The digitalization of sustainability reporting processes: A conceptual framework

Abstract

Building on the contingency theory, the paper aims to shed light on the contribution provided by technological innovation on sustainability reporting quality. A fuzzy expert system (FES) was developed to evaluate the cumulative effects related to the adoption of digital devices in sustainability reporting practices. The analysis underlined the enabling role covered by Sustainable Enterprise Resources Planning (S-ERP) systems on sustainability reporting processes. In detail, we found that the disclosure of environmental information using technological platforms can lead analysts to a more accurate evaluation.

Full text

RESEARCH ARTICLE
The digitalization of sustainability reporting processes:
A conceptual framework
Simone Pizzi | Giovanni Mastroleo | Andrea Venturelli | Fabio Caputo
Dipartimento di Scienze dell'Economia,
Università del Salento, Lecce, Italy
Correspondence
Simone Pizzi, Dipartimento di Scienze
dell'Economia, Università del Salento, Lecce,
Italy.
Email: simone.pizzi@unisalento.it
Abstract
Building on the contingency theory, the paper aims to shed light on the contribution
provided by technological innovation on sustainability reporting quality. A fuzzy
expert system (FES) was developed to evaluate the cumulative effects related to the
adoption of digital devices in sustainability reporting practices. The analysis under-
lined the enabling role covered by Sustainable Enterprise Resources Planning (S-ERP)
systems on sustainability reporting processes. In detail, we found that the disclosure
of environmental information using technological platforms can lead analysts to a
more accurate evaluation.
KEYWORDS
contingency theory, CSRD, fuzzy expert system (FES), sustainability reporting, technological
innovation
1|INTRODUCTION
In recent years, the international scenario has been interested in the
proliferation of new forms of regulation to encourage companies to
disclose their sustainability information on a mandatory basis (Jackson
et al., 2020). This paradigm shift was driven by the increasing con-
sciousness about the pivotal role covered by the private sector, which
represents a key actor within the strategies identified by the United
Nations in the 2030 Agenda (Bebbington & Unerman, 2020; Pizzi
et al., 2021). Furthermore, many companies voluntarily disclose their
sustainability information to engage with stakeholders more effec-
tively (Venturelli, Caputo, et al., 2022).
One of the main contributions to the development of
accountability practices by large companies has been provided by the
European Commission. The European context represents one of
the leading jurisdictions affected by this paradigm shift. In particular,
the Directive 2014/95/EU introduced specific rules about the disclo-
sure of non-financial information by European public interest entities
(PIEs). However, despite the positive externalities related to the
transposition of the law by the member states, the fitness checks per-
formed by the European Commission revealed the existence of many
criticisms related to the lack of standardization (European
Commission, 2018). This evidence has also been supported by leading
organizations in sustainability reporting and accounting scholars,
highlighting that many companies overestimated their positive
impacts and underestimated the negative externalities (Korca &
Costa, 2021; The Alliance for Corporate Transparency, 2020).
Building on this evidence, in 2021, the European Commission
launched the proposal for a Corporate Sustainability Reporting Direc-
tive (CSRD), which represents the natural prosecution of the Directive
2014/95/EU (Breijer & Orij, 2022). In 2022, the European Commis-
sion introduced a set of European Sustainability Reporting Standards
(ESRS) released by the EFRAG. Furthermore, following the approach
used for financial reporting, the European companies affected by the
CSRD will disclose their sustainability information following
the European Single Electronic Format (ESEF) (KPMG, 2022). In this
Abbreviations: CSRD, Corporate Sustainability Reporting Directive; FES, Fuzzy expert system; S-ERP, Sustainable Enterprise Resources Planning; XBRL, eXtensible Business Reporting Language.
Received: 12 June 2023 Revised: 28 July 2023 Accepted: 3 August 2023
DOI: 10.1002/bse.3544
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium,
provided the original work is properly cited.
© 2023 The Authors. Business Strategy and The Environment published by ERP Environment and John Wiley & Sons Ltd.
Bus Strat Env. 2023;1–11. wileyonlinelibrary.com/journal/bse 1

sense, the transition from Directive 2014/95/EU to the CSRD will
positively impact the overall degree of sustainability accounting stan-
dardization in Europe (Baumüller & Sopp, 2022).
The need to standardize sustainability information will favor
the development of new reporting tools. As evidenced by the
Global Reporting Initiative, many companies started to adopt Sus-
tainable Enterprise Resource Planning (S-ERP) to digitalize their pro-
cesses (Global Reporting Initiative, 2022). Furthermore, the
Sustainability Accounting Standards Board introduced the first
XBRL Taxonomy (SASB, 2021). Thus, the following years will be
characterized by the wide adoption of these innovative tools, which
will enhance the reliability of the sustainability information dis-
closed on a mandatory or voluntary basis (George &
Schillebeeckx, 2022; Pizzi et al., 2022).
Integrating digital tools in sustainability reporting processes
should represent an effective way to avoid some of the main issues
identified by practitioners and policymakers about the lack of compa-
rability and reliability (Leitner-Hanetseder & Lehner, 2022). However,
despite the increasing awareness of the need to digitalize sustainabil-
ity information, only a few studies have considered the enabling role
covered by digital transformation on sustainability reporting practices
(Lombardi & Secundo, 2020; Schmitz & Leoni, 2019). In addition, the
current scenario is characterized by developing theoretical and critical
research based on qualitative methods and literature reviews (Lubin &
Esty, 2014; Seele, 2017).
According to this evidence, the paper aims to shed light on the
contribution provided by the S-ERP in enhancing sustainability report-
ing quality. The digitization of sustainability reporting processes repre-
sents a new research frontier for academics. Despite many studies
highlighting the opportunity to integrate sustainable modules in ERP
systems (Alsaid, 2022; Chofreh et al., 2020), only a few studies were
developed about the specific impacts caused by the adoption of
S-ERP in sustainability reporting processes (Pei & Vasarhelyi, 2020;
Seele, 2016). In detail, the main references about S-ERP were
developed by academics to explore the interlinkages between sustain-
able performance and digitalization (Abobakr et al., 2022; Chofreh
et al., 2020).
This paper aims to advance the scientific knowledge about sus-
tainability reporting quality by using a fuzzy expert system (FES). The
choice to adopt an FES instead of alternative quantitative approaches
has been driven by the opportunity to evaluate the moderating role
covered by digitalization on the traditional items considered by
accounting scholars in their research. In particular, we developed an
FES based on evaluating the main interlinkages between organiza-
tional factors and adopting digital tools to support sustainability
reporting processes. In this regard, the FES will estimate the potential
benefits of providing more strict requirements by the CSRD about
data digitalization.
The analysis was built considering a sample of Italian PIEs
interested in transitioning from Directive 2014/95/EU to the CSRD.
The choice to consider a sample of large PIEs has been driven by
the necessity to consider a sample characterized by an adequate
degree of homogeneity. Regarding the choice to consider the Italian
context, our choice has been driven by the opportunity to evaluate an
institutional context characterized by an adequate degree of standard-
ization. In fact, despite the opportunity to comply with Legislative
Decree 254/2016 using alternative reporting standards, all the Italian
PIEs disclosed their sustainability information according to the GRI
Standards (Deloitte, 2019).
The contribution of the research is twofold. The first implication
is related to the opportunity to extend the scientific knowledge about
social and environmental accounting by identifying new insights
about the enabling role covered by digital technologies (Mancini
et al., 2021). In detail, we answered the following research question:
RQ1: What is the contribution of the S-ERP to sustainability
reporting?
The second contribution consists of identifying new technological
implications related to adopting S-ERP in accounting. Despite many
companies adopting S-ERP during the last few years, only a few
insights have been collected about using the tools in reporting pro-
cesses (Pei & Vasarhelyi, 2020; Seele, 2016). Therefore, we will also
fill the following research gap:
RQ2: What is the state of the art of digital sustainability report-
ing in Italy?
2|LITERATURE REVIEW
2.1 |Sustainability reporting and digitalization
The introduction of new requirements for sustainability reporting digi-
tization by the European Commission represents a relevant innovation
within the debate about social and environmental accounting (Alles
et al., 2021; Atkins et al., 2023). In this regard, despite recent data
released by leading consulting firms highlighting that many interna-
tional companies adopted new accountability tools on a mandatory or
voluntary basis, only a few pieces of evidence have been collected
about the adoption of digital devices in sustainability reporting
(EY, 2022; KPMG, 2020). Furthermore, the need to consider the
effects related to the introduction of digital requirements is also sup-
ported by the recent initiatives launched by the IFRS Foundations and
the SEC (Haji et al., 2022).
The main factors that have driven the choice made by the
European Commission to include mandatory requirements for digital
reporting are represented by the need to develop more reliable and
verifiable information. During the final public consultations launched
in 2021, stakeholders highlighted the lack of informativity on the data
included in the non-financial declarations prepared according to
Directive 2014/95/EU. In particular, the main issues were identified
by investors, which underlined the opportunity to consider more strict
requirements in the CSRD (European Commission, 2021). In this
regard, the European Commission chose to extend the scope of the
ESEF regulation to the CSRD.
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Following the methodological approach used for financial report-
ing processes, the European Commission requires the EFRAG to
develop an XBRL-based taxonomy to digitalize sustainability reports'
contents (EFRAG, 2022). The direct involvement of international
experts with specific backgrounds in digitalization and XBRL has
supported the activities conducted by the EFRAG. The first wave of
activities performed by the EFRAG finished in June 2022 with the
release of an ESRS E1 Proof-of-Concept (PoC) XBRL taxonomy. The
disclosure considered in the first PoC is represented by the informa-
tion about climate change, which are the first set of information
released by the EFRAG.
The extensible business reporting language (XBRL) is the
international digital business reporting standard managed by a global
not-for-profit consortium (XBRL International, 2022a). In the last few
years, XBRL evolved into inline XBRL (iXBRL), a standard that allows
both human-readable and structured, machine-readable data to be
provided in a single document (XBRL International, 2021). The XBRL
language is an extensive markup language (XML) used by worldwide
companies to digitalize their financial reports on a mandatory or
voluntary basis. Even without specific legal requirements, many com-
panies started to disclose their information using XBRL to enhance
their transparency (Boritz & No, 2008).
The diffusion of the XBRL has been favored by regulators, which
included in their jurisdiction's specific rules about financial reporting
and digitalization. Many regulators adopted XBRL because it repre-
sents an effective way to enhance financial markets transparency due
to the identification of a common language to disclose financial infor-
mation (Troshani & Rowbottom, 2022). Financial and non-financial
reports prepared according to XBRL are characterized by desirable
features, such as accessibility, availability, administrative burden
reduction, and usefulness (Bartolacci et al., 2021). XBRL adoption has
also been supported by investors' increasing demand for information,
which adopted digital platforms to analyze and select their invest-
ments portfolio (Blankespoor et al., 2014). Furthermore, the wide
diffusion of XBRL-based reports favored the interaction between
companies and non-professional and foreign investors (Wang &
Seng, 2014).
The firsts attempt to conceptualize XBRL taxonomies about sus-
tainability reporting is represented by the proposals made by interna-
tional standard setters during the last few years (EFRAG, 2022;
SASB, 2021; XBRL International, 2022b). Before that period, a first
attempt was made by the Global Reporting Initiative (Roohani
et al., 2009), but scarce adoption by companies and practitioners
characterized the project. In this regard, the scientific debate about
sustainability reporting and XBRL is fragmented due to the lack of
evidence-based research. However, despite the absence of taxonomy
about sustainability reporting, the last few years have been character-
ized by preliminary research about the main constraints and opportuni-
ties related to the disclosure of sustainability information using XBRL.
One of the first studies was published by Knebel and Seele
(2015), which argued that introducing XBRL as the corporate report-
ing language for CSR and sustainability content should enhance the
reliability of the evaluation made by academics and investors.
Furthermore, the authors suggested the use of comparable data
points as already used in XBRL-based financial reporting. In this
regard, the authors theorized the effects of the projects launched by
the European Commission in 2022. At the same time, Seele (2016)
researched the opportunity to bridge the gap between sustainability
reporting and management control using XBRL.
Another far-sighted research was conducted by Efimova et al.
(2020). The authors tried to identify potential interlinkages between
financial and non-financial information in their research. Interestingly,
the authors adopted a critical approach to identify the main benefits
and barriers to adopting XBRL in sustainability reporting. First, they
confirmed that a common taxonomy could favor implementing a more
effective management control system. However, at the same time,
they underlined the need to consider companies' infrastructures,
which represents essential items to consider in developing an XBRL-
based report. Finally, Helbig et al. (2021) shed light on the opportunity
to develop a data repository to exchange ESG data with stakeholders.
Using an alternative lens of analysis, the authors highlighted the
advantages related to the systematic collection of ESG data. In
detail, the authors identified the opportunity to publish corporate
sustainability open data (CSOD) to engage more effectively with
stakeholders.
3|THEORETICAL FRAMEWORK
The last decades have been characterized by increasing attention paid
by academics to technological innovation. In particular, understanding
the contribution of digitalization on business processes represents a
critical task for researchers interested to evaluate the main implica-
tions related to adopting new technologies by companies (Lucas &
Goh, 2009; Trabucchi et al., 2019). In this regard, many studies under-
lined the pivotal role covered by digitalization in management
research (Caputo et al., 2021).
Accounting research represents one of the main fields interested
in this trend. The wide adoption of digital features and the rapid
growth of new accounting technologies have contributed to the
development of studies about adopting emerging technologies in
accounting and auditing processes (Troshani et al., 2019). In particular,
many studies were developed about financial reporting, as evidenced
by the proliferation of studies about research topics such as ERP sys-
tems, XBRL, and blockchain (Alles et al., 2021; Mancini et al., 2021;
Vasarhelyi & Romero, 2014). However, as evidenced below, only a
few studies were developed about non-financial reporting because of
the field's novelty. In this regard, many research agendas have been
launched by accounting scholars to fill this research gap through novel
and original insights about the interlinkages between digitalization
and sustainability reporting (Pizzi et al., 2022; Seele, 2017; Watson &
Wray, 2022).
Although the topic's novelty, the need to explore the effects
related to integrating new features in accounting processes was first
discussed by Otley (1980). In its pioneer contribution, the author
underlined the need to consider the external circumstances that can
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impact traditional accounting systems. The author argued that “the
adoption of appropriate accounting system will depend upon the spe-
cific circumstances in which an organization finds itself”(Otley, 1980,
p. 413). Building on this preliminary reflection, the author introduced
within the management accounting debate the contingency theory,
which represents one of the main theoretical frameworks adopted by
accounting scholars to evaluate the moderating role covered by tech-
nological innovation on accounting processes (Otley, 2016). Further-
more, the theoretical framework proposed by Otley has also been
explored by other leading scholars during the last few years, such as
Donaldson (2001) and Drazin et al. (1985).
However, integrating new technologies in management account-
ing processes can lead to different scenarios because of the existence
of different impacts on organizational structures. As evidenced by
Chenhall and Chapman (2017), a practical evaluation of the impacts of
external contingencies on managerial accounting systems requires the
analysis of the following items: (1) the characteristics of the system,
(2) the identification of the organizational performance, and (3) the
analysis of the contingency factor. In this regard, the authors under-
lined the need to consider contingency factors as external resources
accountants adopt to integrate their management accounting systems.
In fact, the comparative analysis between scenarios characterized
respectively by the adoption and absence of contingency factors can
lead researchers to evaluate the phenomenon effectively.
4|METHODS AND DATA
4.1 |The FES
The analysis was built using a methodological approach based on
fuzzy logic, “a cognitive framework that adequately replicates the nat-
ural way human beings cognize the world and think about problems
and situations”(Magni et al., 2006). Developing a FES enables
researchers to overcome some of the main criticisms related to adopt-
ing a Boolean logic to evaluate complex phenomena. FES can convert
unstructured concepts into structured information using fuzzy data,
fuzzy rules, and fuzzy inference usable to merge the capabilities of an
expert system to simulate the decision-making process with the
vagueness typical of human reasoning (Magni et al., 2001). In this
regard, it represents a methodological approach particularly suitable
for researchers interested in evaluating complex dynamics related to
companies' implementation of business strategies (Arias-Aranda
et al., 2010; Veltri et al., 2015).
FES also represents a methodological approach particularly
suitable for management research based on contingency theory
(Chenhall & Chapman, 2017). In particular, FES have found applica-
tions in various accounting and financial management areas. For
example, they can be used in financial risk assessment, investment
portfolio optimization, credit risk evaluation, and performance
evaluation of financial instruments. By incorporating fuzzy logic, these
systems can better handle the imprecision and uncertainty often
encountered in financial data.
Therefore, the adoption of FES in management research can
enhance decision-making processes, especially in situations where
uncertainty and imprecision are prevalent. By capturing expert
knowledge and handling complex systems, FES contributes to a
more comprehensive understanding of management problems and
supports better informed decisions in accounting and other
management-related domains. Thus, the FES model has been used to
obtain information about the main effects of adopting digital features
to collect and report environmental data within the non-financial
declarations prepared on a mandatory basis by Italian PIEs. For our
purposes, we developed a research protocol based on the following
phases:
1. focus group with experts to define the inputs and conditions for
aggregating intermediate variables and output. In particular, we
involved accounting academics with a strong professional back-
ground in sustainability reporting practices.
2. layout of the model (modular decision tree).
3. definition of linguistic attribute (fuzzy value) for each variable,
range of variables and blocks of fuzzy rules.
4. trial processing and optimization.
5. analysis of the final output.
4.2 |The model
Model design is one of the most relevant phases of empirical research
based on fuzzy logic. Developing a practical evaluation requires the
involvement of a panel of experts with specific knowledge about
the research field. In this regard, the analysis was built through the
involvement of a research team composed of an expert in fuzzy logic
and three scholars with specific expertise in sustainability reporting
and digitalization fields. From a mathematical point of view, the
connection between the set of the n input variables and the output
can be represented by a function fof nindependent variables
x
i
(i=1, 2, …, n) affecting the dependent variable y(intermediate vari-
able), so that
y¼fx
1,x2,::xn
ðÞ:
The model was built considering the theoretical approach pro-
posed by Chenhall and Chapman (2017). In particular, technological
innovation was considered a contingency factor independent of the
organizational structure. This choice has been driven by the opportu-
nity to collect information about the main variations related to
companies' adoption of technological innovation. From a technical
perspective, the FES consists of 10 input variables, 5 output variables,
5 rule blocks, 581 rules, and 65 membership functions (Figure 1).
Considering previous review studies about sustainability report-
ing quality (Hahn & Kühnen, 2013; Turzo et al., 2022), researchers
conceptualized a company's organization factors considering three of
the main components accounting scholars consider in their empirical
research. The three blocks aim to summarize the following
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components: company profile (Company_profile), corporate gover-
nance (Corporate_governance), and ESG performance
(ESG_performance).
The block titled “Company_profile”consists of the following
three input variables: number of employees (CompEmpl), total assets
(CompAsset), and ROE (CompROE). Regarding the block titled
“Corporate_governance,”it considers the effects caused by the
following three input variables: the number of directors involved in
the board (BoardSize), the percentage of independent directors
(BoardInd), and the percentage of women directors (BoardDivers).
Finally, the block “ESG_performance”considers three input variables
that summarize the main sustainability dimensions considered by
financial analysts, which are the environmental (ScoreE), the social
(ScoreS), and the governance (ScoreG). The variables were selected
using external sources.
The interaction between the three blocks will contribute to
evaluating the output variables titled “Organizational_factors,”which
will estimate the sustainability reporting quality of the observed com-
panies. However, as evidenced in the previous sections, the research
aims to evaluate the enabling role covered by digitalization on sustain-
ability reporting quality. In this regard, we integrated our FES with
one additional variable titled TECH, which will contribute to develop-
ing the Reporting_Quality index.
The variable TECH is equal to 0 if preparers do not disclose infor-
mation about the methodological approach used for data collection,
1 if preparers adopt traditional methods (e.g., hand-collected data),
and 2 if preparers adopt digital features such as ERP systems and
RPA. Including the variable TECH will provide specific details
about the effects related to the adoption of more sophisticated
reporting tools by preparers (Mancini et al., 2021; Troshani &
Rowbottom, 2022). The variable TECH was identified considering the
freely available information disclosed by companies in their non-
financial declarations.
According to this evidence, the comparison between the two out-
puts will shed light on the cumulative effects related to the adoption
of digital devices in sustainability reporting. In Table 1, we report the
information about the secondary data used to measure the input
variables considered in the FES.
4.3 |The sample
As evidenced in previous studies about sustainability reporting and
XBRL, ESG data digitalization requires the implementation of S-ERPs.
In this regard, we will contribute to the debate by evaluating the
adoption level of digital reporting systems by Italian PIEs. For our pur-
poses, we considered the 40 Italian companies included in the FTSE
Mib, representing Milano Stock Exchange's 80% of the total capitali-
zation and almost 90% of the turnover. From the initial sample, we
excluded one company exempted from the scope of the legislative
decree 254/2016. Thus, the final sample consists of 39 companies
that have disclosed their ESG information on mandatory basis during
the fiscal year 2021.
The choice to consider a subsample of the Italian companies
interested in the effects of the legislative decree 254/2016 was
driven by two motivations. First, using FTSE Mib favors identifying
comparable companies with a consolidated experience in digital
reporting. Companies included in the FTSE MiB disclose their financial
information using XBRL. Furthermore, the second motivation consists
of the explorative character of the research. In this regard, using a lim-
ited sample favors the collection of qualitative and quantitative
insights about a complex and not yet explored phenomenon.
5|FINDINGS
5.1 |Main statistics
The FES output provides interesting insights into sustainability report-
ing quality in Italy. In detail, the analysis (Table 2) reveals the existence
of an average score equal to 75.47, which has been driven by the pos-
itive performance in terms of ESGperf and CorpGov. This evidence is
FIGURE 1 Overview of the FES.
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consistent with previous studies that have underlined the increasing
attention to ESG dynamics by listed firms. Furthermore, the positive
score related to the CorpGov confirms that Italian companies have
started to enhance their corporate governance mechanisms through
the involvement of independent and women directors. However, the
score related to CompProfile is of little relevance, confirming that
disclosing ESG information represents a strategic driver for listed
companies. In this regard, considering the presence of the largest Ital-
ian listed companies in the FTSE Mib, this result underlines that the
dimensional factor appears to be less and less relevant within
the European financial markets because of the proliferation of sustain-
ability reports prepared according to the national laws that have
transposed the Directive 2014/95/EU.
Regarding the enabling role covered by digitalization, the FES
provides interesting insights about its moderating role. In particular,
Table 3highlights that the reports prepared using digital devices are
more informative than reports prepared using traditional methods.
Although previous accounting research agreed about the enabling
role covered by digitalization in fostering reporting quality (Vasarhelyi
et al., 2015), this result is fascinating because of its novelty. As
evidenced in previous studies about sustainability reporting and digi-
talization, the scientific debate is characterized by the lack of empiri-
cal evidence about this relationship (Lombardi & Secundo, 2020;
Seele, 2016).
The analysis also provides interesting insights about the role cov-
ered by the other items considered in the FES. In particular, the
TABLE 2 FES's results (Focus on OF).
Items Avg. Median Min. Max.
CompProfile 51.20 57.28 0.00 100.00
CorpGov 71.32 82.92 0.00 100.00
ESGperf 95.63 100.00 84.06 100.00
OF 75.47 77.45 37.91 100.00
TABLE 3 FES's results (Focus on RQ).
Items 0 =None 1 =Traditional 2 =Digital
CompProfile 49.38 69.29 45.33
CorpGov 61.41 84.59 82.03
ESGperf 96.92 92.89 94.75
RQ 52.32 74.95 81.74
TABLE 1 Variables' description.
# Var. name Type Unit Min Max Default Term names
1 BoardDivers Percent 0 100 0 low
medium
high
2 BoardIndip Percent 0 100 0 low
medium
high
3 BoardSize Units 0 15 0 low
medium
high
4 CompAsset Mld 0 15 0 low
medium
high
5 CompEmpl Units 0 13000 0 low
medium
high
6 CompROE Percent -5 5 0 low
medium
high
7 ScoreE Units 0 50 0 low
medium
high
8 ScoreG Units 0 50 0 low
medium
high
9 ScoreS Units 0 50 0 low
medium
high
10 Tech - 0 2 0 000 none
001 traditional
002 digital
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analysis highlighted that adopting digital devices can moderate the
effects related to ESG performance and corporate governance.
Although a more high RQ score, the variables CorpGov and ESGperf
are smaller for digital adopters than companies that adopt traditional
reporting methods. In this sense, providing digital infrastructure could
compensate for the deficit related to the lack of best practices in
terms of corporate governance mechanisms and ESG performance.
This evidence is particularly relevant because of the choice made by
the European Commission to extend the scope of the CSRD, including
small listed firms and large unlisted companies (Venturelli, Fasan, &
Pizzi, 2022). In this regard, late adopters interested in the CSRD
should benefit from adopting a mandatory basis of technological infra-
structure to digitalize their ESG information.
5.2 |Embedding digitalization in sustainability
reporting evaluations: some reflections
The previously illustrated analyses have highlighted that evaluating
the adoption of digital devices by preparers could support the evalua-
tion made by financial analysts. In the current scenario, many inves-
tors have started considering sustainability reporting quality as a
potential proxy of profitability. In this regard, previous empirical
research about sustainability reporting underlined a positive relation-
ship between the quality of the information disclosed on a voluntary
or mandatory basis and firms' profitability. Thus, it is necessary to
evaluate the value-added provided by identifying the methodological
approach adopted by preparers to support analysts in their evaluation.
According to this evidence, we evaluated the difference between
OF and RQ to collect valuable insights about the signaling effects
related to analyzing the reporting approaches adopted by preparers.
Interestingly, the analysis reveals that the value of the RQ is more sig-
nificant than OF for digital adopters. In this regard, the risks related to
an inexact evaluation made by analysts of a company that disclose its
ESG information using digital devices are limited. Thus, in an institu-
tional context characterized by companies interested in disclosing
high-quality information, it is necessary to consider the enabling role
covered by digital devices.
However, the analysis of the reports prepared both by companies
that do not disclose information about their reporting approaches and
both by companies that adopt traditional methods can lead to inexact
evaluation. As evidenced in Figure 2, for many of those companies,
the value of the OF is greater than RQ. Thus, an evaluation made by
analysts without considering reporting methods could generate an
overall estimation of the quality of the information reported by
observed companies. In this sense, achieving a higher degree of com-
parability between reports could benefit from the development of
more strict requirements about adopting digital devices to support
and validate accountability processes.
5.3 |Model validation
Finally, we performed an empirical assessment to validate our FES
model. The output variable “Reporting_Quality”is a continuous vari-
able that can take a value between 0 (Very Low Quality) and 100 (Very
High Quality). The variable was measured using a methodological
approach based on content analysis (Krippendorff, 2018), an empiri-
cally grounded method widely used by accounting scholars (Dumay &
Cai, 2014). The protocol used in the content analysis consists of the
following steps: (a) units' identification, (b) taxonomy's identification,
and (c) units' analysis.
FIGURE 2 Cluster analysis.
PIZZI ET AL.7
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The units' identification was conducted using the information dis-
closed by the 39 companies on their website. We considered only
sustainability information disclosed in 2021 to comply with Legislative
Decree 254/2016 explicitly. Thus, we excluded all documents pre-
pared voluntarily (e.g., infra-annual reports and sustainability reports
not compliant with the legislative decree 254/2016).
The second step is identifying a reliable coding structure to ana-
lyze the non-financial declarations. Considering the recent initiatives
conducted by the EFRAG and the IFRS Foundation, we chose to ana-
lyze the environmental information disclosed by the 39 companies.
Using the GRI content indexes as data sources, we extracted all the
information about the 32 indicators included in the Environmental
Series released by the GRI (Global Reporting Initiative, 2016). The
variable (RQ) can take values between 0 (low quality) and 100 (high
quality).
ENV_DISC ¼nof indicators disclosed
32 %
The GRI disclosure analysis (Table 4) reveals that the primary
information disclosed by Italian PIEs is represented by GRI 307 (Envi-
ronmental compliance), GRI 306 (Waste), and GRI 305 (Emissions). As
regards the less disclosed information, the data revealed a lack of
information about GRI 304 (Biodiversity) and GRI 301 (Materials). The
results are consistent with previous Directive 2014/95/EU studies. In
particular, the broad adoption of information about environmental
compliance is explained by the direct connection with the legal
requirements identified by Legislative Decree 254/2016. As evidenced
in previous studies about Directive 2014/95/EU, many Italian compa-
nies included in the scope of the legislative decree 254/2016 were just
aligned with those requirements (Doni et al., 2019; Venturelli
et al., 2019). As regards the lack of information about biodiversity, this
evidence is confirmed by policymakers and academics about the need
to enhance biodiversity reporting, which remains a residual topic for
many international companies (Schaltegger et al., 2022).
Finally, a T-test (Watson & Stock, 2015) was conducted to evalu-
ate the robustness of the insights collected using the FES. The T-test
reveals that was no significant differences, t(2) =8.365, p=.55,
despite RQ (M=64.85, SD =2.95) is greater than ENV_DISC (M=53,
SD =7.8). In this sense, despite the misalignment between the two
scores, the absence of statistically significant differences confirms
the robustness of the FES developed by the researchers (Table 5).
6|DISCUSSIONS AND CONCLUDING
REMARKS
The next few years will be characterized by the wide adoption of digi-
tal devices in accounting and accountability. Introducing new require-
ments for sustainability reporting will generate disruptive impacts on
financial markets because of the increase in the overall degree of
transparency of ESG information. In this regard, the intense activities
conducted by the EFRAG will support this virtuous process by intro-
ducing new guidelines to support the transition toward the new XBRL
taxonomy.
Within this scenario, a central role will be covered by implement-
ing new accountability mechanisms to support disclosing unconven-
tional and complex information. As evidenced by the primary surveys
published by leading organizations, many reports prepared in accord-
ing to Directive 2014/95/EU were affected by criticisms related to
the lack of transparency in their reporting processes. At the same
time, investors' increasing demand for sustainability information will
foster this process. Thus, the following years will be characterized by
a relevant paradigm shift related to the transition toward the “Report-
ing 4.0”era (Alles et al., 2021).
The analysis reveals that digitalization can foster the transition
of European companies toward more sophisticated and reliable
accountability approaches. In this regard, the contingency factor's
effects on adopting digital features are positive. Furthermore, our
insights are particularly relevant for companies without experience
in sustainability reporting processes that will be affected by the
new legal requirements introduced by the CSRD. Adopting digital
features will mitigate the adverse effects of late adopters' lack of
expertise.
According to this evidence, the research provides preliminary
insights into an emerging topic. The lack of scientific knowledge about
the relationship between sustainability reporting and digitalization will
favor the development of a new research stream for accounting
scholars. Similarly to the first wave of research about XBRL and
TABLE 4 GRI disclosure analysis.
GRI disclosure
GRI
indicators
GRI disclosure
score
301: Materials 3 32.50%
302: Energy 5 57.90%
303: Water and effluents 5 52.80%
304: Biodiversity 4 25.00%
305: Emissions 7 72.50%
306: Waste 5 74.90%
307: Environmental compliance 1 82.10%
308: Supplier environmental
assessment
2 44.90%
Final score 32 56.41%
TABLE 5 T-test analysis.
Stats RQ ENV_DISC Δ
Mean 64.85 56.49 8.37
St.Dev 2.95 3.34 0.39
Median 65.63 56.00 9.63
Min. 25.63 19.00 6.63
Max. 100.00 100.00 0.00
t-test 0.055
8PIZZI ET AL.
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financial reporting, qualitative and quantitative research can be rele-
vant for comprehending a scientific topic characterized by a high
degree of multidisciplinary.
The research contributes to the debate through novel insights
about the need to reconsider sustainability reporting practices. The
transition from the NFRD to the CSRD will generate substantial
impacts because of the introduction of more strict reporting standards
and digitalization requirements. This could lead to a “tick-box”
approach to reporting rather than fostering genuine sustainability
efforts. However, the implementation costs associated with digitiza-
tion could deter some companies from fully embracing sustainability
reporting. Organizations might view the compliance expenses as bur-
densome and may attempt to minimize the scope of reporting, poten-
tially limiting the disclosure of crucial ESG information.
The analysis also sheds light on the state of the art of digital sus-
tainability reporting in Italy. The scarcity of digital instruments for
mandatory ESG information disclosure by preparers poses significant
challenges regarding data transparency, comparability, and standardi-
zation. The absence of such tools may lead to manual errors and data
inconsistencies, undermining the credibility of reported information
and hindering stakeholder decision-making. Moreover, the lack of
standardized platforms makes performance comparisons difficult,
impeding assessments of a company's ESG performance compared to
peers. This limited adoption places an extra burden on preparers,
diverting resources from core business activities. The absence of inte-
grated reporting systems also hinders comprehensive evaluations of
sustainability performance. Additionally, it may impede the establish-
ment of globally accepted ESG reporting standards, contributing to a
fragmented reporting landscape.
However, the analysis requires a more in-depth evaluation of the
effects of integrating ESG tools in accounting information systems. In
this regard, the comprehension of the actual effects caused by digitali-
zation on sustainability reporting requires further study based on
more sophisticated methodological approaches. In particular, quantita-
tive analysis can favor the comprehension of the main interlinkages
between ERP systems and sustainability reporting quality. Further-
more, qualitative research can provide more detailed explanations
about the main factors that have impacted Italian companies' early
adoption of these tools.
ORCID
Simone Pizzi https://orcid.org/0000-0001-5870-5466
Andrea Venturelli https://orcid.org/0000-0001-7216-2744
Fabio Caputo https://orcid.org/0000-0002-8296-1256
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