MANAGERS PERCEPTIONS ON THE IMPORTANCE OF INTEGRATIVE ESG: THE ROLE OF CORPORATE FINANCIAL PERFORMANCE AND CORPORATE LIFE CYCLE BY SHARIFAH BINTI BUNI

MANAGERS PERCEPTIONS ON THE IMPORTANCE OF INTEGRATIVE ESG: THE ROLE OF CORPORATE FINANCIAL PERFORMANCE AND CORPORATE LIFE CYCLE BY SHARIFAH BINTI BUNIAMIN A dissertation submitted in fulfilment of the requirement for the degree of Doctor of Philosophy (Accounting) Kulliyyah of Economics and Management Sciences International Islamic University Malaysia JULY 2020

ABSTRACT This study aims to examine the relationship between stakeholder attributes and integrative ESG reporting from the managers perceptions. Underpinning this study is the theory of stakeholder identification and salience developed by Mitchell, Agle and Wood (1997), which offers stakeholder identification based on stakeholder attributes of power, legitimacy and urgency that measure the salience or degree of priority given to certain stakeholders. Six main stakeholder groups are addressed: shareholders, employees, customers, government, local community and media. The study also investigates moderation effects of corporate financial performance (CFP) and corporate life cycle (CLC) on the relationship between stakeholder attributes and integrative ESG reporting. A mixed methods approach of sequential explanatory design is employed, which combines quantitative and qualitative approaches. This design is characterised by the collection and analysis of quantitative data using a questionnaire survey in the first phase, followed by the collection and analysis of qualitative data through semistructured interviews in the second phase. The sample of the study is drawn from corporate managers of Malaysian companies listed on the Main Market of Bursa Malaysia. Managers are considered the companies representatives as they are involved in decision making and corporate reporting processes. A total of 68 questionnaires was completed and usable for analysis, and ten interviewees were involved in semistructured interview sessions. The assessment of integrative ESG reporting using a fuzzy logic approach reports that sixty-three percent of the companies were grouped as having good integrative ESG reporting status. This result suggests that companies that disclose ESG factors consider environmental, social and governance factors equitably. The results reveal that there is a significant difference in managers perceptions of stakeholder attributes across different stakeholder groups. The study also found significant relationships of shareholder power, media legitimacy, media urgency and shareholder salience with integrative ESG reporting. Additionally, two-stage hierarchical multiple regression and add-on PROCESS were conducted to test the moderating effect of CFP and CLC. Significant moderator effects of CFP were found for the relationship between integrative ESG reporting and shareholder power, media legitimacy and shareholder salience, while potentially significant moderation of CLC were indicated for the relationship between employee legitimacy and employee urgency with integrative ESG reporting. The findings of the study provided a key message to the regulatory bodies to enforce restrictions and incentives in creating awareness on ESG factors, not only to managers but also to corporate stakeholders. Based on the theory of stakeholder identification and salience, it can be inferred that managers' perceptions of stakeholder attributes of power, legitimacy, urgency, and salience, which are aspects that influence corporate integrative ESG reporting. However, in this study, this was applied only to shareholders for attributes of power and salience and to media for attributes of legitimacy and urgency. It seemed that the results could be interpreted to suggest that the stakeholder model used in developed countries is not really suitable in the Malaysian context. This study further contributed to the methodology by demonstrating the use of mixed method in strengthening the findings and inferences made to understand the social context more deeply. ii

م لخ ص البحث ABSTRACT IN ARABIC يهدف هذا البحث إىل فحص العالقة بني مسات أصحاب املصلحة والتقارير البيئية واالجتماعية واإلدارية املتكاملة من تصورات املديرين ويستند إىل نظرية حتديد هوية أصحاب املصلحة وبراعتهم اليت طورها ميتشل وآغل وو د ( Mitchell Wood Agle 1997( وتوفر حتديد ا ألصحاب املصلحة استناد ا إىل مسات أصحاب املصلحة للسلطة والشرعية واإلحلاح اليت تقيس مدى األمهية أو درجة األولوية املعطاة ألصحاب مصلحة معينني وتناول البحث ستة جمموعات رئيسة من أصحاب املصلحة هي: املسامهون واملوظفون والعمالء واحلكومة واجملتمع احمللي ووسائل اإلعالم كما يتحرى البحث التأثريات املعتدلة لألداء املايل للشركات ودورة حياة الشركات على العالقة بني مسات أصحاب املصلحة والتقارير البيئية واالجتماعية واإلدارية املتكاملة وقد است خدمت هنج خمتلط للتصميم التوضيحي املتسلسل جيمع بني املناهج الكمية والنوعية ويتميز هذا التصميم جبمع البياانت الكمية وحتليلها ابستخدام استبانة يف املرحلة األوىل مث مجع البياانت النوعية وحتليلها من خالل مقابالت شبه منظمة يف املرحلة الثانية واختريت عينة البحث من مديري الشركات املاليزية املدرجة يف السوق الرئيس لبورصة ماليزاي ويعد املديرون ممثلي الشركات إذ يشاركون يف عمليات صنع القرار واإلبالغ عن الشركات وكان جمموع االستجاابت 68 استجابة صاحلة للتحليل وشارك عشرة مديرين يف مقابالت شبه منظمة ويشري تقييم التقارير البيئية واالجتماعية واإلدارية التكاملية ابستخدام منهج منطقي إىل أن 66 من الشركات ص نفت على أهنا حتظى بوضع تقارير بيئي واجتماعي وإداري جيد وتشري هذه النتيجة إىل أن الشركات اليت تكشف عن العوامل البيئية واالجتماعية واحلكمية تعد عوامل بيئية واجتماعية وحوكمة عادلة وتكشف النتائج أن هناك اختالف ا كبري ا يف تصورات املديرين لسمات أصحاب املصلحة عرب خمتلف جمموعات أصحاب املصلحة كما توصل البحث إىل عالقات مهمة بني شرعية وسائل إعالم املسامهني واإلحلاح اإلعالمي وعالقة املسامهني ابلتقارير البيئية واالجتماعية واإلدارية املتكاملة كما أجري االحندار اهلرمي املتعدد مبرحلتني من خالل عملية إضافية الختبار التأثري املعتدل لألداء املايل للشركة ودورة حياة الشركة وع ثر على أتثريات كبرية ملنسق األداء املايل للشركات للعالقة بني التقارير البيئية املتكاملة واالجتماعية واإلدارية وقوة املسامهني والشرعية اإلعالمية وجدارة املسامهني يف حني أ شري إىل اعتدالكبري حمتمل يف دورة حياة الشركة للعالقة بني شرعية املوظف وإحلاح املوظفني مع التكاملية البيئية واالجتماعية واحلكم وقدمت نتائج البحث رسالة مهمة للهيئات التنظيمية لفرض القيود واحلوافز يف خلق الوعي ابلعوامل والتقارير البيئية واالجتماعية واإلدارية املتكاملة ليس للمديرين فقط ولكن ألصحاب املصلحة يف الشركات أيض ا واستناد ا إىل نظرية حتديد أصحاب املصلحة وبروزها ميكن االستدالل على تصورات املديرين لسمات أصحاب املصلحة يف السلطة والشرعية iii

واإلحلاح والرباعة وهي اجلوانب اليت تؤثر على التقارير البيئية واالجتماعية واإلدارية املتكاملة للشركات على الرغم من أن هذا البحث ط بق فقط على املسامهني لسمات أصحاب املصلحة يف السلطة والشرعية واإلحلاح والرباعة ويبدو أنه ميكن تفسري النتائج على أهنا توحي أبن أمنوذج أصحاب املصلحة املستخدم يف البلدان املتقدمة ليس مناسب ا يف السياق املاليزي وقد أسهم هذا البحث أيض ا يف املنهجية من خالل توضيح استخدام النهج املختلط يف تعزيز النتائج املستخلصة لفهم السياق االجتماعي فهم ا أعمق. iv

APPROVAL PAGE The dissertation of Sharifah binti Buniamin has been approved by the following: Nik Nazli binti Nik Ahmad Supervisor Zamzulaila binti Zakaria Co-Supervisor Nazli Anum binti Mohd Ghazali Internal Examiner Susela Devi K. Suppiah External Examiner 1 Romlah Jaffar External Examiner 2 Erry Yulian Triblas Chairman v

DECLARATION I hereby declare that this dissertation is the result of my own investigations, except where otherwise stated. I also declare that it has not been previously or concurrently submitted as a whole for any other degrees at IIUM or other institutions. Sharifah binti Buniamin Signature Date 30 JULY 2020 vi

COPYRIGHT PAGE INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH MANAGERS PERCEPTIONS ON THE IMPORTANCE OF INTEGRATIVE ESG: THE ROLE OF CORPORATE FINANCIAL PERFORMANCE AND CORPORATE LIFE CYCLE I declare that the copyright holders of this dissertation are jointly owned by the student and IIUM. Copyright 2020 Sharifah binti Buniamin and International Islamic University Malaysia. All rights reserved. No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright holder except as provided below 1. Any material contained in or derived from this unpublished research may be used by others in their writing with due acknowledgement. 2. IIUM or its library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes. 3. The IIUM library will have the right to make, store in a retrieved system and supply copies of this unpublished research if requested by other universities and research libraries. By signing this form, I acknowledged that I have read and understand the IIUM Intellectual Property Right and Commercialization policy. Affirmed by Sharifah binti Buniamin Signature 30 JULY 2020 Date vii

ACKNOWLEDGEMENTS In the name of Allah, the Most Beneficent and the Most Merciful. All the praises and thanks be to Allah, the Lord of the universe. Peace and blessings be upon Prophet Muhammad SAW and his companions. My deepest gratitude goes to my supervisors, Professor Dr. Nik Nazli Nik Ahmad and Associate Prof. Dr. Zamzulaila Zakaria. Thank you for the excellent guidance, patience, encouragement and support. May Allah shower them with happiness and bless them long age with good health. My appreciation also goes to the examiners for their insightful comments and recommendations. It is a great honour to work with these scholars. My sincere appreciation goes to Universiti Tenaga Nasional (UNITEN) and Ministry of Higher Education for giving me the opportunity to pursue my PhD. Many thanks to all IIUM s lecturers, my colleagues in UNITEN, my friends in IIUM who have shared their knowledge and inspiration. A special thank you to Dr. Jeanne Dawson for editing this thesis. I also like to acknowledge and thank managers who had participated in the survey and interview. Last but not least, my family deserves special appreciation for their understanding, continuous support and prayers. To my dearest husband, Dr. Mohamad Azrien bin Mohamed Adnan and my children, Faris, Nisrien, Shirien, Rayyan, Ammar and Rafieq, thank you for the endless support, patience and sacrifice. To my mother, Zaharah Yusoff, thank you for her love and prayers. Also, to my brothers, in-laws and all who have assisted directly or indirectly in the completion of this PhD journey, thank you very much. May Allah grant us with valuable knowledge and prosperity in this world and hereafter. viii

TABLE OF CONTENTS Abstract... ii Abstract in Arabic... iii Approval Page... v Declaration... vi Copyright Page... vii Acknowledgements... viii Table of Contents... ix List of Tables... xiii List of Figures... xv List of Abbreviations... xvi CHAPTER ONE: INTRODUCTION... 1 1.1 Background of the Study... 1 1.1 Motivation of the Study... 6 1.2 Research Problem... 10 1.3 Research Objectives... 13 1.4 Definitions of the Terms... 14 1.5 Scope of the Study... 16 1.6 Significance of the Study... 17 1.6.1 Methodological Contribution... 18 1.6.2 Practical Contribution... 19 1.6.3 Theoretical Contribution... 20 1.7 The Structure of the Thesis... 23 1.8 Chapter Summary... 25 CHAPTER TWO: LITERATURE REVIEW... 26 2.1 Introduction... 26 2.2 An Overview of ESG Reporting... 26 2.3 Motives for Reporting ESG Factors... 34 2.4 Information Needs From Stakeholders perspective... 37 2.5 Managers Perceptions... 39 2.6 Integrative Approach... 42 2.7 Fuzzy Logic Approach... 49 2.8 Stakeholder Attributes and ESG Reporting... 54 2.9 Corporate Financial Performance... 59 2.10 Corporate Life Cycle... 62 2.11 Gaps in the Literature... 64 2.12 Chapter Summary... 69 CHAPTER THREE: THEORETICAL FRAMEWORK AND HYPOTHESES DEVELOPMENT... 70 3.1 Introduction... 70 3.2 Stakeholder Theory... 70 3.3 Theory of Stakeholder Identification and Salience... 76 3.4 Stakeholder Theory and ESG Reporting... 78 ix

3.5 Conceptual Research Framework... 83 3.5.1 Shareholders... 84 3.5.2 Employees... 85 3.5.3 Customers... 86 3.5.4 Government... 87 3.5.5 Local Community... 87 3.5.6 Media... 88 3.6 Hypothesis Development... 89 3.6.1 Managers Perceptions Towards Attributes of Various Stakeholder Groups... 89 3.6.2 The Relationship between Stakeholder attributes and Integrative ESG Reporting... 91 Stakeholders Power and Integrative ESG Reporting... 91 Stakeholders Legitimacy and Integrative ESG Reporting. 93 Stakeholder Urgency and Integrative ESG Reporting... 96 Stakeholder Salience and Integrative ESG Reporting... 99 3.6.3 Moderating Effects of CFP and CLC... 102 Moderating Effect of Corporate Financial Performance. 104 Moderating Effect of Corporate Life Cycle... 106 3.7 Chapter summary... 107 CHAPTER FOUR: RESEARCH METHODOLOGY... 108 4.1 Introduction... 108 4.2 Research Paradigm... 108 4.3 Mixed Methods design... 111 4.4 Phase 1: Quantitative Methods... 114 4.4.1 Sample in Quantitative Phase... 115 4.4.2 Questionnaire Survey... 117 4.4.3 Questionnaire Design and Variable Measurement... 120 Part A: ESG Indicators... 120 Part B: Stakeholder Attributes... 123 Part C: Respondent s Profile... 124 Part D: Company s Profile... 124 4.4.4 Pilot Test... 129 4.4.5 Questionnaire Administration... 131 4.4.6 Quantitative Data Analysis... 132 Reliability and Validity Test... 133 Descriptive Analysis... 134 Hypothesis Tests... 134 4.5 Phase 2: Qualitative Methods... 136 4.5.1 Sample in Qualitative Phase... 137 4.5.2 Semi-structured Interviews... 139 4.5.3 Qualitative Data Analysis... 141 4.6 Chapter Summary... 142 CHAPTER FIVE: DATA ANALYSIS... 143 5.1 Introduction... 143 5.2 Response rate... 143 5.2.1 Non-response Bias... 145 x

5.3 Demographic Profile... 147 5.3.1 Companies Profile... 147 5.3.2 Respondents Profile... 149 5.3.3 Interviewees Profile... 150 5.4 Goodness of data... 151 5.4.1 Reliability... 151 5.4.2 Validity... 153 5.5 Normality of data... 153 5.6 Descriptive Statistics... 154 5.6.1 Descriptive Statistics of Environmental, Social and Governance Factors... 154 Descriptive Statistics of ESG Factors by Industry... 162 5.6.2 Assessing Integrative ESG Reporting using Fuzzy Logic Approach... 164 5.6.3 Descriptive Statistics of Stakeholder Attributes... 179 Stakeholder Power... 179 Stakeholder Legitimacy... 180 Stakeholder Urgency... 181 Stakeholder Salience... 181 Differences of Stakeholder Attributes... 182 5.7 Chapter Summary... 184 CHAPTER SIX: HYPOTHESIS ANALYSIS... 185 6.1 Introduction... 185 6.2 Robustness Test... 185 6.2.1 Correlation... 185 6.2.2 Multicollinearity... 188 6.2.3 Linearity... 189 6.2.4 Homoscedasticity... 190 6.2.5 Outliers... 193 6.3 Hypothesis Testing... 193 6.3.1 Analysis of Variance... 199 6.3.2 Multiple Regression Analysis... 207 6.3.3 Hierarchical Multiple Regression Analysis... 216 6.3.3.1 Testing Moderation Effects of CFP... 216 6.3.3.2 Testing Moderation Effects of CLC... 223 6.4 Chapter Summary... 227 CHAPTER SEVEN: DISCUSSION AND CONCLUSION... 229 7.1 Introduction... 229 7.2 Discussion of Findings... 230 7.2.1 The Integrative ESG Reporting... 233 7.2.2 Managers Perceptions on Stakeholder Attributes... 235 7.2.3 The Relationship between Stakeholder Attributes and Integrative ESG Reporting... 241 7.2.4 The Moderating Effects of CFP on the Relationship between Stakeholder Attributes and Integrative ESG Reporting... 247 7.2.5 The Moderating Effects of CLC on the Relationship between Stakeholder Attributes and Integrative ESG Reporting... 249 xi

7.3 Implications of the Study... 251 7.3.1 Practical Implications... 251 7.3.2 Theoretical Implications... 254 7.3.3 Methodological Implications... 258 7.4 Limitations and Future research... 260 REFERENCES... 264 APPENDIX A: PRE-TEST INSTRUMENT... 301 APPENDIX B: THE QUESTIONNAIRE... 304 APPENDIX C: INFORMATION SHEET FOR INTERVIEW... 313 APPENDIX D: CONSENT FORM... 315 APPENDIX E: INTERVIEW GUIDE... 316 xii

LIST OF TABLES Table 4.1 ESG Factors, Themes and Indicators 121 Table 4.2 List of Statements in Part B of the Questionnaire 123 Table 4.3 Descriptions of CLC Stages 128 Table 4.4 Summary of Questionnaire Design and Variables Measurement 128 Table 5.1 Summary of the Responses for Questionnaires 144 Table 5.2 Mean Differences between Early and Late Responses 146 Table 5.3 Industry Representation 148 Table 5.4 Companies Profile 149 Table 5.5 Respondents Profile 150 Table 5.6 Interviewees 151 Table 5.7 Reliability 152 Table 5.8 Test of Normality 154 Table 5.9 Environmental Factors 157 Table 5.10 Social Factors 159 Table 5.11 Governance Factors 161 Table 5.12 Descriptive Statistics for ESG Factors 162 Table 5.13 Descriptive Statistics of ESG Factors by Industry 163 Table 5.14 Grades of Association in IST 165 Table 5.15 Integrative ESG Reporting Status 166 Table 5.16 Fuzzy Set for the Input (Environment, Social and Governance) 168 Table 5.17 Fuzzy Set for the Output (iesg) 168 Table 5.18 List of Rules 170 Table 5.19 Assessment of the iesg using Fuzzy Logic 174 Table 5.20 Integrative ESG Reporting Status by Industry 176 xiii

Table 5.21 Integrative ESG Reporting Status by Corporate Characteristics 177 Table 5.22 Descriptive Statistics for Stakeholder Power 179 Table 5.23 Description for Stakeholder Power 180 Table 5.24 Descriptive Statistics for Stakeholder Legitimacy 180 Table 5.25 Description for Stakeholder Legitimacy 180 Table 5.26 Descriptive Statistics for Stakeholder Urgency 181 Table 5.27 Description for Stakeholder Urgency 181 Table 5.28 Descriptive Statistics for Stakeholder Salience 182 Table 5.29 Description for Stakeholder Salience 182 Table 5.30 Differences of Perceptions on Stakeholder Attributes 183 Table 6.1 Correlation Matrix 187 Table 6.2 Values of tolerance and variance inflation factor (VIF) 189 Table 6.3 Glejser Test 192 Table 6.4 Summary of Hypotheses Developed 194 Table 6.5 Stakeholder Attributes Across Stakeholder Groups 199 Table 6.6 Tukey Post Hoc Tests 200 Table 6.7 Multiple Regression 208 Table 6.8 Regression of iesg, Stakeholder Attributes, CFP and the Interaction 217 Table 6.9 Regression of iesg, Stakeholder Attributes, CLC and the Interaction 224 Table 7.1 Summary of the Main Research Findings 230 xiv

LIST OF FIGURES Figure 2.1 Integrative Sustainability Triangle (IST) 44 Figure 4.1 Sequential Explanatory Mixed Methods Design 112 Figure 5.1 Major Components in Fuzzy Logic Approach 167 Figure 5.2 Triangular Fuzzy Membership for Input Variable 171 Figure 5.3 Membership for Output Variable 172 Figure 5.4 The Rule Viewer 173 Figure 6.1 Linearity 190 Figure 6.2 Scatterplot 191 Figure 6.3 Interaction of CFP on the Relationship between PSh and iesg 218 Figure 6.4 Interaction of CFP on the Relationship between SSh and iesg 220 Figure 6.5 Interaction of CFP on the Relationship between LMe and iesg 221 Figure 6.6 Interaction of CLC on the Relationship between LEm and iesg 225 Figure 6.7 Interaction of CLC on the Relationship between UEm and iesg 225 xv

LIST OF ABBREVIATIONS ASR CEC CEO CER CFO CFP CG CLC CS CSC CSER CSP CSR CSRC CSRD DVFA EABIS EFFAS EIRIS ESG F4GBM GRIG4 iesg ICGN IFAC IIRC IPCC IR ISRA IST MASB MaSRA MCCG MCGI SBSC SDG SEBI SER SPSS SRI TBL UNEP FI UNGC UNPRI VIF Asian Sustainability Rating Corporate Environmental Commitment Chief Executive Officer Corporate environmental reporting Chief Financial Officer Corporate Financial Performance Corporate Governance Corporate Life Cycle Corporate Sustainability Corporate Social Commitment Corporate Social and Environmental Reporting Corporate Social Performance Corporate Social Responsible China Securities Regulatory Commission Corporate Social Responsibility Disclosure German Society of Investment Professionals European Academy of Business in Society European Federation of Financial Analysts Societies Ethical Investment Research Services Environmental Social and Governance FTSE4Good Bursa Malaysia Global Reporting Initiatives G4 Sustainability Reporting Guideline Integrative environment, social and governance International Corporate Governance Network International Federation of Accountants International Integrated Reporting Council Intergovernmental Panel of Climate Change Integrated Reporting International Shari'ah Research Academy for Islamic Finance Integrative Sustainability Triangle Malaysian Accounting Standard Board Malaysian Sustainability Reporting Awards Malaysian Code of Corporate Governance Malaysia Corporate Governance Index Sustainability Balanced Scorecard Sustainable Development Goals Securities and Exchanges Bureau of India Social and Environmental reporting Statistical Package for Social Science Social Responsible Investment Triple Bottom Line United Nations Environment Programme Finance Initiative United Nations Global Compact United Nations Principles for Responsible Investment Variance Inflation Factor xvi

1 INTRODUCTION 1.1 BACKGROUND OF THE STUDY Environmental, social and governance (ESG) refers to the three core pillars of corporate management practices which have become issues of major concern, not only to companies but also to corporate stakeholders at large. In relation to environmental issues, the United Nations Intergovernmental Panel of Climate Change (IPCC) reported a worrying level of approximately 1.0 degree celsius global warning above pre-industrial levels, reaching 1.5 degree celsius between 2030 and 2052 if warming continues at the current rate (IPCC, 2018). The effects of global warming can be seen in floods, storms, landslides and many other events caused largely by human activities. Moreover, the impacts are not only environmental but also social, such as changes to health, food supply, society, security and economic growth. These impacts are already being felt around the world, including in Malaysia. For example, climate-related natural disasters, particularly floods, have cost Malaysia RM8 billion in last twenty years (The Malay Mail, 2018). These issues are becoming ever more relevant to corporate governance, in particular to board discussions about corporate strategy pertaining to environmental and social matters. Consistent with the IPCC s goal, the United Nations (UN) Transforming Our World: The 2030 Agenda for Sustainable Development (United Nations, 2015) outlined 17 Sustainable Development Goals (SDGs) that are intended to stimulate action in areas of critical importance for humanity and the planet. These SDGs are increasingly being referred to, including in the UN Global Compact and the Global Reporting Initiatives (GRI) with their released report Integrating the SDGs into Corporate Reporting: A 1

Practical Guide (UNGC, 2018), which may shape corporate ESG disclosure (Huber, Comstock, and Smith, 2018). SDGs emphasis also highlights new areas for empirical research, innovation and stimulating accounting s contribution to sustainable development (Bebbington and Unerman, 2018). In Malaysia, a commitment on these SDGs has also been aligned with Eleventh Malaysia Plan 2016-2020 (11th Malaysia Plan, 2015). The ESG term among others is described as extra material information (Bassen and Kovacs, 2008); it is qualitative and quantitative in nature and a focus of public concern (UNEPFI, 2010); and it can be considered as intangible (Boerner, 2007). The European Federation of Financial Analysts Societies (EFFAS) and Society of Investment Professionals in Germany (DVFA) (EFFAS and DVFA, 2010) have outlined nine topical themes related to ESG factors. These themes are energy efficiency, greenhouse gas (GHG), staff turnover, training and qualification, maturity of workforce, absenteeism rate, litigation risk, corruption and revenues from new products. In Malaysia, Bursa Malaysia and FTSE launched an ESG index, named the FTSE4 Good Bursa Malaysia index in December 2014 (Bursa Malaysia, 2014). Although ESG reporting is a voluntary practice in Malaysia, this index encourages companies to provide high quality data and information on their ESG practices in order for them to be included in the index; reporting is now an essential requirement for any company wishing to be recognised as a responsible corporate citizen (KPMG, 2011). Companies engage with ESG factors in their business strategy as they believe this to be the way forward and that there is benefit in promoting improvement in their overall corporate performance (Ferrero-ferrero, Fernández-izquierdo and Muñoz-torres, 2016; Hřebíček, Štencl, Trenz and Soukopová, 2012; Ortas, Álvarez and Garayar, 2015; Weber, 2014). Additionally, ESG factors reflect risk and opportunities (Kocmanová and 2

Dočekalová, 2012), which would help not only companies but also shareholders and stakeholders at large in business decision-making (Eccles and Viviers, 2011). Commonly, the ESG term is employed in socially responsible investment (SRI) (Viviers and Eccles, 2012; Cadman, 2011; Eccles and Viviers, 2011) and also in corporate social responsibility or sustainability (Buallay, 2018; Cuesta and Valor, 2011). Eccles and Viviers (2011) suggested that SRI is related to an investment strategy that is concerned with issues of social responsibility, ethics and religious consideration, and it is very similar to ESG. Numbers of the companies signing up to the United Nations Principles for Responsible Investment (UNPRI) as a global organization that advances responsible investment increases do so not only because of socially driven motives but in recognition of the impact on profit (Majoch, Hoepner, and Hebb, 2017). Moreover, the development of SRI practices has exerted significant pressure on companies to adopt CSR (Sparkes and Christopher, 2004) and communicate the ESG factors in their corporate reports. As a consequence, companies recognise that engaging in ESG reporting is the way forward in fulfilling the various stakeholder expectations of ESG information from companies around the world; ESG reporting meets stakeholders heterogeneous expectations and demands for information (Van der Laan, Ees and Witteloostuijn, 2008). Few studies take into account all the dimensions of ESG, and therefore fail to present a broad picture of the overall ESG factors (Galbreath, 2013). Most studies focus only on social and environmental aspects and often neglect the governance factor. Studies on an individual factor of environmental, social or governance are not new and in fact these are implicitly relevant to the dimensions in CSR, sustainability and triple bottom line (TBL). Environmental reporting has been examined world-wide, for example, in research by Clarkson, Fang, Li and Richardson (2013), Deegan (2004) and 3

Hooks and Van Staden, (2011). Another strand of studies has examined social and environmental reporting, with environmental reporting being generally considered to be one facet of social reporting. Among the earliest studies in this area are those of, for example, Gray, Kouhy and Lavers (1995) and Gray, Owen, and Maunders (1988). This area of study remains an attractive area of research and continues to grow, as exemplified by recent studies of, for example, Bebbington and Unerman (2018) and Lin, Yu and Chang, (2018). Also increasing in recent years are studies on corporate governance focusing on reporting, as in the work of, for example, Katarachia, Pitoska, Giannarakis and Poutoglidour (2017), Nerantzidis and Tsamis (2017) and Oliveira et al. (2016). There has also been a trend link CSR and corporate governance factors, for example in studies by Kamal and Deegan (2013a), Kolk and Pinkse (2010) and Subramaniam, Kansal, and Babu (2015). The convergence of CSR and CG serves as a driver for long-term performance and provides an efficient tool for risk management and to improve reputation by avoiding corporate scandals (Money and Schepers, 2007). Growing research in environment, social and governance evidences the importance of all ESG factors, not only to companies but also to corporate stakeholders (Gill, 2008). In fact several studies suggest that the concepts of corporate governance and CSR should not be treated separately, as both mutually influence long-term performance (Galbreath, 2013; Gill, 2008; Money and Schepers, 2007; Saltaji, 2013). Considering the importance of all three factors (i.e.environmental, social and governance), this present study introduces an integrative approach to measure ESG reporting. Integrative concept refers to an equitable (Kleine and Hauff, 2009) and simultaneous (Gao and Bansal, 2013) vision for each ESG factor. This can be operationally defined as a holistic corporate concern (i.e. related to environmental, social and governance matters) and subsequently aimed at communicating to their 4

stakeholders in corporate reports. The integrative concept here is captured based on managers perceptions of the importance of reporting items in each ESG factor. The integrative concept is based on horizontal integration related to corporate stakeholders (Kleine and Hauff, 2009). Horizontal integration includes corporate management s communication to multiple stakeholders who have various information demands (Boesso and Kumar, 2009a). Based on normative stakeholder theory, it is expected that managers will consider various kinds of information (i.e. ESG) demanded by multiple stakeholders in their reporting decisions in order to fulfill their moral responsibility and obligation (Deegan, 2006). However, in practice, it is impossible for managers to attend to an unlimited list of stakeholders. Thus, a company will respond to those stakeholders that are deemed to be more important (Dong, Burritt, and Qian, 2014). From a managerial stakeholder perspective, stakeholder identification and salience theory asserts that managers should identify and respond to their stakeholders based on their perception of each stakeholder attributes (Mitchell et al., 1997). In the context of this present study, managers perceptions of a certain stakeholder attributes will influence their decision to report ESG information in an integrative manner. In addition, although stakeholder identification and salience theory states the responsibility of corporate managers towards salient stakeholder, it is possible that managers tend not to respond to them due to difference in corporate characteristics (Tashman and Raelin, 2013). Therefore, to explain any interaction effects of the variables on the relationship between stakeholder attributes and integrative ESG reporting, this present study incorporates two corporate characteristics: corporate financial performance (CFP) and corporate life cycle (CLC). In summary, this present study aims to examine integrative ESG reporting using the Integrative Sustainability Triangle (IST) concept developed by Kleine and Hauff 5

(2009). It further intends to gauge managers perceptions of the attributes of various stakeholder groups rather than solely focusing on investors. These stakeholder groups are shareholders, employees, customers, government, local community and media. The study employs the theory of stakeholder identification and salience developed by Mitchell et al. (1997), and examines how stakeholder attributes impact integrative ESG reporting. Finally, the study also investigates moderating effects of corporate financial performance (CFP) and corporate life cycle (CLC) on the link between stakeholder attributes and integrative ESG reporting. 1.2 MOTIVATION OF THE STUDY The motivation of this present study stems from the emerging trend of ESG reporting and SRI market development in Malaysia. Many stock exchanges, for example, the Securities and Exchanges Bureau of India (SEBI) and the China Securities Regulatory Commission (CSRC) have taken steps to mandate ESG reporting (UNPRI, 2012). In Malaysia, Bursa Malaysia launched the ESG Index, known as FTSE4Good Bursa Malaysia (F4GBM Index), on 22 December 2014 (The Malay Mail, 2014). This index is used to measure the performance of companies which demonstrates strong ESG practices. The introduction of the index is aimed at encouraging and enhancing ESG reporting and practices for Malaysian companies. Consequently, this will facilitate greater international investment attraction. Companies listed in the index will achieve visibility not only within the investment community, but also to various stakeholder groups in demonstrating good ESG practices and reporting.. The trend of reporting ESG related information can be seen worldwide, including in Malaysia, which started in 2007. In 2006 Bursa Malaysia introduced CSR Reporting framework which required all PLCs to include a description of the CSR 6

activities or practices in relation to the marketplace, workplace, community and environment. However, since its implementation, not all companies have taken the reporting seriously. For instance, a study done by Nik Ahmad and Sulaiman (2004) and Buniamin et al. (2008) indicated that the practices of environmental reporting in Malaysia was still generally low. Research by Abd-Mutalib et al. (2014) found that, 3% of sampled firms failed to report their sustainability practices despite the mandatory disclosure required. In October 2015, Bursa Malaysia launched Sustainability Framework in place of CSR Reporting. PLCs should issue a narrative Sustainability Statement with respect to the management of economic, environmental and social risks and opportunities in their annual report. Bursa Malaysia also issued a Sustainability Reporting Guide to aid the PLCs in the their report preparation with the hope that the companies would pay more attention in addressing sustainability related concerns. Although there are initiatives taken by the authority, many companies still see that it as merely a compliance exercise or a public relation purpose. In the Channel News Sustainability Ranking published in 2016, only one Malaysian company, DiGi, was ranked at 83 on the list of 100. Despite the growing initiatives of reporting information related to ESG, it seems that while most corporations acknowledge that sustainability is vital to their businesses, many lack the knowledge or understand to report the information. Therefore, due to the low level of ESG reporting in Malaysia which has led to insufficient data on ESG reporting, the present study focuses on investigating into managers perceptions as they are directly involved in corporate reporting decisions. In developed countries such as the United States and the United Kingdom, ESG practices are at a more advanced level (IFAC, 2012), with a high level of industrialisation and development being the contributing factors towards ESG integration. The US is of particular interest as ESG issues are a rising concern there due 7

to the past corporate scandals, the recent financial crisis and the high degree of environmental pollution (Worldbank, 2014). The actions of stock exchanges and listing regimes are identified as being fundamental to drive ESG reporting in emerging markets through the development and promotion of innovative products such as sustainability indices and listing rules that encourage reporting on ESG factors (EIRIS, 2012). ESG reporting is also regarded as one of direct contributions to the recent establishment of UN SDGs 2030 agenda. The SDGs includes 17 goals which cover such ESG factors as climate action, gender equality, peace, justice and strong institutions (United Nations, 2015). In fact, indirectly, the SDGs provide a context for reviving accounting s contribution to sustainable development (Bebbington and Unerman, 2018). The development of ESG investing has greatly accelerated in academic research, in particular studies published showing a strong association between ESG performance and good financial performance (Ioannou and Serafeim, 2010; Serafeim, 2014; Viviers and Eccles, 2012). In light of the development of this research, the importance of ESG information motivates this present study to be conducted. In the environmental area, for example, issues of deforestation in the Amazon impacts on people s lives in emerging markets (EIRIS, 2012) and all over the world. In Malaysia, the government has imposed more stringent conditions on Lynas which operations involved with radioactive waste that could risk people health and impacts on environment (The Edge Market, 2019). In addition, the global issue of climate change as a systemic risk for investors has been recognised in The Stern Review report (Stern, 2006), which clarified the threats posed to the economy, as well as the financial costs of not disclosing the risk. For instance, environmental information could be used to determine a number of issues such as the decision to invest, decision to lend funds and decision to consume any products (Deegan and Rankin, 1999). 8