Page 1 of 15

European Journal of Applied Sciences – Vol. 11, No. 6

Publication Date: December 25, 2023

DOI:10.14738/aivp.116.15941

Saraswati, E., Rachmawati, Y., & Anjani, A. (2023). Quality of Banking Sustainability Reports: Symbolic or Substantive? European

Journal of Applied Sciences, Vol - 11(6). 157-171.

Services for Science and Education – United Kingdom

Quality of Banking Sustainability Reports: Symbolic or

Substantive?

Erwin Saraswati

Accounting Department, Universitas Brawijaya, Malang

Yuliana Rachmawati

Accounting Department, Universitas Brawijaya, Malang

Andan Anjani

School of Business and Management ITB, Jakarta

ABSTRACT

Banking sector has an important role in sustainability report disclosure, even

though the operational activity has no direct impact to the environment and society.

Corporate Social Responsibility (CSR) disclosure will create positive social image to

the society, moreover bank sustainable activities can affect the reputation that will

be use as competitive advantage. Financial Services Authority Regulation Number

51/POJK.03/2017 requires financial institution to make sustainability report

because banks are facilitators of industrial activities that damage the environment.

This research aims to examine sustainability report practice, GRI standard

application, assurance and quality of banking sustainability report disclosure in

Indonesia. Besides the GRI standards, this research also uses GRI G4 specifically for

financial sector, with consideration that can be obtained more relevant disclosures.

Sample used is as much as 42 banking industries during 2017-2019 period with the

total of 126 observations, using the purposive sampling method. Hypothesis testing

using panel regression. The adoption of GRI standards can enhance the quality of

CSR information in the banking sector, whereas the adoption of separate

sustainability reporting and assurance practices can diminish its quality. This

implies that sustainability disclosures made by banks tend to be more symbolic

than substantive. The research findings endorse the legitimacy theory.

Keywords: CSR information quality, External assurance services, GRI, Stand-alone CSR

report, Sustainability reporting.

INTRODUCTION

Sustainability report is used as communication tool with the external and internal who are

expected to be able to provide information related to approach used and the company’s

maturity level in implementing Corporate Social Responsibility (CSR) concept [1].

Sustainability report can be assessed quantitatively but difficult in terms of quality, so there are

several critics for the quality of this sustainability report. Loh et al. mention that reporting

quality is still low in Indonesia, only four of the 100 largest companies in Indonesia use external

assurance services for corporate sustainability reports [2]. The use of external assurance

service is known to improve the quality of disclosure [3]. Ernst & Young (2017) found that the

Page 2 of 15

Services for Science and Education – United Kingdom 158

European Journal of Applied Sciences (EJAS) Vol. 11, Issue 6, December-2023

quality of sustainability report is quite diverse. A total 16% companies disclose very balanced

information, the other 34% are quite balanced and the rest 50% are incomplete and

unbalanced. A good quality Sustainability Report fulfills one of the reporting principles, namely

balanced [4]. It means presenting negative and positive information.

Recent years, the world has implemented sustainability, United Nation with Sustainable

Development Goals (SDGs) and GRI developed principal and criteria of sustainability [5]. In this

case, banking have avoided sustainability issues, but since the 2008 financial crisis, banks have

become public opinion, while the pressure from the government and other stakeholders

continues to increase. Banking began to act and strive to become sustainable in order to avoid

a negative reputation [5] and stakeholder demands.

Implementation of sustainable finance and sustainability reporting are mandatory for banking

sector starting from January 1st, 2019, according to Financial Services Authority Regulation

Number 51/POJK.03/2017. Habek and Wolniak found that sustainability reports from

mandatory companies have better quality than reports on a voluntary basis [1]. Although the

banking sector's operational activities are not deemed environmentally and socially sensitive,

they are closely linked to commercial activities that can harm nature through the investment

policies and lending decisions they make. Therefore, some argue that banks can be considered

as enablers of industrial activities that cause environmental damage [6].

Related to sustainability reports, Michelon et al. on his observations using legitimacy theory

that developed by Ashforth and Gibbs [7], stated that legitimacy is “two-sided sword”,

corporate legitimacy can be achieved by taking substantive and symbolic approach [8].

Substantive approach can be done by continues improvement to the implementation of CSR

activities, in order to be in line with the social norms and CSR reporting information contained

in sustainability reports [8]. Symbolic approach is taken if the company wants to be seen as

conducting a good CSR activity by positive information in sustainability reports, so that

company image was formed which is not in accordance with the actual condition [9].

Wibisono [10] states that the CSR of a bank is not only considered as a responsibility, but also

has a great benefit to the continuance of the bank itself. CSR can give a positive social image to

the community, which is important for firms with high level of public visibility such as banks

[11]. Criticism of the low quality of sustainability reports have led several researchers to

conduct research related to the quality of information disclosed, with the criteria of

sustainability reporting practice which are stand alone, application of GRI standards and

assurance [3], [8], [12]. The three researchers gave the same conclusion, that sustainability

reporting is symbolic, even though the criteria found are different. This means that the

sustainability report is made only to fulfill the rules and motives to be legitimized by

stakeholders.

Sustainability report information quality is expected to increase if it fulfills three criteria, uses

GRI standards, is a stand-alone report and carries out assurance. Therefore, this research aims

to examine the application of sustainability reporting practices from three criteria, namely

stand-alone disclosure, use of GRI standards and external assurance service. Examination is

carried out in terms of quantity and quality, in addition of using GRI standards, GRI G4 sector

Page 3 of 15

159

Saraswati, E., Rachmawati, Y., & Anjani, A. (2023). Quality of Banking Sustainability Reports: Symbolic or Substantive? European Journal of Applied

Sciences, Vol - 11(6). 157-171.

URL: http://dx.doi.org/10.14738/aivp.116.15941

analysis financial institution is also use to complement the previous study [3], [8], [12]. The use

of GRI G4 sector analysis might minimize criticisms to sustainability report that are less

relevant and credible, due to different characteristics in each industry [13], [14].

RESEARCH FRAMEWORK

Legitimacy Theory

Legitimacy theory states that companies must strive to ensure that the business they are doing

remains within the provisions and norms that exist in the community or environment where

the company is established [15]. The idea of legitimacy theory is that companies make a social

contract with society. This social contract is the expectation that is built by the community both

in writing and not about how the company runs its business in the surrounding environment

[16].

There are two approaches used by management to gain legitimacy, namely the substantive

approach and the symbolic approach [8]. Management that uses a substantive approach tries

to gain legitimacy by making various improvements and real efforts to align corporate values

with social values. If management uses a symbolic approach, management makes efforts to

make the company appear to comply with applicable social norms without any improvement,

so that the information in the CSR report does not reflect the actual situation.

Greenwashing is a company's step to cover up poor CSR performance by only affirming positive

information related to CSR performance to look "good" in the eyes of stakeholders. The

implementation of sustainability finance and sustainability reporting is mandatory for the

banking sector starting January 1st, 2019 and is regulated in Article 10 of the Financial Services

Authority (Otoritas Jasa Keuangan/OJK), Regulation Number 51/POJK.03/2017. Sustainability

reporting for the banking sector in Indonesia is still voluntary for several groups of companies

in the banking sector. It means related with symbolic approach.

Stand-Alone Reporting

Sustainable banking is a term that include environment, social, and government. These three

topics are not always handled in the same time and not in the same words, even sometimes use

the word CSR [5]. Corporate Social Responsibility (CSR) is the responsibility of the company to

care for the community and the surrounding environment. Reports for CSR activities are

included in the sustainability report (SR). Therefore, to assess the quality of sustainable

banking information, a comprehensive assessment is needed. Michelon et al. used quality

assessment of CSR information with two dimensions, which are disclosed CSR information

(what, how much, and how to disclose) and management approach [8].

Many companies are voluntarily published separate CSR report to make it easier for

stakeholders to access company environmental and social information. In Indonesia, only a few

companies that published sustainability reports [2], [17], while others do not compile or only

prepare for internal purposes. Besides, the content and extent of sustainability report also

varies due to unclear regulation regarding the standards [17]. The diversity is often associated

with the management motivation to report CSR, so that many studies seek an explanation of

this motivation [18].

Page 4 of 15

Services for Science and Education – United Kingdom 160

European Journal of Applied Sciences (EJAS) Vol. 11, Issue 6, December-2023

Stand-alone sustainability report disclosure is considered capable of influencing the quality of

disclosed CSR information, increasing reliability, and improving stakeholder’s involvement, if

the company uses substantive approach [8]. According to Dhaliwal and colleagues,

sustainability reports have the potential to offer valuable information to investors and lower

the cost of capital [19]. Michelon and colleagues noted that this type of report is significant

because it demonstrates a company's commitment to addressing important environmental and

social responsibility concerns [8]. Based on conceptual framework, then:

➢ RQ1: Does stand-alone reporting affect the quality of CSR information?

GRI Standards

According to the managerial perspective of stakeholder theory, organizations can leverage

financial and social performance information to influence stakeholders by either gaining their

support or avoiding opposition [20]. Nasution and Adhariani contend that the quality of

information provided in CSR reports is critical in enhancing the relationship between a

company and its stakeholders [3]. The GRI reporting standards provide a structure for

companies to develop transparent and high-quality sustainability reports with the aim of

improving stakeholder transparency [4]. Mahoney et al. stated that company that adopt GRI

reporting standards, have higher commitment in CSR compare with the company that has not

adopt the standards [21]. The proposed RQ is:

➢ RQ2: Can the implementation of GRI standards improve the quality of CSR information?

Assurance

Credibility is one of the quality indicators related with the CSR information. Criticism from

stakeholders regarding the low credibility, create the demand to use external assurance

services or social audit arise from company’s management. External assurance services are able

to increase the credibility and quality of CSR report information if the assurance process is

carried out with a focus on meeting the needs of stakeholders and based on applicable

assurance principle and standards [22].

Assurance services can improve information quality (Nasution and Adhariani, 2016) and

increase information credibility [23]. Kolk and Perego mention that company in financial

sectors will require reports on social audit [24]. Therefore, the proposed RQ is as follows:

➢ RQ3: Can assurance services improve the quality of CSR information?

METHODS

Archival research was employed in this study to gather data from company annual reports and

sustainability reports. The unit of analysis was focused on banking organizations and sample

determined by purposive random sampling method. The research used cross-sectional panel

data which consists of banks listed on Indonesian Stock Exchange from 2017 to 2019.

Variable Operations

The present study concentrates on evaluating the quality of CSR disclosure information, which

is referred to as the dependent variable by Michelon et al. (2014). To assess the quality of CSR

disclosure information, four indices were utilized, namely the relative quantity index (RQT),

information density index (DEN), information accuracy index (ACC), and management

orientation index (MAN). These indices were created to analyze three aspects: the quantity of

Page 15 of 15

171

Saraswati, E., Rachmawati, Y., & Anjani, A. (2023). Quality of Banking Sustainability Reports: Symbolic or Substantive? European Journal of Applied

Sciences, Vol - 11(6). 157-171.

URL: http://dx.doi.org/10.14738/aivp.116.15941

[36] O. J. Keuangan, ‘Peraturan Otoritas Jasa Keuangan No. 51/POJK.03/2017 Tentang Penerapan Keuangan

Berkelanjutan Bagi Lembaga Jasa Keuangan, Emiten, dan Perusahaan Publik’.

[37] R. N. Birkey, G. Michelon, D. M. P., and J. Sankara, ‘Does assurance on CSR reporting enhance

environmental reputation? An examination in the U.S. context’, Account. Forum, doi:

10.1016/j.accfor.2016.07.001.

[38] C. W. Chow, ‘The Demand for External Auditing: Size, Debt and Ownership Influences’, Account. Rev., vol.

57, no. 2, pp. 272–291.

[39] N. Kamp-Roelands, Audits of Environmental Reports: Are We Witnessing the Emergence of Another

Expectation Gap? Koninklijk Nederlands Instituut van Registeraccountants.

[40] C. H. Cho, G. M., D. M. P., and R. W. R, ‘CSR report assurance in the USA: an empirical investigation of

determinants and effects’, Sustain. Accounting, Manag. Policy J., vol. 5, no. 2, pp. 130–148.

[41] J. Park and T. Brorson, ‘Experiences of and views on third-party assurance of corporate environmental

and sustainability reports’, J. Clean. Prod., vol. 13, pp. 1095–1106.