both Refinitiv Eikon and Bloomberg databases. The main set of data was subsequently collected from Bloomberg, including governance factors such as the number of directors, the number of board meetings, etc. The Refinitiv Eikon database was used because it is the main international databank and comprises one of the most complete ESG databases, counting more than 450 different ESG metrics. This database has a strong and clear procedure for the availability of ESG data on its website and is frequently used by researchers [4,12,78]. Alongside these two databases, a third data supply was used for macro-government data, the Worldwide Governance Indicators (WGI) project (https://info.worldbank.org/governance/wgi/ accessed on 27 November 2022). The size of the research sample is designed to be the largest 100 companies within each country. However, after considering the unavailability of some data due to the study time period, 2011–2020, and the nature of sustainability reporting in certain countries, the final sample covers 21 European countries rather than 28 members. These companies are companies listed in the Refinitiv Eikon database with consolidated accounts. Table 1 below presents the distribution of the companies per country, totaling 21 countries and 7840 firm observations. For each year of the sample, the number of observations is the same.


**Table 1.** Firms included in the sample per country.
