*Article* **Regulations on Non-Financial Disclosure in Corporate Reporting: A Thematic Review**

**Nurul Jannah Mustafa Khan 1,\* and Hasani Mohd Ali <sup>2</sup>**

<sup>2</sup> Faculty of Law, Universiti Kebangsaan Malaysia, Bangi 43600, Malaysia

**\*** Correspondence: nuruljannah5546@uitm.edu.my

**Abstract:** There is a growing call globally for corporations to improve transparency in corporate reporting, along with the surge of enhancing disclosure of non-financial information. Companies are seen as agents for contributing to a better future, and hence could assist in achieving the sustainable development goals (SDGs) 2030, via transparent non-financial disclosure. This review paper is premised on the fact that laws on non-financial disclosure may be useful in enhancing the transparency of companies' conducts. Hence, this systematic review aims to synthesize the literature from 2014 to 2021 on the patterns and trends relating to regulations on non-financial disclosure in corporate reporting by companies. A keyword search followed by filters provided by the Web of Science Core Collection and SCOPUS databases resulted in a total of 369 documents being found. A total of 62 articles were reviewed after manual filtering and exclusion. A thematic review of these 62 articles identified 20 initial codes, which were then grouped into eight clusters: Directive 2014/95/EU, disclosure approaches, fiduciary duties of directors, stakeholder engagement, the effectiveness of disclosure regulations, the impacts of rules, the role of different actors and corporate accountability. The paper finds that the patterns and trends in the review set the path for future research on laws of non-financial disclosure, as they serve as a guideline for researchers for future studies.

**Keywords:** corporate reporting; disclosure obligations; non-financial disclosure; non-financial reporting; sustainability reporting; SDGs; sustainable development

**1. Introduction**

Corporate reporting is a mechanism for improving companies' transparency regarding non-financial information and for continuously engaging with the stakeholders [1]. Companies worldwide are now required or encouraged to disclose non-financial information, accentuating the significance of reporting. The accountability of companies extends towards the other stakeholders via non-financial disclosure obligations [2]. Furthermore, disclosure could assist the stakeholders in monitoring companies' conduct and actions. The stakeholders also demand companies' assistance in achieving sustainable development goals (SDGs) [3], indicating the importance of companies' contributions towards a sustainable future. The SDGs were introduced in 2015 to ensure a sustainable future for all, and they are interconnected goals intended to address social, economic and environmental challenges, and attain sustainable development [4]. Involvement of all members of society, especially companies, is needed to ensure the successful implementation of the SDGs agenda [5,6]. To achieve sustainability through SDGs, companies are vital and necessary actors because of their impact on society, the economy and the environment [7]. The SDG framework provides guidelines for companies aligning their business practices towards sustainable development [6]. Hence, this provides opportunities for companies to contribute to successfully addressing sustainable development challenges [4]. This is because SDGs entail companies incorporating sustainability considerations into their decision-making, creating awareness among the stakeholders on their corporate contribution to SDGs [4,8].

**Citation:** Mustafa Khan, N.J.; Mohd Ali, H. Regulations on Non-Financial Disclosure in Corporate Reporting: A Thematic Review. *Sustainability* **2023**, *15*, 2793. https://doi.org/10.3390/ su15032793

Academic Editors: Akrum Helfaya and Ahmed Aboud

Received: 6 January 2023 Revised: 19 January 2023 Accepted: 20 January 2023 Published: 3 February 2023

**Copyright:** © 2023 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

The SDG Compass listed reporting as one of the five vital steps to ensure the successful implementation of the SDG Agenda [9]. Costa et al. [4] highlighted the necessity of guiding companies towards transparency in SDGs reporting, in presenting their contributions towards sustainable development. Elalfy et al. [6] also emphasize the need for more research regarding factors that can affect SDG reporting. Another study indicates regulatory enforcement's significance in ensuring satisfactory SDG disclosure [10]. This evidence supports the role of regulations in managing issues relating to non-financial information disclosures. In addition, a study found that a clear legal requirement on sustainability reporting is needed to ensure better compliance [11], emphasizing the relevancy of the law in governing non-financial disclosures.

Amongst the SDGs that have been recognized by scholars that companies could contribute are Decent Work and Economic Growth (SDG 8), Responsible Consumption and Production (SDG 12) and Climate Action (SDG 13 [7,12,13]. Countries around the world have taken action regarding sustainable development. For example, companies in France must disclose information regarding their conduct towards the environment and society [14]. Berger-Walliser and Shrivastava [14] observed that in the United Kingdom, large companies are obligated to disclose information about their conduct affecting the environment, social, community, and human rights issues in addition to the strategies to address those matters. In India, the government requires that companies develop corporate social-responsibility policies, and failing to adhere to the minimum requirements would subject them to clarification [15]. In Malaysia, the stock exchange, Bursa Malaysia, has required publicly listed companies to publish a sustainability statement in their annual report, which encompasses "a narrative statement of the listed issuer's management of material economic, environmental and social risks and opportunities". In this sense, it is also essential to see the significant role of integrated reporting, since it offers holistic financial and non-financial information. Adopting integrated reporting improves information transparency, boosts brand value and reputation, decreases financial asymmetries, and increases the organization's market worth [16].

Review studies on non-financial information have focused on providing a general view of the current state of academic study on this topic, such as the principal subjects of non-financial research, the methodologies employed, and the changes in the literature regarding non-financial information [17–19]. Some studies reviewed the literature from a specific aspect, such as the relationship between stakeholder engagement and non-financial disclosure [20], the benefits of reporting non-financial information [21] and the quality of non-financial disclosure [22]. Nevertheless, reviews that aim to provide focused findings under the theme of regulations on non-financial information are currently lacking. This statement is evidenced by a bibliometric analysis that presents the six most examined subjects under the topic of non-financial information: determinants, essence, reporting practices, integrated reporting, environmental disclosures, and consequences of reporting. The findings presented show that there is an evident lack of review studies that focus specifically on finding the current state of the art under the topic of regulations for nonfinancial information.

Therefore, a thematic review is conducted to synthesize literature from 2014 until early 2021 on the patterns and trends relating to regulations for non-financial information in corporate reporting by companies, based on the premise that they may be useful in improving the transparency of companies' conduct, ensuring the achievement of the SDGs agenda. This thematic review aims to synthesize the literature on non-financial disclosure regulations, to determine the themes for future studies by considering its importance in ensuring the successful implementation of SDGs. A thematic review of 62 articles identified 20 initial codes, which were then grouped into eight clusters: Directive 2014/95/EU, disclosure approaches, fiduciary duties of directors, stakeholder engagement, the effectiveness of disclosure regulations, the impacts of rules, the role of different actors and corporate accountability, setting the path for future studies. The focus on the literature that discusses regulations of non-financial information is beneficial because of the fact that it provides

a clear direction regarding underexplored issues within this theme. This paper offers a narrow and focused view of disclosure regulations, rather than a broad view of what has been researched relating to non-financial information. Hence, this paper is unique, as it focuses on the underexplored aspect of non-financial information from the regulation perspective rather than providing a general review of what is in the literature.

The remainder of this paper is structured as follows. Section 2 discusses the research background and, consequently, the research question. Section 3 explains the research methodologies. Section 4 discusses the findings, while Section 5 proceeds with the discussion and potential future studies. Finally, Section 6 concludes the study.

#### **2. Research Background and Research Question**

Non-financial disclosure is usually considered a voluntary obligation by nature, which could lead to mitigated benefits of disclosure, owing to transparency and irrelevancy disadvantages [5]. Venturelli et al. [5] confirm that regulation enhances the quality of non-financial disclosure. It is also widely accepted in the literature that regulation could improve the quality of non-financial disclosure [23]. Regulation is desirable for voluntary disclosure, since the latter may lack accuracy, neutrality and comparability [24,25]. A study has shown that disclosure in countries with regulation regarding non-financial information, such as France, is of higher quality than in those without regulation [25].

Another study exploring how the top 50 Australian companies disclose their commitment to addressing SDGs highlighted the potential need for regulation in administering non-financial information disclosure [26]. A study by Mion and Adaui [27] that conducted a content analysis of the sustainability-reporting practices of Italian and German companies in the lists of top stock exchanges found that regulation does enhance the quality of sustainability reporting [27]. Muserra et al. [23] concluded that regulation for mandatory non-financial disclosure, in this context, the Italian decree, has the potential to support information transparency and shift to sustainable business models. A study that investigated how Directive 2014/95/EU may influence the listed Italian companies' corporate practices found that the non-financial reporting obligations can facilitate a company's sustainability path, guaranteeing transparency and greater stakeholder-engagement [24]. In another study, the researchers demonstrated that the French parliamentary regime is more successful in prompting environmental disclosures than the Canadian market mechanisms [25]. In addition, Steuer and Troger [28] contended that regulations could support sustainable transition, since they can compel uniform and comparable disclosure of raw data.

Furthermore, Ho and Park [29] claimed that disclosure laws should be considered when developing the best approaches for enhancing the quality and value of non-financial information. Another study in China provided an interesting perspective, as their results demonstrate that firms in polluting industries considerably improved their financialization behaviors due to implementing the new Environmental Protection Law [30]. These findings provide impetus for further research in understanding the role of regulation in non-financial disclosure [31]. Therefore, in light of the above, we can assume that regulations encourage transparency and quality of non-financial information, which supports SDG attainment and responsible investing.

To reiterate, there is a need for further research relating to regulations governing non-financial disclosure. It is pertinent to see the patterns of potential research relating to non-financial disclosure regulation to see the gap or where more research should be conducted in the future. It is essential to provide consistent findings in studies on nonfinancial disclosure regulations, as this will act as a guideline for countries in deciding whether to adopt a mandatory or voluntary approach when it comes to the disclosure of non-financial information. Furthermore, the stakeholders are increasingly interested in how companies align their business strategies with the SDGs [32]. Disclosure on these matters is essential, because it provides monitoring power on the part of the stakeholders of companies' contributions towards sustainable development [32]. Hence, with the aim to

synthesize the literature on non-financial information regulations to identify underexplored themes under this subject, we formulate the following research question:

RQ: What are the patterns and trends in the literature relating to regulations on non-financial information in corporate reporting by companies, from 2014 to early 2021?

The term "non-financial information" has no widely agreed definition, and is thus open to interpretations [33]. However, for the purposes of this paper, we concur with Tarquinio and Posadas' [33] findings that this term is frequently used to refer to information about society and the environment, including corporate social responsibility (CSR) issues, information about intellectual capital, and information that is not included in financial statements.

#### **3. Materials and Methods**

This paper adopts a thematic review of articles with the help of ATLAS.ti version 9 software, as introduced by Zairul [34], applying thematic analysis to the literature. Thematic analysis generates codes and later themes [35], due to the synthesis review of the relevant literature. Themes indicate broader context patterns that could help answer the research-question themes [35] and better understand a particular phenomenon. These themes assist in structuring the presentation of findings in a research theme [35]. The appeal of thematic analysis is that it gives researchers room to actively interpret the data by generating the codes, and later the themes, rather than searching for themes in the data [35].

In the first step, the authors adopted the identification-of-keywords process. The identification process started with finding the synonyms, related terms, and relevant keywords for the main keywords of the study [36], which were "corporate law, sustainability reporting, company, and corporate disclosure". Identifying relevant keywords helped in varying the keywords to search for relevant documents for the study. Then, the authors conducted a paper search in the WOS Core Collection database. Finally, the authors extracted articles published in the WOS Core Collection database using search strings in the Basic Search tool, resulting in 573 documents (refer to Table 1).

The Boolean operator OR was used to maximize the search of records. Truncation \* was also used in this search, as it enables the function to search different forms of words, hence increasing the possibility of extracting more documents from the search. Then, the refinement of the results followed through the manipulation of the filters provided by the database, which produced 358 papers. The manipulation of the year of publication was to be from the year 2014 to early 2021. The selection of relevant articles starting in 2014 coincides with the introduction of the International Integrated Reporting Framework, which has combined financial and non-financial information in one comprehensive report since December 2013, and which sparked the authors' interest in studying the academic literature relating to this development. The filter of document types applies to the inclusion of articles and early-access only. Therefore, the filtering excludes this study's book chapters, book reviews, proceeding papers, reviews, and editorial materials. Next, whenever applicable, the articles are in English, to enable the researcher to better comprehend.

The authors used the search strings with the exact keywords used in the WOS Core Collection database in the Scopus database, and this search resulted in 11 documents being found. No filter was applied in the Scopus database, contrary to the WOS Core Collection database. This result was because only 11 papers were found that included articles from 2014 to the present, and all 11 documents are in English and journal article form.

The authors then manually filtered the documents by reading the article's title and abstract, known as the eligibility process [37]. The filtering process excluded articles that did not focus on regulations or laws relating to corporate reporting. Examples include an article that examined financial performance after implementing integrated reporting [38]. Also excluded was an article investigating the relationship between board gender diversity with sustainability disclosure [39]. The list extended to the work identifying the link between sustainability reporting and firm value [40,41] and investigating the factors influencing companies in disclosing non-financial information [42]. This filtering resulted in only 71 articles being selected for review. The 71 articles were then exported to the Mendeley reference-manager software. In Mendeley, the exclusion applies to nine more articles because of duplication and relevancy issues, resulting in 63 articles being subjected to thematic analysis in ATLAS.ti version 9 software (see Figure 1).

**Table 1.** Search strings from WOS Core Collection and Scopus.

TOPIC: ("corporate law \*" OR "company law \*" OR "securities law \*" OR "regulation \*" OR "regulatory approach \*" OR "regulatory measure \*" OR "disclosure regulation \*" OR "securities regulation \*" AND "corporate governance") *AND* TOPIC: ("corporate reporting" OR "sustainability reporting" OR "CSR reporting" OR "integrated reporting" OR "voluntary reporting" OR "corporate social reporting" OR "environmental reporting" OR "non-financial reporting" OR "integrated sustainability reporting" OR "corporate responsibility report" OR "triple bottom line reporting" OR "sustainable development reporting" AND "companies" OR "firm \*" OR "corporation \*" OR "organi \*ation \*") *AND* TOPIC: ("corporate disclosure \*" OR "corporate transparency" OR "corporate accountability" OR "corporate sustainability" OR "CSR disclosure \*" OR "mandatory disclosure \*" OR "voluntary disclosure \*" OR "sustainability disclosure \*" OR "ESG disclosure \*" OR "non-financial disclosure \*" OR "sustainability disclosure \*" OR "non-financial information")

Scopus

WOS Core Collection

TITLE-ABS-KEY ( "corporate law \*" OR "company law \*" OR "securities law \* OR "regulation \*" OR "regulatory approach \*" OR "regulatory measure \*" OR "disclosure regulation \*" OR "securities regulation\*" AND "corporate governance" ) AND TITLE-ABS-KEY ( "corporate reporting" OR "sustainability reporting" OR "CSR reporting" OR "integrated reporting" OR "voluntary reporting" OR "corporate social reporting" OR "environmental reporting" OR"non-financial reporting" OR "integrated sustainability reporting" OR "corporate responsibility report" OR "triple bottom line reporting" OR "sustainable development reporting" AND "companies" OR "firm \*" OR "corporation \*" OR "organi \*ation \*" ) AND TITLE-ABS-KEY ( "corporate disclosure \*" OR "corporate transparency" OR "corporate accountability" OR "corporate sustainability" OR "CSR disclosure \*" OR "mandatory disclosure \*" OR "voluntary disclosure \*" OR "sustainability disclosure \*" OR "ESG disclosure \*" OR "non-financial disclosure \*" OR "sustainability disclosure \*" OR "non-financial information")

**Figure 1.** Article-search process as adapted from Zairul [34].

The 63 articles were exported to ATLAS.ti version 9 software as primary documents, grouped into author, issue number, periodical, publisher, volume, and year of publication. This grouping helps analyze articles according to their published year (Zairul, 2020). Next, the relevant papers were sorted one by one, for coding. In the first round of coding themes, 20 codes were formed. Finally, these codes were grouped into eight significant clusters of themes based on their categories. During this manual sorting, another paper was excluded because of a duplication issue. These themes relate to the research question, " what are the patterns and trends in the literature relating to regulations on non-financial information in

corporate reporting by companies from 2014 to early 2021?" The findings are presented in two parts: the quantitative and the qualitative findings.
