T D Sooriyaarachchi

AN ANALYSIS OF THE STATE OF SUSTAINABILITY
REPORTING IN SELECTED SRI LANKAN COMPANIES.
A dissertation submitted to
The Department of Accounting of
The Faculty of Management Studies and Commerce of
The University of Sri Jayewardenepura
In partial fulfilment of the requirement for the
Bachelor of Science in Accounting (Special) Degree
By
Tharani Dakshina Sooriyaarachchi
University of Sri Jayewardenepura, Sri Lanka
November 2018
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DECLARATION
The work described in this dissertation was carried out me under the guidance of Senior
Professor Kennedy D. Gunawardena and has not been submitted elsewhere.
………………………………
Tharani Sooriyaarachchi
..................................................
Senior Prof. Kennedy D. Gunawardena
Research Supervisor
Department of Accounting
Faculty of Management Studies and Commerce
University of Sri Jayewardenepura
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ACKNOWLEDGEMENT
The writing of this dissertation has been assisted by many generous individuals and I wish to
express my humble gratitude to them
First and foremost I would like to express my sincere gratitude to my research supervisor
Senior Prof. Kennedy D. Gunawardena for the extensive knowledge shared with me and for
the generous assistance and the encouragement rendered to me throughout the research
period.
Secondly, I would like to thank the University of Sri Jayewardenepura and the Faculty of
Management Studies and Commerce for the knowledge and the skills given to me during the
past four years.
Thirdly, I would like to thank all the lecturers of the university for the tremendous support
rendered to me during my university journey.
Last but not least I would like to express my heartfelt gratitude to my beloved family and my
friends for supporting me throughout my journey and being my pillars of strength in times of
need and for motivating me to achieve greater heights.
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Table of Contents
Chapter 01: Introduction ............................................................................................................ 1

1.1. Introduction to the study ................................................................................................. 1
1.2. Problem Statement .......................................................................................................... 2
1.3. Objectives of the Study ................................................................................................... 3
1.4. Significance of the study................................................................................................. 4
1.5 Scope of the Study ........................................................................................................... 4
1.7. Structure of the report ..................................................................................................... 5
Chapter 02: Literature Review ................................................................................................... 6
2.1. Introduction ..................................................................................................................... 6
2.2. Sustainability report ........................................................................................................ 6
2.3. Motivating factors that encourage organizations to adopt Sustainability Reporting. ..... 6
2.4. The purpose of Sustainability Reports ............................................................................ 7
2.4.1. Compliance .............................................................................................................. 7
2.4.2. Responsiveness ........................................................................................................ 7
2.4.3. Transparency. ........................................................................................................... 7
2.5. Criticisms against Sustainability Reports. ...................................................................... 8
2.5.1. Voluntary Disclosure ............................................................................................... 9
2.5.2 Self-interest motives and Impression Management. ................................................. 9
2.5.3. Lack of expected level of accountability in the disclosed information. ................ 11
2.5.4 Flaws of sustainability reports. ............................................................................... 12
2.6. Methods adopted to improve the quality of disclosures of sustainability reports. ........ 13
2.6.1. Social Audits .......................................................................................................... 13
2.6.2. Stakeholder Engagement ....................................................................................... 13
2.6.3 Counter Accounting ................................................................................................ 14
2.6.4 Application of Standards......................................................................................... 14
2.6.5. External Assurance ................................................................................................ 15
2.7. The relationship between organizational financial performance and sustainability
reporting ............................................................................................................................... 18
2.8. The relationship between organizational environmental performance and sustainability
reporting ............................................................................................................................... 18
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2.9. The state of sustainability reporting in Sri Lanka ......................................................... 18
2.9.1. Factors that influence the state of sustainability reporting in Sri Lanka................ 18
2.9.2 The current state of sustainability reporting in Sri Lanka....................................... 19
Chapter 03: Research Methodology......................................................................................... 21
3.1. Introduction ................................................................................................................... 21
3.2. Conceptual Framework ................................................................................................. 21
3.3. Data ............................................................................................................................... 22
3.3.1. Sample selection .................................................................................................... 22
3.3.2. Data collection ....................................................................................................... 22
3.3.3.Data Description ..................................................................................................... 22
3.3.4. Model Development............................................................................................... 23
3.3.4.4. Operationalization of variables ........................................................................... 28
Chapter 04: Research Findings and Discussion ....................................................................... 31
4.1. Introduction ................................................................................................................... 31
4.2. State of sustainability reporting .................................................................................... 31
4.2.1. The state of sustainability reporting individually for the selected companies ....... 32
4.2.2. The state of sustainability reporting as a whole for the all selected companies. ... 35
4.3. The trends in sustainability reporting of Sri Lanka ...................................................... 36
4.4 The dominating disclosure category in Sri Lanka ......................................................... 41
4.4. Results from the statistical tests conducted .................................................................. 42
4.4.1. Results of the unit root test .................................................................................... 42
4.4.2. Results of the Hausman test ................................................................................... 42
4.4.2.2 .Hausman test conducted for Equation 02 ........................................................... 44
4.5. The relationship between organizational financial performance and the state of
sustainability reporting in Sri Lanka .................................................................................... 45
4.6. The relationship between organizational environmental performance and the state of
sustainability reporting in Sri Lanka .................................................................................... 47
4.6.1 The relationship between organizational environmental performance and the state
of social and economic sustainability reporting............................................................... 49
.............................................................................................................................................. 49
of social disclosures. ........................................................................................................ 52
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of economic disclosures. .................................................................................................. 54
of environmental disclosures. .......................................................................................... 57
4.6.5. The results from the further tests conducted. ......................................................... 59
4.7. Suggestions for future research ..................................................................................... 60
Chapter 05 - Conclusion .......................................................................................................... 61
Chapter 06: Summary .............................................................................................................. 63
References ................................................................................................................................ 66
Appendixes .............................................................................................................................. 71
Appendix 01: Marking scheme used to calculate the state of sustainability disclosures..... 71
Appendix 02: Graphical representation of sustainability trend analysis for individual
companies ............................................................................................................................ 77
Appendix 03: Unit root tests conducted for each variable ................................................... 86
Appendix 04: Hausman test result for Equation 03 ............................................................. 96
Appendix 05 – Hausman test for equation 04 ...................................................................... 98
Appendix 06 – Hausman test for Equation 05 ..................................................................... 99
Appendix 07 – Hausman test for Equation 06 ................................................................... 100
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List of Figures
Figure 01: The conceptual diagram ......................................................................................... 21

Figure 02 : The variables employed in equations 01 and 02 ................................................... 27
Figure 03 : The past 5 year trend in state of sustainability reporting ...................................... 36
Figure 04 : Hausman test results for Equation 01 .................................................................... 43
Figure 05 : Hausman test results for Equation 02 .................................................................... 44
Figure 06 : Regression analysis tests for equation 01 .............................................................. 46
Figure 07 : Regression analysis test results for Equation 02 ................................................... 48
Figure 08 : The variables of equation 03 ................................................................................. 50
Figure 09 : Regression analysis results for Equation 03 .......................................................... 51
Figure 10 : variables in Equation 04 ........................................................................................ 53
Figure 11: Regression results for Equation 04 ......................................................................... 54
Figure 12 : The variables of Equation 05................................................................................. 55
Figure 13 : The variables of Equation 05................................................................................. 55
Figure 14: Regression results for Equation 05 ......................................................................... 56
Figure 15 : The variables of equation 06 ................................................................................. 58
Figure 16 : The regression results for Equation 06 .................................................................. 59
List of Tables
Table 01 : The state of sustainability reporting in Sri Lanka in the selected companies ......... 34
Table 02 : The state of sustainability reporting in Sri Lanka of Sri Lanka .............................. 35
Table 03 : The state of sustainability reporting as a percentage of first year of study ............ 40
Table 04 : The state of sustainability reporting in Sri Lanka as a percentage of first year of
study ......................................................................................................................................... 40
Table 05: The dominant disclosure category in Sri Lanka ...................................................... 41
Table 06 : Weightage given to disclosure categories............................................................... 41
Table 07 : Marking scheme used to evaluate the state of sustainability reporting .................. 76
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ABSTRACT
The main aim of this study is to analyse the state of sustainability reporting in Sri Lanka. This
paper analyses the current state of sustainability reporting in Sri Lanka, the trends in
sustainability reporting in Sri Lanka, the relationship between organizational financial
performance and the state of sustainability reporting and the relationship between
organizational environmental performance and the state of sustainability reporting.
This study was based on 18 selected listed Sri Lankan companies consecutively recognized
for their sustainability reports by professional accounting bodies. The sustainability
disclosures in annual reports of the selected companies for the past five years (2013-2017)
were analysed.
The state of sustainability reporting for each company for each year was computed by scoring
the GRI – GR core disclosures included in annual reports using a five level ordinal scoring
system developed by Dragmoir (2010) inspired by the GRI guidelines and then the trend
analysis was conducted for each company and all 18 companies as a whole based on the
calculated state of sustainability disclosure finally multiple regressions were conducted to
identify the relationships between organizational financial performance and the state of
sustainability disclosures as well as the relationship between organizational environmental
performance and the state of sustainability disclosures.
Based on the research findings of the study it was concluded that despite not having attained
the expected state of sustainability reporting Sri Lanka is on a continuously improving
journey to achieve there and that the financial performance do not impact on the state of
sustainability reporting but environmental reporting do impact the state of sustainability
reporting in the Sri Lankan context.
Key words: State of sustainability reporting, Trends in sustainability reporting, Financial

performance, Environmental performance
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Chapter 01: Introduction
1.1. Introduction to the study

Noreena Hertz, an English academic, author and an economist stated that
Transparency, accountability and sustainability have become the slogans of the

market leaders. Companies carry out environmental and social audits to court the
consumer, and even the bluest chips woo organisations such as Greenpeace and
Amnesty.
Organizations use accounting as a method of discharging their accountability to stakeholders.

The conventional method of disclosing accountability was issuing financial reports to
demonstrate the organizational financial performance of organizations to discharge the
accountability to the immediate stakeholders of the organizations.
With the heavy attention placed on environmental impacts, sustainability, corporate

governance by the society organizations were compelled to disclose non-financial
information to discharge their accountability to the entire society. In the 1970’s “Social
Reporting” emerged and in the 1980’s “Environmental Reporting” arose with the aim of
disclosing non-financial information to interested parties. “Sustainability Reporting” which
was developed in the 1990’s could be considered as the latest form of environmental
reporting and its’ purpose is disclosure of information related to sustainability performance of
an organization.
As per the GRI, “A sustainability report is a report published by a company or organization

about the economic, environmental and social impacts caused by its everyday activities. A
sustainability report also presents the organization's values and governance model, and
demonstrates the link between its strategy and its commitment to a sustainable global
economy.”
Sustainability reporting and sustainability reporting is not a mandatory requirement in many

countries as well as in Sri Lanka. Even though Sustainability reporting is a voluntary practise
the number of companies that issue sustainability reports is increasing rapidly both in the
global context as well as in the Sri Lankan context.
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Sustainability reporting provide organizations with communication tools to disclose their
sustainability performance to their stakeholders thereby enabling them to meet the
stakeholder expectations about and legal requirements with regard to sustainability
performance. Sustainability reporting provides organizations with a better media exposure
that would establish trust in the society about the organization and to create a better corporate
image about the organization in the public which would help an organization to attract more
investment funds as well as environmentally conscious customers thereby giving them a
competitive advantage over their competitors who are not engaged in sustainability reporting.
The benefits of engaging in sustainability reporting mentioned above motivate an
organization to engage in sustainability reporting and disclose their sustainability
performance.
In order for a sustainability report to provide a true and fair view about the sustainability
performance of an organization then the sustainability report should include transparent,
credible, relevant and complete information about the sustainability performance of the
organization and it should include both positive and negative incidents with regard to
sustainability performance of the organization.
1.2. Problem Statement

Sustainability reporting is voluntary in many countries and GRI is a principle based
organization which provides only guidelines and not strict rules organizations are given the
leeway of deciding what to be presented and what to be omitted in sustainability reports.
Therefore, there exists a practical gap in the expected state of sustainability reporting and the
actual sustainability reporting. Furthermore, as mentioned above organizations engage in
sustainability reporting to appear sustainable and to attract positive social reactions therefore
it is likely that organizations are going to exaggerate about positive sustainability
performance and soften negative sustainability performance.
Hence, it is likely that there is a practical gap between the sustainability performance and
sustainability reporting of organizations.
Furthermore, it’s evident that companies do not necessarily disclose all the available
sustainability information to the stakeholders in their sustainability reports and instead take
an approach of selective disclosure of information. Therefore, it is likely that sustainability
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reporting has not yet reached the state that the GRI has expected and that there is a practical
gap between the current state of sustainability reporting and the expected state of
sustainability reporting.
Moreover, there are no unified opinions in the academic world regarding the relationship
between organizational financial performance and the state of sustainability reporting and the
relationship between organizational environmental performance and the state of sustainability
reporting. Therefore, there exists a theoretical gap with relation to the above mentioned
relationships.
This research aims to analyse the current state of the sustainability reporting of listed
companies in Sri Lanka.
The following problem statement was identified.
What are the existing sustainable disclosure practices in the annual reports of selected listed
companies in Sri Lanka and are there any significant relationships between organizational
financial performance and sustainability reporting and between organizational environmental
performance and sustainability reporting?
1.3. Objectives of the Study

Given below are the objectives of conducting this research.
1. To find out the existing state of sustainability reporting practices of listed companies
in Sri Lanka.
2. To identify the last 5 years’ sustainability reporting trends, after the classification of
disclosure categories.
3. To identify the dominant disclosure category in Sri Lanka and to analyse the reason
for the dominance.
4. To find out the relationship between the organizational financial performance of
organizations and the state of sustainability reporting in Sri Lanka of organizations.
5. To identify the relationship between the organizational environmental performance of
organizations and the state of sustainability reporting in Sri Lanka of organizations.
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1.4. Significance of the study
It is broadly accepted that organizations are moving away from traditional financial reporting
and moving towards sustainability reporting due to an array of reasons. (Lozano et al (2016)).
Even though the rate of diffusion of sustainability reporting is high the extant literature
suggests that the organizations do not disclose all the available information regarding the
sustainability performance of the organization due to the leeway given by the voluntary
nature of the disclosures. (Henriques (2007), (Hummel & Schlick (2016)) and MacLean &
Rebernak (2007). Since the organizations do not fully disclose all the sustainability related
information the state of sustainability reporting in Sri Lanka has still not reached the level of
disclosures expected by the GRI.
This study contributes to the existing literature by identifying the current state of
sustainability reporting in Sri Lanka and the trend of sustainability reporting in Sri Lanka for
the past five years which would be help to understand whether there is a gap between the
desired state of sustainability reporting and the current state of sustainability reporting or not.
Moreover, the available literature fails to give an absolute verdict about both the relationship
reporting and has established mixed thoughts. (Brey & Haavaldsen (2015) and Clarkson, Li,
Richardson, & Vasvari (2008.)) This study contributes to the existing literature by analysing
those relationships in relation to the Sri Lankan context which would help to establish a
verdict in terms of the Sri Lankan context.
1.5 Scope of the Study

The study is based on 18 listed Sri Lankan companies who have been consecutively awarded
for their sustainability reports by professional accounting bodies representing various
business industries including Manufacturing, Banking and Finance, Tourism and Leisure,
Export, Engineering and construction, Power and etc.
Even though, the sample is representative of many industries this sample does not necessarily
represent all the business industries in the world and therefore the findings of this study might
not be universally acceptable to all the business industries in the world.
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Moreover, the sample consists of the best in class when sustainability reporting in the Sri
Lankan context is considered. However, it cannot be assumed that the levels of sustainability
reporting in other business organizations are in par with the selected few organizations.
Therefore, the research findings might not be applicable to all the business entities in the
country.
Auxiliary, only a few key variables were used to measure the relationships between
organizational financial performance and sustainability reporting as well as organizational
environmental performance and sustainability reporting. Therefore, the research findings
might not be applicable if other variables are used instead of the variables used in this study.
Further, this study was conducted in Sri Lanka where sustainability reporting is voluntary.
Hence, the research findings might not be applicable to a country where sustainability
reporting is mandatory.
Finally, the findings might not be applicable to companies who are not listed on a stock
exchange.
1.7. Structure of the report

The rest of this report is organized as follows. Chapter two reviews the existent literature on
sustainability reporting while chapter three discusses the methodology employed in the study
followed by chapter four which analyses the research findings and discusses the findings with
relation to empirical findings and the conclusion of the study and finally chapter five which
provides a brief summary to the research study.
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Chapter 02: Literature Review
2.1. Introduction
This chapter provides an overview of the extant empirical literature on sustainability
reporting which highlights the purpose of engaging in sustainability reporting, the key
motivating factors which compelled organizations to embrace sustainability reporting, the
performance-portrayal gap in sustainability reporting and the relationship between
organizational financial performance and sustainability reporting.
2.2. Sustainability report

The GRI defines a sustainability report as a report published by an organization about the
economic, environmental and social impacts caused by its actions and the consequences of
those actions on the wider society. The GRI believes that a sustainability report benevolences
the organization's values and governance model, and demonstrates the link between its
strategy and its commitment to a sustainable global economy and communicate its
sustainability performance to the stakeholders.
2.3. Motivating factors that encourage organizations to adopt Sustainability Reporting.

As per, Lozano et al (2016) organisations arrive at the decision to publish Sustainability
Reports due to a combination of internal motivations and external stimuli. Herremans et al
(2010) acknowledged that regulative aspects (self-imposed regulation), normative aspects
(shareholders ‘resolutions) and cognitive aspects (corporate values of the top executives) are
the motivations that encourage organisations to engage in sustainability reporting.
Several key researchers in the area of Sustainability reporting identified that organizations
engage in sustainability reporting due to either the belief of the managers that there is an
accountability or a responsibility to report the sustainability performance ((Hasnas (1998),
Donaldson & Preston ( 1995) and Freeman & Reed (1983)) or the desire to comply with the
community expectations (Deegan (2002)) or the desire to comply with industry requirements
or particular codes of conduct (Deegan and Blomquist 2001) or economic rationality
considerations ((Friedman 1962) or to forestall efforts to introduce more onerous disclosure
regulations (Deegan and Blomquist 2001) or to reduce agency costs and to claim legitimacy
(Reverte (2009) ,Watts and Zimmerman (1978) and O’ Dwyer (2002)) or to develop and
6
maintain healthy relationships with stakeholders (Lopez et al (2007) ,Cortez and Cudia
(2011)).
2.4. The purpose of Sustainability Reports

The purpose of a sustainability report is to provide assistance to firms in being accountable
to various stakeholders, to meet their expectations and to demonstrate compliance with
sustainability standards (Roberts (2009), ISEA (Institute on Social and Ethical
Accountability (2003) and Unerman et al (2007)) and to provide stakeholders with enhanced
information to make informed decisions. (GRI 2013).
GRI (2006) emphasizes that Information and processes used in the preparation of
sustainability reports should be gathered, recorded, complied, analysed and disclosed in a
manner establishes the quality and materiality of the information and improves the overall
accountability of the organization.
Adams (2004) has recognized that for sustainability reports to be accountable, then the
reports need to demonstrate corporate acceptance of its ethical, social and environmental
responsibility.
As per the AccountAbility AA1000AS standard on accountability for sustainability,

Accountability is made up of three principles namely transparency, responsiveness and
compliance.
2.4.1. Compliance
As per the GRI (2006) sustainability reports issued by companies should comply with the
GRI guidelines and other regulations applicable.
2.4.2. Responsiveness
The GRI (2006) states that sustainability reports should be responsive to societal expectations
or in other words should react to the changes in social expectations to cater the information
needs of the users of sustainability reports.
2.4.3. Transparency.
The GRI (2006) specified that a sustainability report should reflect positive and negative
aspects of the organization's performance to enable a reasoned assessment of overall
performance and formulated three essential recommendations for the purpose of application
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of the principle of balance which improves the transparency of the information disclosed by
an organization. The GRI guidelines established that when preparing sustainability reports
companies should avoid commissions or selective presentation of material information,
include both adverse and favourable actions of the organization and the corresponding results
should clearly distinguish between the presentation of facts and the company's interpretation
of information.
Several key researchers believe that the transparency of sustainability reports is related to the
credibility, completeness and reliability of the disclosed information. (Menendez- Viso
(2009), Livesey & Kearins (2002) and Dando & Swift (2003)). Credibility of the information
refers to the trustworthiness of the information presented in a sustainability report or in other
words how much can a reader of the sustainability report can trust the organization and the
discharges made by them with regard to sustainability. The principle of completeness of the
information establishes that the entire positive and the negative information regarding
sustainability that is material to the judgements of the readers should be included in
sustainability reports. Reliability of the information presented states that the information
presented should be true and non-fiction and should provide the readers with actual
information to base their decisions on.
Numerous key contributors to the literature on the topic has identified that in the absence of
such transparency, sustainability reports tend to resemble marketing tools primarily aimed at
improving the firm's image and social legitimacy rather than disclosure tools aimed at the
improvement of accountability of the organization. (Lauer (2003), Duchon & Drake (2009),
Milne et al (2006), Deegan et al (2006) and Cho & Patten (2007)).
2.5. Criticisms against Sustainability Reports.

The available literature suggests that most business entities reporting on sustainability and
claim to carry out their business activities sustainability actually have little or nothing to do
with sustainability. (Beder (1997), Gray & Milne (2002), Milne, Tregida & Walton (2003),
Gray (2006-b) and Milne and Kearins & Walton (2006)) and what organizations account for
sustainability are probably not accounts of their true sustainability performance and are often
used as mechanisms of manipulating the users. (Gray & Milne (2002), Gray & Milne (2004)
and Milne, Ball & Gray (2008)).
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Key contributors to the topic has identified that the organizations who are engaged in
sustainability reporting are often limited to reporting and does not practise what they report.
Researchers have further argued that when a corporate body talks of "sustainability" it is not
actually talking about sustainability but (probably) environmental management and some ill-
defined form of social responsibility (Gray (2006), Young & Tilley (2006) and Pataki
(2009)).
The main criticisms regarding sustainability reports are presented below.
2.5.1. Voluntary Disclosure

Since Sustainability reporting is a voluntary, the companies engaged in sustainability
reporting provide sustainability information related to social and environmental issues at their
discretion (Sisaye (2011a), Sisaye (2011b) and O’Dwyer (2003)). As a result of the voluntary
nature of the disclosures provided, the content of the sustainability reports seem extremely
subjective and highly dependent on the type of social and environmental problems that the
companies are addressing in the community.
Firms with superior sustainability performance is given the opportunity to choose high
quality sustainability reporting to signal their superior sustainability performance and firms
with poor sustainability performance are given the chance to engage in low quality
sustainability reporting to protect their legitimacy by the voluntary nature of sustainability
reporting. (Hummel & Schlick (2016)).
Non-financial voluntary disclosures such as sustainability information are often not verified
by auditors and as result the management has more leeway to choose the type, content, and
timing of such disclosures (Choi, Myers, Zang & Ziebart (2010)) which leads managers to
engage in selective disclosure of sustainability information which enables managers to
underplay negative performance and exaggerate positive sustainability performance
(Henriques (2007), MacLean & Rebernak (2007)).
2.5.2 Self-interest motives and Impression Management.
2.5.2.1 Self- Interest Motives

As discussed above organizations are stimulated by a collection of motivators. Even though,
the purpose of engaging in sustainability reporting is the disclosure of accountability to the
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wider society with regard to the sustainability performance of the organization, some
organizations are motivated by self-interested objectives in engaging in sustainability
reporting.
Key researchers have established that the disclosed information in sustainability reports tend
to reflect business interests rather than a genuine concern for transparency and accountability
of the organizations. (Laufer (2003), Cho et al (2010), Adams (2004), Gray (2006) and Milne
et al (2006))
The available literature on the area has identified numerous self- interest objectives which
motivates organizations to engage in sustainability reports.
 The mimicry of the trend set by close competitors in issuing sustainability reports and
the industry pressure (Frenkel (2008))
 To face the threats to the organizational legitimacy (Deegan et al (2000), Patten
(2002)).
 To comply with societal expectations (Deegan (2002))
 The desire to win particular reporting awards for the issued sustainability reports.
(Deegan & Carrol (1993))
 The desire to comply with borrowing requirements and attraction of investment funds
from capital providers concerned about the sustainable performance.
 Management of particular stakeholder groups highly interested in the sustainability
performance of the organization. (Ullman (1985), Roberts (1992), Evan & Freeman
(1988) and Neu et al (1998)).
 Development and maintenance of long term healthy relationships with stakeholders
(Lopez et al (2007) and Cortez & Cudia (2011)).
2.5.2.2 Impression Management tool.

The key contributors to the topic believe that the concern of the management on the
company's image and social legitimacy with various stakeholders tends to favour
sustainability reporting as marketing and impression management rationale intended to
seduce and persuade stakeholders rather than to straightforwardly present the firm's actual
situation with regard to the sustainability performance. (Cerin (2002), Coupland (2006) and
Hooghiemstra (2000)).
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Hence, sustainability reports are often understood in the available literature as marketing
instruments, tools for social legitimation (Duchon and Drake (2009), Milne et al (2006),
Deegan et al (2006) and Cho and Patten (2007)) or impression management strategies (Cho et
al (2012), Merkl- Davies and Brennan (2007), Merkl- Davies and Brennan (2011) and Merkl-
Davies et al (2011)) rather than as a source of reliable information for stakeholders.
Studies have further stressed organizations are using the concept of sustainability reporting
mostly as a marketing tool that gives birth to biased and superficial explanations of
sustainability disconnected from internal practices of the organization. (Springett (2003),
Moneva et al (2006), Markus & Gray (2007), Boiral & Roy (2007) and Devinney (2009)).
2.5.3. Lack of expected level of accountability in the disclosed information.

Critics argue that the practise of sustainable reporting is flawed in the sense that there is a
lack of confidence in the content of the report and the main challenges identified by these
critics are accuracy, sincerity, and completeness (Doane (2000)) or that the non- financial
reports consist of mere images than the actual performance. (Bowers (2010)).
Researchers have emphasized on the fact that sustainability reports often do not meet the
principles of balance, exhaustiveness and transparency and therefore the credibility of the
disclosed information is questioned. (Boiral & Henri (2015), Boiral (2013) and Dingwerth &
Eichinger (2010)) The accuracy of information is one of the main issues in sustainability
reporting due to the lack of balance, completeness and transparency of the presented
information. (Dando & Swift (2003), Perez & Sanchez (2009) and Cho et al (2012)).
Moreover the current literature suggests that due to emphasis placed on the firm's projected
image to outside parties rather than on the substantive integration of reporting practices,
sustainability reporting is not beneficial to transparency and instead encourages a symbolic
and a superficial approach primarily intended to showcase the firm's socially responsible
behaviour. (Milne et al (2006) and Wagner et al (2009)).
Key contributors to the area have further identified that the lack of full disclosure in
sustainability reports, the lack of completeness of information and the little coverage of
negative impacts of organizational activities in sustainability reports reveal that sustainable
reports are issued to meet minimum requirements and the disclosure of performance
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indicators varies significantly even among firms with the same level of application
sustainability reporting principles. (Adams & Whelan (2009) and Aktas et al (2013)).
The available literature further suggests that the disclosure of information in sustainability
reports echoes opportunistic conduct of the reporting entities which results in both the
manipulation of stakeholders and an exploitation of information asymmetry between the
reporting entities and their stakeholders. (Merkl- Davies & Brennan (2007)
2.5.4 Flaws of sustainability reports.

The available literature suggests that sustainability reports are flawed and fails to deliver the
expected results and that the sustainability reports offer no evidence or reasoning that
connects the operation of these organisations with the perilous state of the planet.
Aras & Crowther (2009) emphasized that current sustainability reporting fails to highlight the
environmental risks and opportunities of business and fools the stakeholders including capital
providers by cloaking the readers of the reports in a mask of ignorance and environmental
risks.
Researchers have criticised the sustainability reports for their opacity, questionable
connection with the firm's real situation and the superficial nature and have established that
the sustainability reports are far from reality. (Moneva et al (2006), Unerman et al (2007) and
Gray (2010)).
Furthermore, the lack of clarity in sustainability reports, information overload, inclusion of

confusing and misleading information and the confusing language used to mystify the poor
sustainability performance with the intention of fooling the readers has been highlighted in
the literature (Debord (2002), Rutherford (2003), Cho et al (2015) and Boiral (2013)).
When looking at the criticisms against sustainability reporting highlighted in the available
literature it is visible that the available literature suggests that there is a disclosure gap
between sustainability reporting and corporate sustainability practices.
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2.6. Methods adopted to improve the quality of disclosures of sustainability reports.
With the increasing criticisms on the quality and the level of disclosures of sustainability
reports, various new methods such as social auditing, stakeholder engagement, counter
accounting, applications of standards and etc. were introduced to the corporate world and the
corporate world embraced these methods warmly with the intention of improving the quality
of the disclosures made.
2.6.1. Social Audits

As per Zhang et al (2003), social auditing is a vigorous process consisting of planning,
accounting, auditing and reporting, embedding and stakeholder engagement followed by an
organisation with the intention of accounting for its sustainability performance and improving
its sustainability performance.
The available literature establishes that the process of social auditing enables an organisation
to evaluate its sustainability performance in relation to society's requirements and
expectations which helps organizations to further reinforce their sustainability performance
and sustainability reporting. (Vinten (1990) and Elkington (1997)).
Social auditing is being undertaken by organizations at a rapid rate and regarded as a

successful endeavour that has guided organizations involved with sustainability reporting to
become more transparent and open to stakeholders. (Rotheroe et al 2003)
2.6.2. Stakeholder Engagement

Stakeholder engagement is placing the stakeholder interests at the heart of the corporate
sustainability to enhance the mutual understanding of sustainability and to balance the varied
interests of stakeholders to ensure balanced outcomes. (ISEA (1999), Wassock (2001),
Beckett & Jonker (2002) and Factor (2003)).
AccountAbility Standard 100 ( Hereafter referred as AA 100), states that stakeholder

engagement is not about organisations relinquishing responsibilities for their activities, but
rather using governance to build interactions with their patrons and thereby refining the
overall organizational performance, accountability and sustainability.
13
2.6.3 Counter Accounting
2.6.3.1 Counter Accounting

Boiral (2013) defines counter accounting in the area of sustainability reporting as the process
of identifying and reporting information on an organization's significant economic,
environmental and social issues that comes from external or unofficial sources in view of
verifying, complementing or countering organisations' official report on their performance
and achievements.
2.6.3.2. Criticisms against Counter Accounting

The key contributors to the research areas has often questioned about the extent of reliability
of these counter accounts and whether the counter accounts portray a true and fair view of the
sustainability performance of an organization. Everett & Neu (2000), argue that most if not
all of these tentative endeavours to counter account for sustainability have at their core, an
attempt to capture and describe a reality to convey a true and fair view of the organisation's
sustainability to the readers.
2.6.4 Application of Standards

Sustainability Reporting is a voluntary practise in most of the countries of the world and
organizations have the leeway to engage in sustainability reporting as per their wish which
has resulted in opacity in sustainability reports as discussed above under the topic 2.5.1.
Boiral & Yves Gendron (2010), suggest that a certification based on recognized standards can
therefore be viewed as a mechanism to transform the opacity inherent in the notion of
accountability into a sort of sign or trademark easily recognizable in the eyes of external
stakeholders.
The Sustainability Accounting Standards Board (Hereafter referred as SASB) was founded in
2011 to develop and disseminate sustainability accounting standards. Various organizations
have introduced standards on sustainability even prior to the establishment of the SASB.
However, only the literature on GRI standards will be reviewed under the literature review.
2.6.4.1. GRI
The GRI is an independent international organization founded in 1997 that issues standards
and guidelines to help organizations to comprehend and acknowledge the impacts of their
14
actions on the society and the environment. The GRI standards are regarded as the best
standards of guiding and certifying sustainability reporting.
As per Roca & Seacry (2012), the guidelines focus on the context of corporate sustainability
reports, the vision of the company concerning sustainability, their objectives in sustainability
and their sustainable performances.
Key contributors to the literature on the research area has identified that the GRI aims to
develop a voluntary reporting framework that will elevate sustainability reporting practices to
a level equivalent to that of financial reporting in terms of rigour, comparability, auditability
and general acceptance (Willis (2003), Bhimani & Soonwalla (2005), Simnett et al (2009)
and GRI (2010)) and the implementation of GRI indicators has increased the rigor and
reliability of the reporting process (Dando & Swift (2003) and KPMG (2013)).
2.6.4.2. Criticisms against GRI

However, there are several arguments that suggest that application of GRI standards has not
improved the quality of the sustainability reports.
Mori & Best (2017) criticises GRI framework stating that GRI accepts sustainability reports
without any restrictions such as a clear definition of organisation's boundaries, development
of integrated indicators or the attachment of an independent third party assurance statement.
Furthermore, the GRI framework is criticised for being general and containing many
indicators that are not equally useful for all the companies (Goel 2005), failing to capture all
the relevant sustainability development indicators (Moneva (2005) and Asif et al (2011)) and
the guidelines being of voluntary nature and failing to resolve the incompleteness problem of
sustainability reports and not being regulated and worked out to a degree close to the
financial standards (Ihlen 2008)
2.6.5. External Assurance
2.6.5.1. External Assurance

The GRI define external assurance as the use of external, independent reviews of
sustainability management processes and final disclosures is intended to increase the
robustness, accuracy and trustworthiness of disclosed information.
15
SustainAbility's (2002) analysis of 'sustainability reporting' indicates that 68% of the world's
best sustainability reports (as selected by an 'independent selection committee' working for
the SustainAbility consultancy), feature some form of assurance statement.
The key researchers of the area has identified that certification practices of sustainability
reporting (also called assurance) are influenced, to a large extent, by the exemplification of
financial auditing and that sustainability reports often appear as a logical and necessary
extension of financial reports, considered by many as too narrowly focused on economic
indicators and shareholder's interests (Yongvanih & Guthrie (2006), Bebbignton and Gray
(1993) and Unerman et al (2007)) and also that certification mechanisms are supposed to
guarantee, through auditing procedure, the compliance of organizational practices or accounts
with specific standards (Power (1997), KPMG (2008) and Rasche (2009)).
The current literature considers the assurance process as a prized tool which provides
integrity for sustainability reports and contributes towards organisational improvement in
terms of improvements in internal control structures, increase in transparency and credibility
in relation to the information disclosed to their stakeholders. ( Deegan et al (2006), Hodge et
al (2009), Simnett et al (2009), Zorio et al (2012) and Junior et al (2014)).
Several researchers have identified that assurance provides several benefits such as reduction
in agency costs (Carey et al (2000)), deliberation of greater user confidence in the accuracy
and validity of the information provided and the improvement of transparency and
accountability of the information disclosed. (ISEA (2002) and Gray (2010))
2.6.5.2. Criticisms against External Assurance.
2.6.5.2.1. Unregulated nature of External Assurance

Several key contributors to the area argues that because assurance of sustainability reports is
not regulated in the majority of countries, there are different types of assurance providers
providing assurance services using different frameworks , scopes, methodologies and
assurance statements (O'Dwyer & Owen (2005) ,Deegan et al (2006) , Moneva et al (2006),
KPMG & SustainAbility (2008), Owen et al (2009) and Perego (2009)). Mori & Best (2017)
has identified that the existence of different types of assurance processes conducted by
different types of assurance providers affects the capacity of stakeholders to understand the
16
assurance practise and the assurance statements provided by the assurers which limits the
usefulness of assurance statements.
2.6.5.2.2. Independence of Auditors

Even though, some available literature argues that external audits contribute to strengthening
the credibility of the information for stakeholders (Adams & Evans (2004), Wheeler &
Elkington (2001) and Simnet et al (2009)), the reliability and independence of the assurance
process of sustainability reports have been continuously questioned by various key
researchers. (Patten (1991), Laufer (2003), Dando & Swift (2003), O'Dwyer & Owen (2005),
O’Dwyer et al (2011)).
Boiral & Gendron (2010), states that as a result of institutional weakness regarding ethics
regulation and training requirements, it is expected that sustainability auditors will be much
influenced by commercial pressures while not being significantly affected by the threat of
professional sanctions in case of misconduct or conflict of interest.
2.6.5.2.3 Limitations of External Assurance

Key contributors to the research area has identified that lack of transparency and comparable
verification criteria are among the various problems relating to the practice of external
verification and assurance, limited stakeholder participation hinders the value of external
assurance (O'Dwyer & Owen (2007), Kamp-Roelands et al (2008) and Manetti & Becatti
(2009)).
Adams & Whelan (2009), highlights that the external assurers place their focus only on the
verification of reports and not on assessing sustainability performance and are unable to
guarantee that a sustainability report will not be used to legitimize corporate action
Bepari & Mollik (2016) has identified that due to scope limitation placed on the assurance
engagement, the reluctance of the assurors to address the assurance statements to
stakeholders and the lack of stakeholder's engagement in the assurance process, the assurance
practices of sustainability reporting serves more a an internal control instrument rather than
an accountability mechanism. Furthermore, Power (1997) suggests that much assurance
practise is designed to bring inquiry to an end.
17
2.7. The relationship between organizational financial performance and sustainability
reporting
Brey & Haavaldsen (2015) , has identified that the extant literature on the area has
established inconsistent schools of thoughts regarding the relationship between
organizational financial performance of a company and sustainability reporting and more
specifically suggest both that there is a there is both a positive and non-existent relationship
between the two factors.
Moreover, Dowell et al. (2000) found that previous studies conducted on the financial
performance and the quality of sustainability reporting affecting the firm value have
generated consistent results in multinational enterprises in USA and Europe, but shown
mixed results in developed and emerging countries.
2.8. The relationship between organizational environmental performance and

sustainability reporting
Boiral (2010) established that there is a significant association between contemporaneous
environmental performance and sustainability disclosure and that bigger polluters tend to
disclose more on their activities with the objective of preserving their legitimacy.
However, prior researches conducted on the relationship between organizational

environmental performance and sustainability reporting provides mixed results on the
relationship between corporate environmental performance and the level of sustainability
disclosures where some researchers have established that there is a relationship between the
two and some have established that there is no relationship between the two. (Clarkson, Li,
Richardson, & Vasvari (2008)
2.9. The state of sustainability reporting in Sri Lanka
2.9.1. Factors that influence the state of sustainability reporting in Sri Lanka
Shamil et al (2014) examined the influence of board characteristics on sustainability reporting
in Sri Lanka, a country considered as a developing economy with an emerging equity market.
It was revealed that both board size and dual leadership are positively associated with
sustainability reporting and boards with female directors are negatively associated with
18
Abeydeera et al (2016) examined the relationship between Sri Lankan culture influenced by
the strong presence in Buddhism and sustainability reporting. It was identified that
sustainability reporting for majority of the analysed organizations was simply about explicitly
embracing global standardisation. Furthermore, it was established that the standardisation of
corporate sustainability reporting through the pursuit of globally accepted reporting
frameworks is argued to have caused disconnect between local culture and context and the
corporate representations evident in such reporting.
The extant literature reveals that sustainability reporting is likely to be influenced by firm size
and firm growth and that younger firms are likely to adopt sustainability reporting (Fernando
& Pandey (2012) & Shamil et al (2014)).
2.9.2 The current state of sustainability reporting in Sri Lanka.

Dissanayakea, Tilta, Lobob (2016) established that in Sri Lanka there is a major focus on
social indicators, despite the poor environmental record in the country when it comes to
sustainability reporting in Sri Lanka. Furthermore, it is suggested that the economic context
therefore appears to be a significant factor influencing how sustainability reporting develops
in Sri Lanka.
The existing literature suggests that majority of Sri Lankan companies do not consider GRI
Guidelines in reporting for sustainability and disclose sustainability information in annual
reports in various manner without paying reference to the GRI guidelines (Senaratne &
Liyanagedara (2009) and Fernando & Pandey (2012)).
The extant literature further reveals that there is an expectation gap as to the information
needs of stakeholders on sustainability reporting and the information disclosed in the annual
reports of companies in the Sri Lankan context (Senaratne & Liyanagedara (2009) and
Wijesinghe (2012)).
Moreover, the available literature establishes that there is long way forward for Sri Lankan
companies in respect of sustainability reporting (Senaratne & Liyanagedara (2009)) but
despite the long way there is an attractive growth reported in the level of disclosures in
sustainability parameters (Wijesinghe (2012)).
19
20
Chapter 03: Research Methodology
3.1. Introduction
Following the analysis of literature, this section presents an overview of the conceptual
framework, the source and the type of data used, statistical tests performed and other methods
employed in order to achieve the research objectives.
3.2. Conceptual Framework
Financial Performance
Tobin Q
Economic Value
Profit Before Tax The state of

sustainability
reporting
Environmental Performance
Energy Consumption
Greenhouse gas
(GHG) Emmissions
Water Withdrawal
Figure 01: The conceptual diagram
21
3.3. Data
3.3.1. Sample selection

This study is based on 18 Sri Lankan listed companies who have been recognized
consecutively for their sustainability reports by professional accounting bodies including
ACCA and ICASL. A sample consisting of the 18 organizations who are considered to be the
top practitioners of sustainability reporting was chosen because analysing the sustainability
reports the best in class when it comes sustainability reporting would give a better
understanding about the current state of sustainability reporting in Sri Lanka.
3.3.2. Data collection

The required data was collected through annual reports which includes sustainability reports
analysis conducted for all selected companies for five years each (From 2013 – 2017). The
collected is described below under the topic “data description”.
3.3.3.Data Description
The collected data are described under three sub topics namely the state of sustainability
reporting in Sri Lanka, organizational financial performance and organizational
environmental performance.
3.3.3.1. The state of sustainability reporting in Sri Lanka

The state of sustainability reporting in Sri Lanka for each company for each year are
measured by scoring the degree of GRI – G4 core disclosures disclosed in sustainability
reports using a five level ordinal scale scoring system built by Dragmoir (2010) to identify
the state of sustainability reporting in Sri Lanka in Sri Lanka.
Every core disclosure of the GRI – G4 guidelines presented in sustainability reports of each
company for each year were scored using the following scheme for a maximum possible
score of 220 where maximum possible scores for economic, environmental and social
disclosures are 28, 68 and 124 each respectively.
The marking scheme used to score the core sustainability disclosures is given as an appendix
at the end of the paper. (Appendix 01)
22
The five level ordinal scoring scale used is provided below.
0 – Performance data not present. (Including any non-quantitative references to performance)
1 – Performance and/or governance data is presented only for the current period.
2 - The report and the information contained within it can be compared on a year –to – year
basis.
3 – The criteria above, plus the data measurement techniques and bases for calculations are
adequately described and can be replicated with similar results.
4 – The criteria above, plus the organization’s performance can be compared with appropriate
benchmarks.
3.3.3.2. Organizational financial performance

The organizational financial performance of each company for each year was measured using
four variables namely the total assets of the company, market capitalization and the economic
value generated and profit before tax. These data was extracted from the annual reports of
each company for the respective year.
3.3.3.3. Organizational environmental performance

The Organizational environmental performance of each company for each year was measured
using two components namely the energy consumption and greenhouse gas (GHG)
emissions, solid waste disposed and water withdrawal. These data was extracted from the
annual reports of each company for the respective year.
3.3.4. Model Development

This sub section provides a synopsis of the model employed, statistical tests conducted and
other techniques used to accomplish the research objectives of the study. The methods
employed to obtain each objective are described.
In order to achieve the first objective of the study ,the core GRI – G4 sustainability reporting
made by organizations are ranked using the scoring system developed by Dragmoir (2010) as
discussed above under the topic 3.2.3 to identify the current state of sustainability reporting in
Sri Lanka.
23
Secondly, both a graphical analysis using line charts and a percentage analysis using the first
year under consideration (2013) as the base year are conducted as trend analysis to achieve
the second objective of the study.
Both the third and the final objectives of the study are achieved through conducting multiple
regression analysis.
3.3.4.1. Development of Hypotheses
3.3.4.1.1. The relationship between organizational financial performance and the state
of sustainability reporting.
The following hypotheses were developed with the aim of achieving the third objective of
identifying the relationship between organizational financial performance of an organization
and the state of sustainability reporting in Sri Lanka of the said organization.
The main hypotheses with relation to the relationship between organizational financial
performance and the state of sustainability reporting are given below.
H0 - There is no significant relationship between the state of sustainability reporting and

organizational financial performance by Tobin Q, Economic value and profit before tax.
H1 - There is a significant relationship between the state of sustainability reporting and

organizational financial performance by Tobin Q, Economic value and profit before tax.
The auxiliary hypotheses for each element are as given below.
1. Tobin Q
H01 – There is no significant relationship between Tobin Q and the state of

H11 – There is a significant relationship between Tobin Q and the state of

24
2. Economic Value
H02 – There is no significant relationship between Economic value and the state of
H12 – There is a significant relationship between Economic value and the state of
3. Profit before Tax

H03 – There is no significant relationship between Profit before Tax and the state of
H13 – There is a significant relationship between Profit Before Tax and the state of
3.3.4.1.2. The relationship between organizational environmental performance and the

state of sustainability reporting.
The following hypotheses were developed with the aim of achieving the final objective of
identifying the relationship between organizational environmental performance of an
organization and the state of sustainability reporting in Sri Lanka of the said organization.
The main hypotheses with relation to the relationship between organizational environmental
performance and the state of sustainability reporting are given below.

organizational environmental performance by energy consumption, GHG emissions and
water withdrawal.

organizational financial performance by energy consumption, GHG emissions and water
withdrawal.
The auxiliary hypotheses for each element are as given below.
25
1. Energy consumption
H04 – There is no significant relationship between Energy consumption and the state
H14 – There is a significant relationship between Energy consumption and the state of
2. GHG emissions
H05 – There is no significant relationship between GHG emissions and the state of
H15 – There is a significant relationship between GHG emissions and the state of
3. Water withdrawal
H06 – There is no significant relationship between Water withdrawal and the state of
H16 – There is a significant relationship between Water withdrawal and the state of
3.3.4.2. Statistical model specification

The method employed to study the relationship between the state of sustainability reporting
in Sri Lanka and organizational financial performance as well as the relationship between the
state of sustainability reporting in Sri Lanka and organizational environmental performance is
multiple regressions.
Multiple regression method is used since it is an established principle methodology and it is

empirically evident that the researcher is given the ability to incorporate a large range of
variables into the model which would enable the researcher to analyse several variables at
once (Jenson et al (1996), Chen et al (1986)).
The statistical data software package E-views is used to analyse the data since the data
package is more appropriate to analyse panel data.
26
3.3.4.3. Regression models
Given below are the regression equations employed by the study. The variables employed are
briefly mentioned by Figures
Equation 01 was used to identify the relationship between organizational financial

performance and state of sustainability reporting in terms of Tobin Q, Economic value added
and Profit before Tax. Equation 02 was used to analyse the relationship between
organizational environmental performance and the state of sustainability reporting in Sri
Lanka in terms of Energy consumption, GHG emissions and Water withdrawal.
Y = β0 + β1X1 + β2X2+ β3X3
Equation 01 : The relationship between financial performance and the state of sustainability reporting
Y = β0 + β4X4+ β5X5+ β6X6
Equation 02 : The relationship between environmental performance and the state of sustainability reporting
Y = The state of sustainability reporting in Sri Lanka.
β0 = The intercept of the regression
β1, β2, β3, β4, β5, β6, = Coefficient of variables
X1 = Tobin Q
X2 = Economic value added (Rs. Million)
X3 = Profit before Tax (Rs. Million)
X4 = Energy Consumption (Kw/H)
X5 = GHG emissions (Metric Tonne)
X6 = Water withdrawal (Litres)
Figure 02 : The variables employed in equations 01 and 02
27
3.3.4.4. Operationalization of variables
3.3.4.4.1. Independent Variables

The study uses six variables to measure the relationship between the state of sustainability
reporting and organizational financial performance and organizational environmental
performance. Data for the seven independent variables were extracted from the annual reports
for the respective companies for the respective time periods.
The six independent variables are given under the sub section 3.2.4.3. Regression model is
briefly described below.
1. Tobin Q is an investor ratio calculated by dividing the market capitalisation of a

company by its total assets. This was considered as an independent variable since this
demonstrates the market value of the company’s asstes.
2. Economic value generated is the after-tax profit that exceeds the required minimum
return on capital. Economic value generated was used as an independent variable of
measuring financial performance since it is measures the true profitability created for
the organization.
3. Profit before tax is the profit generated by an entity after incurring all the operating
costs and the finance costs. Profit before tax measures the performance of an
organization for a year. Hence, profit before tax was considered as an independent
variable that demonstrates the organizational financial performance.
4. Total energy consumption refers to the total energy consumed by an organization
during a year. This was considered to be an independent variable which measures the
environmental performance of an organization since the energy coming from various
energy sources including electricity, diesel and petrol are generated by consuming
natural resources such as coal, water and wind.
5. Effluents and emissions refer to the discharges of sewage, gas, radiation and other
elements made to the natural environment by an entity. This was considered to be an
independent variable which measures the organizational environmental performance
since it measures the damage done to the nature by the organization.
6. Total water withdrawal describes the total amount of water withdrawn from a surface
water or groundwater source. Water withdrawal was considered as a measurement of
28
organizational environmental performance since it measures the water extracted by
organizations in their operations.
3.3.4.4.1. Dependent Variable

The dependent variable of the study is the state of sustainability reporting in Sri Lanka. The
state of sustainability for each individual company for each year was calculated by scoring
the disclosures made by individual companies with regard to the core disclosures of GRI –
G4 guidelines as explained under the sub section 3.3.3.1.The state of sustainability reporting
in Sri Lanka
3.3.4.5. Statistical tests

Prior to conducting the regression analysis a unit root test (Augmented Dickey Fuller –ADF)
was conducted to identify whether data is stationary or has got unit root and a Hausman test
was conducted to identify the type of panel data collected.
A confidence level of 95% was considered for the both tests.
3.3.4.5.1. Augmented Dickey Fuller test

Augmented Dickey Fuller test was used to identify whether the data included in the variables
have got a unit root or not. The presence of unit root in a data series indicates that there is a
possible existence of a long term relationship among the data in the series.
The unit root test for stationarity was conducted out in level difference and for the purpose of
conducting a unit root test the following hypotheses were used.
H0- Variable has got unit root
H1- Variable is stationary
Each variable was tested individually for unit root using the probabilities for ADF – Fisher
Chi – square.
3.3.4.5.2. Hausman Test

The Hausman test was conducted to identify the type of the data used for the analysis i.e.
whether the data has the random effect or the fixed effect. For the purpose of conducting the
Hausman test the following two hypotheses were used.
29
H0 – Data is significantly different for both across different companies and for the same
company across time is not significantly different. (Random Effect)
H1- Data is significantly different across different companies but the data for the same
company across time is not significantly different. (Fixed Effect)
30
Chapter 04: Research Findings and Discussion
4.1. Introduction
This section covers the data analysis conducted and then discusses the findings derived from
such analysis. The research findings will be discussed under few key themes namely the state
of sustainability reporting in Sri Lanka, the trends in sustainability reporting of Sri Lanka, the
dominant disclosure category in Sri Lanka, the results from the statistical tests conducted, the
relationship between organizational financial performance and sustainability reporting and
finally the relationship between organizational environmental performance and sustainability
reporting.
The collected data was analysed under four main phases in the study.
Under the first phase of the analysis the state of sustainability reporting in Sri Lanka of each
company for each year has been calculated by scoring the core disclosure elements of the
GRI – G4 disclosures using the five level ordinal scale scoring system developed by
Dragmoir (2010). The calculated data is presented using a descriptive table.
Based on the findings of the first phase, the second phase analyses the trends in sustainability
reporting of the country over the past five years using both a graphical analysis and a
percentage change analysis.
The third and fourth phases of the study examines the relationship between the state of
sustainability reporting in Sri Lanka calculated under the first phase and organizational
financial performance of the organization and the organizational environmental performance
of the organization using multiple regression analysis respectively.
4.2. State of sustainability reporting

Table 01 demonstrates the state of sustainability for all the 18 companies for each year under
consideration calculated by scoring the sustainability reporting using the system developed
by Dragmoir (2010).
31
The maximum possible scores for a company for a year were 28, 72 and 124 for economic,
environmental and social disclosures respectively and for 224 points for total sustainability
reporting.
4.2.1. The state of sustainability reporting individually for the selected companies
Company The state of reporting

Year Economic Environment Social Sustainability
Company 1 2013 8 5 23 36
2014 9 6 25 40
2015 10 6 26 42
2016 12 11 31 54
2017 14 14 34 62
Company 2 2013 9 18 36 63
2014 12 20 47 79
2015 13 24 56 93
2016 20 30 72 122
2017 24 35 80 139
Company 3 2013 12 19 35 66
2014 13 22 44 79
2015 14 24 51 89
2016 17 29 69 115
2017 20 35 76 131
Company 4 2013 10 7 29 46
2014 11 7 32 50
2015 12 10 33 55
2016 15 13 34 62
2017 20 15 37 72
Company 5 2013 10 11 27 48
2014 13 15 31 59
2015 15 16 34 65
2016 17 20 42 79
2017 20 26 52 98
Company 6 2013 17 21 21 59
32
2014 19 24 27 70
2015 20 25 30 75
2016 23 27 39 89
2017 25 31 46 102
Company 7 2013 16 14 29 59
2014 16 20 35 71
2015 17 26 41 84
2016 20 29 46 95
2017 23 32 51 106
Company 8 2013 10 23 17 50
2014 11 28 19 58
2015 12 36 22 70
2016 14 37 26 77
2017 16 40 30 86
Company 9 2013 9 3 13 25
2014 11 25 29 65
2015 14 33 38 85
2016 17 37 41 95
2017 19 41 49 109
Company 10 2013 4 2 16 22
2014 6 3 25 34
2015 8 7 35 50
2016 14 7 45 66
2017 18 11 56 85
Company 11 2013 8 1 1 10
2014 9 1 1 11
2015 10 30 30 70
2016 11 37 45 93
2017 13 47 54 114
Company 12 2013 11 8 33 52
2014 13 21 35 69
2015 15 32 39 86
2016 17 36 45 98
2017 22 41 51 114
33
Company 13 2013 7 1 12 20
2014 8 7 16 31
2015 9 13 19 41
2016 11 16 21 48
2017 12 18 26 56
Company 14 2013 9 7 28 44
2014 10 5 31 46
2015 10 13 34 57
2016 11 16 37 64
2017 12 18 42 72
Company 15 2013 14 17 24 55
2014 15 26 29 70
2015 16 26 31 73
2016 17 42 38 97
2017 19 50 42 111
Company 16 2013 10 12 19 41
2014 11 20 22 53
2015 12 29 25 66
2016 13 32 31 76
2017 14 36 36 86
Company 17 2013 11 12 23 46
2014 13 14 31 58
2015 15 26 36 77
2016 17 31 38 86
2017 19 34 42 95
Company 18 2013 12 9 37 58
2014 13 19 39 71
2015 14 22 41 77
2016 15 26 48 89
2017 16 29 51 96
Table 01 : The state of sustainability reporting in Sri Lanka in the selected companies
34
4.2.2. The state of sustainability reporting as a whole for the all selected companies.
The summation of the scores obtained by the individual companies for each year was then
calculated to identify the state of sustainability reporting in Sri Lanka for each period as
demonstrated by Table 02.
The maximum possible score for the country per annum was 504, 1296, 2232 and 4032 for
economic, environmental, social and total sustainability reporting respectively.
Company The state of reporting

All 18 selected companies 2013 187 190 423 800
2014 213 283 518 1014
2015 236 398 621 1255
2016 281 476 748 1505
2017 326 553 855 1734
Table 02 : The state of sustainability reporting in Sri Lanka of Sri Lanka
The current state of sustainability reporting in Sri Lanka can be analysed using the scores
relevant for the year 2017 since the latest publicly available sustainability information are for
the financial year 2017/2018 (2017). Therefore, the current state of sustainability reporting in
Sri Lanka can be identified as 1734 points out of 4032 maximum possible points as illustrated
by Table 02.
When analysing both the Table 01 and Table 02 it’s evident that the state of sustainability
reporting in Sri Lanka in Sri Lanka has not yet reached the expected level of disclosures
(Senaratne & Liyanagedara (2009) and Wijesinghe (2012)).
The above identified gap between the expected state of sustainability reporting and the
current state of sustainability reporting arrives from the following factors. Sustainability
reporting is a voluntary disclosure practise (Hummel & Schlick (2016)) managers are given
more leeway in selecting the content, type and the timing of the disclosures included in
sustainability reports (Choi, Myers, Zang & Ziebart (2010)) which leads organisations to
engage in selective reporting of information (Henriques (2007), MacLean & Rebernak
(2007)) which hinders the completeness of the sustainability reports and creates a gap
35
between the expected state of sustainability reporting and the actual state of sustainability
reporting.
Hence, it is palpable that the current state of sustainability reporting in Sri Lanka has not
reached the expected level of sustainability reporting (Senaratne & Liyanagedara (2009) and
Wijesinghe (2012)) as companies do not fully disclose the available information related to the
core disclosures set out by the GRI- G4 guiding index.
4.3. The trends in sustainability reporting of Sri Lanka

The state of sustainability reporting in Sri Lanka of companies for each year were then
analysed both graphically and using a percentage analysis to identify the trend of
sustainability reporting of Sri Lanka for the past 5 years.
Figure 05 demonstrates the trend of sustainability reporting of the selected 18 companies for
the past 5 years as a whole by plotting the state of disclosures for all the 18 companies for the
past 5 years. The graphical representations for the trend analysis for the 18 individual
companies that demonstrate the trend of sustainability reporting of the selected 18 companies
are included as an appendix. (Appendix 02)
Figure 03 : The past 5 year trend in state of sustainability reporting
36
Table 03 analyses the trend of sustainability reporting for each individual company by
comparing the state of sustainability reporting in Sri Lanka for each year as a percentage of
the state of sustainability reporting in Sri Lanka of the first year under review.
Table 04 analyses the trend of sustainability reporting for all the selected 18 listed companies
by comparing the state of sustainability reporting in Sri Lanka for each year as a percentage
of the state of sustainability reporting in Sri Lanka of the first year under review (2013).
Company As a percentage of state of disclosures in 2013

Company 1 2013 100% 100% 100% 100%
2014 113% 120% 109% 111%
2015 125% 120% 113% 117%
2016 150% 220% 135% 150%
2017 175% 280% 148% 172%
Company 2 2013 100% 100% 100% 100%
2014 133% 111% 131% 125%
2015 144% 133% 156% 148%
2016 222% 167% 200% 194%
2017 267% 194% 222% 221%
Company 3 2013 100% 100% 100% 100%
2014 108% 116% 126% 120%
2015 117% 126% 146% 135%
2016 142% 153% 197% 174%
2017 167% 184% 217% 198%
Company 4 2013 100% 100% 100% 100%
2014 110% 100% 110% 109%
2015 120% 143% 114% 120%
2016 150% 186% 117% 135%
2017 200% 214% 128% 157%
Company 5 2013 100% 100% 100% 100%
2014 130% 136% 115% 123%
2015 150% 145% 126% 135%
37
2016 170% 182% 156% 165%
2017 200% 236% 193% 204%
Company 6 2013 100% 100% 100% 100%
2014 112% 114% 129% 119%
2015 118% 119% 143% 127%
2016 135% 129% 186% 151%
2017 147% 148% 219% 173%
Company 7 2013 100% 100% 100% 100%
2014 100% 143% 121% 120%
2015 106% 186% 141% 142%
2016 125% 207% 159% 161%
2017 144% 229% 176% 180%
Company 8 2013 100% 100% 100% 100%
2014 110% 122% 112% 116%
2015 120% 157% 129% 140%
2016 140% 161% 153% 154%
2017 160% 174% 176% 172%
Company 9 2013 100% 100% 100% 100%
2014 122% 833% 223% 260%
2015 156% 1100% 292% 340%
2016 189% 1233% 315% 380%
2017 211% 1367% 377% 436%
Company 10 2013 100% 100% 100% 100%
2014 150% 150% 156% 155%
2015 200% 350% 219% 227%
2016 350% 350% 281% 300%
2017 450% 550% 350% 386%
Company 11 2013 100% 100% 100% 100%
2014 113% 100% 100% 110%
2015 125% 3000% 3000% 700%
38
2016 138% 3700% 4500% 930%
2017 163% 4700% 5400% 1140%
Company 12 2013 100% 100% 100% 100%
2014 118% 263% 106% 133%
2015 136% 400% 118% 165%
2016 155% 450% 136% 188%
2017 200% 513% 155% 219%
Company 13 2013 100% 100% 100% 100%
2014 114% 700% 133% 155%
2015 129% 1300% 158% 205%
2016 157% 1600% 175% 240%
2017 171% 1800% 217% 280%
Company 14 2013 100% 100% 100% 100%
2014 111% 71% 111% 105%
2015 111% 186% 121% 130%
2016 122% 229% 132% 145%
2017 133% 257% 150% 164%
Company 15 2013 100% 100% 100% 100%
2014 107% 153% 121% 127%
2015 114% 153% 129% 133%
2016 121% 247% 158% 176%
2017 136% 294% 175% 202%
Company 16 2013 100% 100% 100% 100%
2014 110% 167% 116% 129%
2015 120% 242% 132% 161%
2016 130% 267% 163% 185%
2017 140% 300% 189% 210%
Company 17 2013 100% 100% 100% 100%
2014 118% 117% 135% 126%
2015 136% 217% 157% 167%
39
2016 155% 258% 165% 187%
2017 173% 283% 183% 207%
Company 18 2013 100% 100% 100% 100%
2014 108% 211% 105% 122%
2015 117% 244% 111% 133%
2016 125% 289% 130% 153%
2017 133% 322% 138% 166%
Table 03 : The state of sustainability reporting as a percentage of first year of study

All 18 companies as a whole 2013 100% 100% 100% 100%
2014 114% 149% 122% 127%
2015 126% 209% 147% 157%
2016 150% 251% 177% 188%
2017 174% 291% 202% 217%
Table 04 : The state of sustainability reporting in Sri Lanka as a percentage of first year of study
When analysing Figure 05, Table 03 and Table 04 it is evident that there is an upward trend
in sustainability reporting in Sri Lanka (Wijesinghe (2012) and that the state of economic
disclosures, environmental disclosures, social disclosures have improved continuously for the
last five years.
Hence, it can be assumed that the state of sustainability reporting in Sri Lanka would further
improve in the future provided that this upward trend continues in the future.
40
4.4 The dominating disclosure category in Sri Lanka
As a % of state of total sustainability disclosure
Total
Company Year Economic Environment Social Sustainability
All 18 companies 2013 23% 24% 53% 100%
2014 21% 28% 51% 100%
2015 19% 32% 49% 100%
2016 19% 32% 50% 100%
2017 19% 32% 49% 100%
Table 05: The dominant disclosure category in Sri Lanka
As indicated in Table 05 majority of the sustainability reporting state is comprised of the

scores obtained for social disclosures. As established in the literature review critics argue that
more prominence is given to social indicators over economic and environmental indicators by
Sri Lankan companies (Dissanayakea, Tilta, Lobob (2016). Hence, it is evident that
organizations report on more social indicators since the GRI- GR core disclosures are more
stretched towards the social indicator disclosures.
Table 06 given below analyses the weightage given to each of the key sustainability element
(economic, environmental and social) under the scoring system. The scoring system is
directly based on the the GRI – GR core disclosures. As depicted by Table 03 the fact that a
majority of the elements included in the scoring scheme were social elements where the
maximum possible score for a company per year was 220 where maximum possible scores
for economic, environmental and social disclosures are 28, 68 and 124 each respectively.
Therefore, it is evident that the social indicators in the GRI – G4 index are more prominent
than economic and environmental disclosures and as a result Sri Lankan companies give
more prominence to social indicators over economic and environmental disclosures.
As a % of state of total sustainability disclosure

Total
Description Economic Environment Social Sustainability
Maximum possible score for a company per year 13% 31% 56% 100%
Table 06 : Weightage given to disclosure categories
41
4.4. Results from the statistical tests conducted
Prior to conducting the two multiple regression tests for the data a Unit root test and a
Hausman test was conducted to analyse the data included in the variables.
4.4.1. Results of the unit root test

The Null hypotheses of the data series having a unit root was rejected if the probability under
the ADF – Fisher Chi – square method was less than 5%.
The unit root tests conducted for all the variables gave the conclusion that the data has got
unit root i.e. the data is not stationary. The data in all the variables used having unit root
indicated that the variables can be used to establish relationships.
The test results of the Augmented Dickey Fuller tests conducted for each variable are
included as appendix (Appendix 03).
4.4.2. Results of the Hausman test

Two separate Hausman tests were conducted to the variables included in Equation 01 and
Equation 02 separately. The purpose of conducting the Hausman test was to identify which
panel data model could be used to perform the regression analysis for the two equations
because if a wrong model is used the generated results could be incorrect and the correct
relationship between the variables could not be found out.
4.4.2.1 Hausman test conducted for Equation 01

As given in Figure 04 the probability for the Hausman test (Cross section summary) was
0.0000 which is less than 5%. Hence we accepted the alternative hypothesis which states that
the most appropriate model to measure the relationship between the organizational financial
performance and the state of sustainability reporting in Sri Lanka is the “Fixed Effect
Model”.
42
Correlated Random Effects - Hausman Test
Equation: Untitled
Test cross-section random effects
Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob.
Cross-section random 47.699219 3 0.0000
Cross-section random effects test comparisons:
Variable Fixed Random Var(Diff.) Prob.
X1 -64.669343 -22.506126 70.105757 0.0000

X2 0.000345 0.000106 0.000000 0.1777
X3 0.002762 0.001140 0.000000 0.0057
Cross-section random effects test equation:

Dependent Variable: Y
Method: Panel Least Squares
Date: 11/26/18 Time: 13:40
Sample: 2013 2017
Periods included: 5
Cross-sections included: 18
Total panel (balanced) observations: 90
Variable Coefficient Std. Error t-Statistic Prob.
C 75.90245 8.168319 9.292297 0.0000

X1 -64.66934 10.80476 -5.985267 0.0000
X2 0.000345 0.000243 1.418350 0.1606
X3 0.002762 0.000943 2.928739 0.0046
Effects Specification
Cross-section fixed (dummy variables)
R-squared 0.694381 Mean dependent var 70.08889

Adjusted R-squared 0.605796 S.D. dependent var 26.03914
S.E. of regression 16.34886 Akaike info criterion 8.627156
Sum squared resid 18442.67 Schwarz criterion 9.210445
Log likelihood -367.2220 Hannan-Quinn criter. 8.862373
F-statistic 7.838562 Durbin-Watson stat 0.782465
Prob(F-statistic) 0.000000
Figure 04 : Hausman test results for Equation 01
This result demarcate that there is a significant difference between the data of the 18
companies but there is no significant difference between data applicable for the different time
periods (from 2013 -2017) of an individual company.
Further the results indicate that the regression test for the equation should be conducted
using the “Fixed Effect Model”
43
4.4.2.2 .Hausman test conducted for Equation 02
As given in Figure 05 the probability for the Hausman test (Cross section summary) was
0.0017 which is less than 5%. Hence we accepted the alternative hypothesis which states that
the most appropriate model to measure the relationship between the organizational
environmental performance and the state of sustainability reporting in Sri Lanka is the “Fixed
Effect Model.”

Equation: Untitled
X5 0.000001 0.000001 0.000000 0.0204

X6 0.001093 0.000277 0.000000 0.0202
X7 0.000000 0.000000 0.000000 0.2204

Date: 11/22/18 Time: 11:04
Sample: 2013 2017
Periods included: 5
C 43.86130 7.128578 6.152882 0.0000

X5 1.08E-06 3.07E-07 3.526618 0.0008
X6 0.001093 0.000377 2.897176 0.0050
X7 1.17E-10 5.49E-11 2.128219 0.0369

Figure 05 : Hausman test results for Equation 02
44
This result demarcate that there is a significant difference between the data of the 18
companies but there is no significant difference between data applicable for the different time
periods (from 2013 -2017) of an individual company.
Further the results indicate that the regression test for the equation should be conducted using
the “Fixed Effect Model”.
4.5. The relationship between organizational financial performance and the state of
sustainability reporting in Sri Lanka
As discussed under 4.4.2.1 the results of the Hausman test indicated that in order to identify
the relationship between organizational financial performance and sustainability performance
the regression should be conducted under the “Fixed Effect Model”.
The following hypotheses were tested using the results generated from the regression test.
H0 – There is no significant relationship between the organizational financial performance of

an organization and the state of sustainability reporting in Sri Lanka.
H1 – There is a significant relationship between the organizational financial performance of

an organization and the state of sustainability reporting in Sri Lanka.
H01 – There is no significant relationship between Tobin Q and the state of

H11 – There is a significant relationship between Tobin Q and the state of

H02 – There is no significant relationship between Economic value and the state of
H12 – There is a significant relationship between Economic value and the state of
H03 – There is no significant relationship between Profit before Tax and the state of
H13 – There is a significant relationship between Profit Before Tax and the state of
45
Date: 11/26/18 Time: 13:47
Sample: 2013 2017
Periods included: 5
C 75.90245 8.168319 9.292297 0.0000

X1 -64.66934 10.80476 -5.985267 0.0000
X2 0.000345 0.000243 1.418350 0.1606
X3 0.002762 0.000943 2.928739 0.0046

Figure 06 : Regression analysis tests for equation 01
As per the results of the regression presented by Figure 06 the probabilities for X1 and X3
were lower than 5% and was greater than 5% and therefore, hypotheses H11 , H02 and H13
were accepted for all the variables.
Hence, it was identified that there are significant relationships between the state of
sustainability reporting in Sri Lanka and Tobin Q as well as the state of sustainability
reporting and Profit before Tax but there is no significant relationship between the state of
sustainability reporting and Economic value generated.
As established previously the available literature gives mixed thoughts regarding the
relationship between organizational financial performance and sustainability disclosures in
developing countries (Dowell et al. (2000)).
Sri Lanka is a developing country with a high diffusion rate of sustainability reporting. And
this study has managed to establish that there is no significant relationship between
organizational financial performance and the state of sustainability disclosures in the Sri
46
Lankan context. The fact that there is no significant relationship between organizational
financial performance and the state of sustainability reporting might be due to the fact that
organizations are motivated by a large number of non-monetary factors including legitimacy,
regulations and recognition (((Hasnas (1998), Donaldson and Preston ( 1995) and Freeman
and Reed (1983)) which would encourage the organizations to engage in sustainability
reporting even when the organization is not performing financially well.
4.6. The relationship between organizational environmental performance and the state
of sustainability reporting in Sri Lanka
As discussed under 4.4.2.1 the results of the Hausman test indicated that in order to identify
the relationship between organizational environmental performance and sustainability
performance the regression should be conducted under the “Fixed Effect Model”.
The following hypotheses were tested using the results generated from the regression test.

water withdrawal.

withdrawal.
47
Date: 11/26/18 Time: 13:55
Sample: 2013 2017
Periods included: 5
C 43.86130 7.128578 6.152882 0.0000

X4 1.08E-06 3.07E-07 3.526618 0.0008
X5 0.001093 0.000377 2.897176 0.0050
X6 1.17E-10 5.49E-11 2.128219 0.0369

Figure 07 : Regression analysis test results for Equation 02
As indicated in Figure 07 given above the probabilities for all the variables were less than 5%
and therefore, the alternative hypothesis was accepted for all the variables. In other words
H14, H15 and H16 were accepted.
Hence, it was identified that there is a significant relationship between the state of
sustainability reporting in Sri Lanka and organizational environmental performance in terms
of energy consumption, effluents & emissions and water withdrawal. It’s noteworthy to
mention that higher the consumption of natural resources and higher the emissions and
effluents released to the environment higher the state of sustainability disclosures are. This
could be due to the fact organizations often use sustainability reporting to appear legitimate
(Duchon and Drake (2009), Milne et al (2006), Deegan et al (2006) and Cho and Patten
(2007)).
48
As established previously the available literature gives mixed thoughts regarding the
relationship between organizational environmental performance and sustainability disclosures
(Clarkson, Li, Richardson, & Vasvari (2008)). This research has answered the contradiction
in opinions regarding the relationship between organizational environmental performance and
the state of sustainability reporting in relation to the Sri Lankan context by identifying that
there is a significant relationship between organizational environmental performance and
sustainability reporting with regard to Sri Lanka.
Moreover, further tests were conducted to identify whether the significant relationship that
exists between organizational environmental performance and the state of sustainability as
established above is manipulated by the state of sustainability disclosures or not.
of social and economic sustainability reporting.
A regression analysis was conducted to analyse the relationship between organizational
environmental performance and the state of social and economic sustainability reporting by
excluding the state of environmental reporting from the state of sustainability reporting and
then testing for the relationship by conducting a regression analysis based on the equation
given below in Equation 03.
Y1 = β0 + β4X4+ β5X5 + β6X6
Equation 03 : The relationship between the state of economic and

social disclosures and organizational environmental performance
The variables of equation 03 are briefly described below in Figure 08.
Y1 = The state of economic and social sustainability reporting in

Sri Lanka.
β5, β6, β7 = Coefficient of variables

49
X5 = Total energy consumption (Kw/H)
Figure 08 : The variables of equation 03
Prior to conducting the regression test the variables were tested for both the unit root and the
data model applicable.
The unit root of data was tested by conducting the ADF test. The results of the test indicated
that the data has got unit root and therefore, a relationship can be established using the data
included in the variables. (Appendix 03)
The applicable data model to identify the regression was identified through conducting a
Hausman test for the variables. The Hausman test revealed that the Fixed Effect model is the
most appropriate to conduct the regression analysis since the company wise data is different
through time but data for the same company across time is not significantly different.
(Appendix 04)
The following test hypotheses were tested.
H0 - There is no significant relationship between the state of economic and social reporting
and organizational environmental performance by energy consumption, GHG emissions and
water withdrawal.
H1 - There is a significant relationship between the state of economic and social reporting and
withdrawal.
of economic and social reporting.
50
economic and social reporting.
Dependent Variable: Y1
Date: 11/26/18 Time: 14:08
Sample: 2013 2017
Periods included: 5
C 34.15925 4.642524 7.357903 0.0000

X4 5.94E-07 2.00E-07 2.968962 0.0041
X5 0.000630 0.000246 2.564684 0.0125
X6 5.35E-11 3.58E-11 1.497150 0.1389

Figure 09 : Regression analysis results for Equation 03
The probability was less than 5% for both X4 and X5 whereas the probability was greater
than 5% for X6. Therefore, the alternative hypothesis was accepted for both X4 and X5 and
the null hypothesis was accepted for X6.
51
Hence, it was identified that there are significant relationship between the state of economic
and social reporting and Energy consumption and between the state of economic and social
reporting and GHG emissions. But there is no significant relationship between the state of
economic and social disclosure and water withdrawal.
of social disclosures.
(Appendix 05)
H0 - There is no significant relationship between the state of social reporting and

water withdrawal.
H1 - There is a significant relationship between the state of social reporting and organizational
financial performance by energy consumption, GHG emissions and water withdrawal.
of social reporting.
social reporting.
social reporting.
52
social reporting.
social reporting.
social reporting.
Y2 = β0 + β4X4+ β5X5 + β6X6
Equation 04: The relationship between the environmental

performance and the state of social reporting
Y2 = The state of social sustainability reporting in Sri Lanka.
X6 = Effluents and emissions (GHG emissions in Metric Tonne)
X7 = Total water withdrawal (Litres)
Figure 10 : variables in Equation 04
As demarcated by Figure 11 the probability was less than 5% for both X4 and X5 whereas
the probability was greater than 5% for X6. Therefore, the alternative hypothesis was
accepted for both X4 and X5 and the null hypothesis was accepted for X6.
and social reporting and Energy consumption and between the state of social reporting and
GHG emissions. But there is no significant relationship between the state of social disclosure
and water withdrawal.
53
Date: 11/26/18 Time: 14:26
Sample: 2013 2017
Periods included: 5
C 23.16064 3.565627 6.495532 0.0000

X4 5.56E-07 1.54E-07 3.618990 0.0006
X5 0.000491 0.000189 2.603372 0.0113
X6 4.17E-11 2.75E-11 1.518472 0.1335

Figure 11: Regression results for Equation 04
of economic disclosures.
Hausman test for the variables. The Hausman test revealed that the Random Effect model is
the most appropriate to conduct the regression analysis since both the company wise data is
and data for the same company across time are significantly different. (Appendix 06)
54
H0 - There is no significant relationship between the state of economic reporting and
water withdrawal.
H1 - There is a significant relationship between the state of economic reporting and

withdrawal.
of economic reporting.
economic reporting.
economic reporting.
economic reporting.
economic reporting.
economic reporting.
Y3 = β0 + β4X4+ β5X5 + β6X6

55
Y3 = The state of economic sustainability reporting in Sri Lanka.
Method: Panel EGLS (Cross-section random effects)
Date: 11/26/18 Time: 14:46
Sample: 2013 2017
Periods included: 5
Swamy and Arora estimator of component variances
C 13.24201 0.905973 14.61634 0.0000

X4 9.35E-09 3.91E-08 0.239172 0.8115
X5 2.33E-05 2.51E-05 0.926971 0.3565
X6 9.51E-12 8.06E-12 1.179794 0.2413
S.D. Rho
Cross-section random 2.836477 0.4241

Idiosyncratic random 3.305429 0.5759
Weighted Statistics

Adjusted R-squared -0.007240 S.D. dependent var 3.355875
S.E. of regression 3.368001 Sum squared resid 975.5351
Unweighted Statistics

Sum squared resid 1627.419 Durbin-Watson stat 0.287611
Figure 14: Regression results for Equation 05
As demarcated by Figure 13 the probability was greater than 5% . Therefore, the null
hypothesis was accepted for all the variables.
56
Hence, it was identified that there are no significant relationships between the state of social
disclosure and energy consumption, GHG emissions and water withdrawal.
of environmental disclosures.
(Appendix 07)
H0 - There is no significant relationship between the state of environmental reporting and

water withdrawal.
H1 - There is a significant relationship between the state of environmental reporting and

withdrawal.
of environmental reporting.
environmental reporting.
57
Y3 = β0 + β4X4+ β5X5 + β6X6

Y4 = The state of economic sustainability reporting in Sri Lanka.
Figure 15 : The variables of equation 06
58
Date: 11/26/18 Time: 15:01
Sample: 2013 2017
Periods included: 5
C 9.702049 2.853306 3.400283 0.0011

X4 4.89E-07 1.23E-07 3.980047 0.0002
X5 0.000463 0.000151 3.065265 0.0031
X6 6.33E-11 2.20E-11 2.881086 0.0053

Figure 16 : The regression results for Equation 06
As demarcated by Figure 16 the probability was less than 5% for both X4 and X5 and greater
than 5% for X6 . Therefore, the null hypothesis was accepted for all the variables. .
Therefore, the alternative hypothesis was accepted for both X4 and X5 and the null
hypothesis was accepted for X6.
and social reporting and Energy consumption and between the state of social reporting and
GHG emissions. But there is no significant relationship between the state of social disclosure
and water withdrawal.
4.6.5. The results from the further tests conducted.

The results from the further tests conducted as discussed by 4.6.1, 4.6.2, 4.6.3 and 4.6.4
establishes that whether the significant relationship that exists between organizational
environmental performance and the state of sustainability as established under 4.6 is not
manipulated by the state of sustainability disclosures.
59
4.7. Suggestions for future research
It is suggested that to avoid the research limitations mentioned above future research can be
conducted by expanding the research sample to be more representative of industries that are
not represented in the sample.
Furthermore, this study was conducted in a developing country where sustainability reporting
is mandatory therefore this study can be done in a developed country where sustainability
reporting is mandatory.
Moreover, the research can be further improved by incorporating a large range of variables
that measure organizational financial and environmental performance to the selected few key
variables used in this study.
Finally, this study can be further improved to identify the relationship between organizational
social performance and the state of sustainability reporting by incorporating social
performance indicators as independent variables to the regression model used.
60
Chapter 05 - Conclusion
The main aim of the research was to analyse the state of sustainability reporting in Sri Lanka.
This aim was achieved through four research objectives and given below is the summarized
conclusion of the study regarding the four objectives based on the research findings
mentioned above.
The first objective was to identify the current state of sustainability reporting in Sri Lanka.
This objective was achieved through the scoring of sustainability disclosures included in
annual reports using a scoring system developed by Dragmoir (2010). As indicated by the
research findings all the selected 18 companies as a whole only managed to obtain a score of
1734 points out of 4032 maximum points for the latest financial year with published annual
reports. Hence, it can be established that there is a gap between the current state of
sustainability reporting and the expected state of sustainability reporting in the Sri Lankan
context. This finding is in agreement with the similar literature available for the country
(Senaratne & Liyanagedara (2009) and Wijesinghe (2012)) and for the global context
(Henriques (2007), MacLean & Rebernak (2007))
The second objective was to identify the trends in sustainability reporting of Sri Lanka. This
objective was achieved through analysing the state of sustainability reporting through time
using both a graphical analysis and a percentage analysis. As per the research findings it can
be established that there is a upward trend in the state of sustainability reporting in Sri Lanka
and that companies have increased both the number and the quality of their sustainability
disclosures over time. This finding is in line with the available literature. (Wijesinghe (2012)
The third objective was to identify the dominating sustainability disclosure category in Sri
Lanka and to identify the reasons for the dominance. This finding supports the argument
created by Dissanayakea, Tilta & Lobob (2016). It was identified that social disclosures
dominate economic and environmental disclosures and it was further identified that the high
weightage given by the GRI – G4 core disclosures to social disclosures compared to
economic and environmental disclosures.
The fourth objective was to identify whether there exists a significant relationship between
organizational financial performance and the state of sustainability reporting. The research
findings revealed that there are significant relationships between the state of sustainability
61
reporting in Sri Lanka and Tobin Q as well as the state of sustainability reporting and Profit
before Tax but there is no significant relationship between the state of sustainability reporting
and Economic value generated. The identified relationship supports the claim made by
Shamil et al (2014) stating that sustainability reporting is influenced by firm size.
The final objective was to identify whether there exists a significant relationship between
organizational environmental performance and the state of sustainability reporting. The
research findings revealed that there is a significant relationship between the organizational
environmental performance and the state of sustainability reporting. It was also revealed that
higher the organizational impact on the environment higher the state of sustainability
disclosures was. Boiral (2010)
Hence, it can be concluded that despite not having attained the expected state of sustainability
reporting Sri Lanka is on a continuously improving journey to achieve there and that the
financial performance do not impact on the state of sustainability reporting but environmental
reporting do impact the state of sustainability reporting in the Sri Lankan context.
62
Chapter 06: Summary
The stakeholders became more concerned about non-financial information regarding the
impact of the organization on the environment and the society with the increasing number of
corporate failures, damages to the environment by corporates, exploitation of human rights
and the wider society by corporations and etc. With the development of technology and
improved literacy stakeholders began to request more and more non-financial information
and the corporate world embraced reporting of non-financial data with open hands with the
dynamic changes that took place in stakeholder’s interests. Sustainability reporting came into
play after several evolutions in non- financial reporting.
However, organizations adopt sustainability reporting with the objective of achieving their
own personal agendas and to appear legitimate rather than with the intention of providing the
actual information to the stakeholders ((Ullman (1985), Roberts (1992), Evan & Freeman
(1988), Neu et al (1998)).Therefore, there exists a gap between the sustainability reporting
and the sustainability performance.
The empirical evidence further suggests that even though several measures such as external
assurance, social auditing, counter accounting and etc. have been implemented to improve the
level of disclosures and the quality of sustainability reporting has not achieved the expected
state. (Patten (1991), Laufer (2003), Dando & Swift (2003), O'Dwyer & Owen (2005) and
O’Dwyer et al (2011)). Moreover, it further reveals that due to the voluntary nature of these
disclosures organizations tend to selectively disclose sustainability information and therefore
the current state of sustainability reporting might not be the expected state of disclosures
(Sisaye (2011a), Sisaye (2011b) and O’Dwyer (2003)).
Organizations sometimes tend to engage in sustainability reporting even if they are not
performing soundly both financially and environmentally. The academic world is in grey
about the relationship between organizational financial performance and the state of
sustainability reporting as well as the relationship between the organizational environmental
performance and the state of sustainability reporting since empirical evidence gives mixed
conclusions regarding the relationships (Brey & Haavaldsen (2015) and Clarkson,Li,
Richardson, & Vasvari (2008.))
63
Hence, this study was conducted with the aim of obtaining answers to the above mentioned
gaps in the literature with regard sustainability reporting in the Sri Lankan context. The first
objective was to identify the current state of sustainability reporting in Sri Lanka. The second
objective was to identify the trends in sustainability reporting of Sri Lanka. The third
objective was to identify whether there exists a significant relationship between
organizational financial performance and the state of sustainability reporting. The fourth
objective was to identify whether there exists a significant relationship between
organizational environmental performance and the state of sustainability reporting.
The study was conducted based on data from 18 selected listed Sri Lankan companies for the
past 5 years (2013- 2017). The state of sustainability reporting was calculated by scoring the
sustainability disclosures of companies using a five level ordinal scale scoring system and
other data was directly extracted from the annual reports published by the respective
company. Prior to conducting statistical tests the data was tested for unit root to identify the
applicability of the data to measure an relationship and the Hausman test was conducted to
determine the regression model to be used.
Based on the research findings it was concluded that despite not having attained the expected
state of sustainability reporting Sri Lanka is on a continuously improving journey to achieve
there and that the financial performance do not impact on the state of sustainability reporting
but environmental reporting do impact the state of sustainability reporting in the Sri Lankan
context.
The study contributed to the existing literature by identifying the current state of
sustainability reporting in Sri Lanka and that there is a gap between the expected state of
sustainability reporting and the current state of sustainability reporting. Furthermore, the
research findings contributed to the existing literature by finding out that there is an upward
trend in the state of sustainability reporting. Moreover, the research was able to provide a
verdict to the contradictory opinions in the existing literature regarding both the relationship
reporting.
64
However, there were several limitations to the research. This research was conducted based
on 18 listed Sri Lankan companies representing a range of business industries that has
consecutively won awards for their sustainability reports where sustainability reporting is
voluntary. Hence, the findings of this research might not be applicable to companies from
countries where sustainability reporting is mandatory, companies that are not publicly listed
and are not from the same industries as the companies in the sample represent.
Further, the study of the research created grounds for future research where the sample can be
expanded to be more inclusive of companies ranging different industries, companies from
countries with mandatory sustainability reporting and the variables used can be expanded to
be inclusive of more performance indicators.
Moreover, this study can be further improved to identify the relationship between
organizational social performance and the state of sustainability reporting by incorporating
social performance indicators as independent variables to the regression model used.
65
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Appendixes
Appendix 01: Marking scheme used to calculate the state of sustainability disclosures.
Maximum
Core GRI - G4 disclosure Score
1. Economic
1.1 Economic Performance
1.1.1 Direct economic value generated and distributed, including
revenues, operating costs, employee compensation, donations and other
community investments, retained earnings, and payments to capital
providers and governments. 4
1.1.2.Financial implications and other risks and opportunities for the
organization’s activities due to climate change. 4
1.1.3.Coverage of the organization’s defined benefit plan obligations. 4
1.1.4.Significant financial assistance received from government. 4
1.2. Market Presence
1.2.2Policy, practices, and proportion of spending on locally-based
suppliers at significant locations of operation. 4
1.2.3Procedures for local hiring and proportion of senior management

hired from the local community at locations of significant operation. 4
1.3. Indirect Economic impacts
1.3.1Development and impact of infrastructure investments and services
provided primarily for public benefit through commercial, in-kind, or pro
bono engagement. 4
Maximum Possible Economic disclosure score 28
2. Environmental
2.1. Material
2.1.1Materials used by weight or volume. 4
2.1.2. Percentage of materials used that are recycled input materials. 4
71
Maximum
2.2 Energy
2.2.1Direct energy consumption by primary energy
source. 4
2.2.2.Indirect energy consumption by primary
source. 4
2.3. Water
2.3.1.Total water withdrawal by source. 4
2.4. Biodiversity
2.4.1Location and size of land owned, leased, managed in, or adjacent to,
protec0ted areas and areas of high biodiversity value outside protected
areas. 4
2.4.2Description of significant impacts of activities, products, and
services on biodiversity in protected areas and areas of high biodiversity
value outside protected areas. 4
2.5. Emmissions, Effluents & Waste
2.5.1.Total direct and indirect greenhouse gas
emissions by weight. 4
2.5.2Other relevant indirect greenhouse gas
emissions by weight. 4
2.5.4.Emissions of ozone-depleting substances by
weight. 4
2.5.5.NO, SO, and other significant air emissions by
type and weight. 4
2.5.6 Total water discharge by quality and
destination. 4
2.5.7.Total weight of waste by type and disposal
method. 4
2.5.8.Total number and volume of significant spills. 4
2.6. Products & Services
72
Maximum
2.6.1.Initiatives to mitigate environmental impacts
of products and services, and extent of impact
mitigation. 4
2.6.2.Percentage of products sold and their
packaging materials that are reclaimed by
category. 4
2.7.Compliance 4
2.7.1.Monetary value of significant fines and total number of non-
monetary sanctions for noncompliance with environmental laws and
regulations. 4
Maximum Possible Environmental disclosure score 72
3. Social Performance Indicators
3.1. Labour Practices & Decent Work
3.1.1. Employment
3.1.1.1Total workforce by employment type, employment contract, and
region, broken down by gender. 4
3.1.1.2.Total number and rate of new employee hires and employee
turnover by age group, gender, and region. 4
3.1.1.4. Return to work and retention rates after parental leave, by gender. 4
3.1.2. Labour / Management Relationship
3.1.2.1Percentage of employees covered by collective bargaining
agreements. 4
3.1.2.2.Minimum notice period(s) regarding operational changes,
including whether it is specified in collective agreements. 4
3.1.3 Occupational Health & Safety
3.1.3.2.Rates of injury, occupational diseases, lost days, and absenteeism,

and total number of work-related fatalities, by region and by gender. 4
73
Maximum
3.1.3.3. Education, training, counselling, prevention, and risk-control
programs in place to assist workforce members, their families, or
community members regarding serious diseases. 4
3.1.4. Training & Education
3.1.4.1. Average hours of training per year per employee by gender, and
by employee category. 4
3.1.5. Diversity & Equal Opportunity
3.1.5.1. Composition of governance bodies and breakdown of employees
per employee category according to gender, age group, minority group
membership, and other indicators of diversity. 4
3.1.6. Equal remuneration for women & men
3.1.6.1. Ratio of basic salary and remuneration of
women to men by employee category, by
significant locations of operation. 4
3.2. Human Rights
3.2.1.Investment & Procurement Practices
3.2.1.1. Percentage and total number of significant investment agreements
and contracts that include clauses incorporating human rights concerns, or
that have undergone human rights screening. 4
3.2.1.2. Percentage of significant suppliers, contractors, and other
business partners that have undergone human rights screening, and actions
taken. 4
3.2.1.3. Total hours of employee training on policies and procedures
concerning aspects of human rights that are relevant to operations,
including the percentage of employees trained. 4
3.2.2. Non Discrimination
3.2.2.1. Total number of incidents of discrimination and corrective actions
taken. 4
3.2.3. Freedom of Association & Collective Bargaining
74
Maximum
3.2.3.1. Operations and significant suppliers identified in which the right
to exercise freedom of association and collective bargaining may be
violated or at significant risk, and actions taken to support these rights. 4
3.2.4.Child Labour
3.2.4.1. Operations and significant suppliers identified as having
significant risk for incidents of child labour, and measures taken to
contribute to the effective abolition of child labour. 4
3.2.5.Forced & Compulsory Labour
3.2.5.1. Operations and significant suppliers identified as having
significant risk for incidents of forced or compulsory labour, and
measures to contribute to the elimination of all forms of forced or
compulsory labour. 4
3.2.8. Assessment
3.2.8.1. Percentage and total number of operations that have been subject
to human rights reviews and/or impact assessments. 4
3.2.9.Remedation
3.2.9.1. Number of grievances related to human rights filed, addressed and
resolved through formal grievance mechanisms. 4
3.3. Society
3.3.1. Local Communities
3.3.1.1. Percentage of operations with implemented local community
engagement, impact assessments, and development programs. 4
3.3.1.2. Operations with significant potential or actual negative impacts on
local communities. 4
3.3.1.3. Prevention and mitigation measures implemented in operations

with significant potential or actual negative impacts on local communities. 4
3.3.2. Corruption
3.3.2.1. Percentage and total number of business units analysed for risks
related to corruption. 4
75
Maximum
3.3.2.2. Percentage of employees trained in organization’s anti-corruption
policies and procedures. 4
3.3.2.3. Actions taken in response to incidents of corruption. 4
3.3.3. Public Policy
3.3.3.1. Public policy positions and participation in public policy
development and lobbying. 4
3.3.5. Compliance
3.3.5.1. Monetary value of significant fines and total number of non-
monetary sanctions for noncompliance with laws and regulations. 4
3.4.Product Responsibility
3.4.1.Customer Health & Safety
3.4.1.1Life cycle stages in which health and safety impacts of products
and services are assessed for improvement, and percentage of significant
products and services categories subject to such procedures. 4
3.4.2. Product & Service labelling
3.4.2.1. Type of product and service information required by procedures
and percentage of significant products and services subject to such
information requirements. 4
3.4.3. Marketing Communications
3.4.3.1. Programs for adherence to laws, standards, and voluntary codes
related to marketing communications, including advertising, promotion,
and sponsorship. 4
3.4.5. Compliance
3.4.5.1. Monetary value of significant fines for noncompliance with laws

and regulations concerning the provision and use of products and services. 4
Maximum Possible Social disclosure score 124
Maximum Possible score for Total Sustainability disclosures 224
Table 07 : Marking scheme used to evaluate the state of sustainability reporting
76
Appendix 02: Graphical representation of sustainability trend analysis for individual
companies
Company 1
70
60
50
Economic
40
Environment
30
Social
20 Total Sustainability
10
0
2013 2014 2015 2016 2017
Company 2
160
140
120
100 Economic
80 Environment
60 Social
20
0
2013 2014 2015 2016 2017
77
Company 3
140
120
100
Economic
80
Environment
60
Social
20
0
2013 2014 2015 2016 2017
Company 4
80
70
60
50 Economic
40 Environment
30 Social
10
0
2013 2014 2015 2016 2017
78
Company 5
120
100
80 Economic
60 Environment
Social
40
Total Sustainability
20
0
2013 2014 2015 2016 2017
Company 6
120
100
80 Economic
60 Environment
Social
40
20
0
2013 2014 2015 2016 2017
79
Company 7
120
100
80 Economic
60 Environment
Social
40
20
0
2013 2014 2015 2016 2017
Company 8
100
90
80
70
Economic
60
50 Environment
40 Social
20
10
0
2013 2014 2015 2016 2017
80
Company 9
120
100
80 Economic
60 Environment
Social
40
20
0
2013 2014 2015 2016 2017
Company 10
90
80
70
60 Economic
50
Environment
40
Social
30
20
10
0
2013 2014 2015 2016 2017
81
Company 11
120
100
80 Economic
60 Environment
Social
40
20
0
2013 2014 2015 2016 2017
Company 12
120
100
80 Economic
60 Environment
Social
40
20
0
2013 2014 2015 2016 2017
82
Company 13
60
50
40 Economic
30 Environment
Social
20
10
0
2013 2014 2015 2016 2017
Company 14
80
70
60
50 Economic
40 Environment
30 Social
10
0
2013 2014 2015 2016 2017
83
Company 15
120
100
80 Economic
60 Environment
Social
40
20
0
2013 2014 2015 2016 2017
Company 16
100
90
80
70
Economic
60
50 Environment
40 Social
20
10
0
2013 2014 2015 2016 2017
84
Company 17
100
90
80
70
Economic
60
50 Environment
40 Social
20
10
0
2013 2014 2015 2016 2017
Company 18
120
100
80 Economic
60 Environment
Social
40
20
0
2013 2014 2015 2016 2017
85
Appendix 03: Unit root tests conducted for each variable
Hypothesis
H0- Variable has got unit root
H1- Variable is stationary
If B is less than 5% we reject null hypothesis.
Unit root tests for;
Null Hypothesis: Unit root (individual unit root process)

Series: Y
Date: 11/26/18 Time: 15:28
Sample: 2013 2017
Exogenous variables: Individual effects
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0
Total (balanced) observations: 72
Method Statistic Prob.**

ADF - Fisher Chi-square 18.8475 0.9917
ADF - Choi Z-stat 4.28865 1.0000
** Probabilities for Fisher tests are computed using an asymptotic Chi

-square distribution. All other tests assume asymptotic normality.
Intermediate ADF test results Y
Cross
section Prob. Lag Max Lag Obs
1 0.9594 0 0 4
2 0.9312 0 0 4
3 0.9457 0 0 4
4 0.9999 0 0 4
5 0.9898 0 0 4
6 0.9554 0 0 4
7 0.5030 0 0 4
8 0.8300 0 0 4
9 0.0244 0 0 4
10 0.9989 0 0 4
11 0.8371 0 0 4
12 0.7010 0 0 4
13 0.1480 0 0 4
14 0.9400 0 0 4
15 0.8972 0 0 4
16 0.3328 0 0 4
17 0.6250 0 0 4
18 0.6518 0 0 4
86
Series: Y1
Date: 11/26/18 Time: 15:29
Sample: 2013 2017

ADF - Choi Z-stat 7.40012 1.0000

Intermediate ADF test results Y1
Cross
1 0.9676 0 0 4
2 0.8915 0 0 4
3 0.9104 0 0 4
4 0.9872 0 0 4
5 0.9961 0 0 4
6 0.9443 0 0 4
7 0.9988 0 0 4
8 0.9980 0 0 4
9 0.1507 0 0 4
10 0.9955 0 0 4
11 0.8581 0 0 4
12 0.9999 0 0 4
13 0.9537 0 0 4
14 0.9881 0 0 4
15 0.9287 0 0 4
16 0.9874 0 0 4
17 0.1716 0 0 4
18 0.9334 0 0 4
87
Series: Y2
Date: 11/26/18 Time: 15:30
Sample: 2013 2017

ADF - Choi Z-stat 5.64283 1.0000

Cross
1 0.9455 0 0 4
2 0.8371 0 0 4
3 0.8741 0 0 4
4 0.8064 0 0 4
5 0.9974 0 0 4
6 0.9503 0 0 4
7 0.1168 0 0 4
8 0.9976 0 0 4
9 0.1525 0 0 4
10 0.9994 0 0 4
11 0.8423 0 0 4
12 0.9964 0 0 4
13 0.9045 0 0 4
14 0.9924 0 0 4
15 0.8782 0 0 4
16 0.9859 0 0 4
17 0.1236 0 0 4
18 0.9246 0 0 4
88
Series: Y3
Date: 11/26/18 Time: 15:30
Sample: 2013 2017

ADF - Choi Z-stat NA
Test statistic value of 'NA' due to the present of a p-value of one or zero
Cross
1 0.9961 0 0 4
2 0.9325 0 0 4
3 0.9939 0 0 4
4 0.9998 0 0 4
5 0.8665 0 0 4
6 0.9250 0 0 4
7 0.9896 0 0 4
8 0.9961 0 0 4
9 0.8707 0 0 4
10 0.9681 0 0 4
11 0.9924 0 0 4
12 0.9924 0 0 4
13 0.9113 0 0 4
14 0.8901 0 0 4
15 0.9924 0 0 4
16 0.9872 0 0 4
17 0.4493 0 0 4
18 1.0000 0 0 4
89
Series: Y4
Date: 11/26/18 Time: 15:31
Sample: 2013 2017

ADF - Choi Z-stat 1.61580 0.9469

Cross
1 0.9421 0 0 4
2 0.9872 0 0 4
3 0.9952 0 0 4
4 0.9371 0 0 4
5 0.9664 0 0 4
6 0.9391 0 0 4
7 0.0991 0 0 4
8 0.5033 0 0 4
9 0.0021 0 0 4
10 0.8800 0 0 4
11 0.8088 0 0 4
12 0.0484 0 0 4
13 0.0689 0 0 4
14 0.8137 0 0 4
15 0.8787 0 0 4
16 0.2361 0 0 4
17 0.7811 0 0 4
18 0.0939 0 0 4
90
Series: X1
Date: 11/26/18 Time: 15:31
Sample: 2013 2017

ADF - Choi Z-stat -0.19431 0.4230

Intermediate ADF test results X1
Cross
1 0.5091 0 0 4
2 0.9262 0 0 4
3 0.0613 0 0 4
4 0.2754 0 0 4
5 0.1404 0 0 4
6 0.3986 0 0 4
7 0.7826 0 0 4
8 0.8349 0 0 4
9 0.1700 0 0 4
10 0.7246 0 0 4
11 0.9348 0 0 4
12 0.1686 0 0 4
13 0.7430 0 0 4
14 0.9731 0 0 4
15 0.0001 0 0 4
16 0.8945 0 0 4
17 0.1435 0 0 4
18 0.5723 0 0 4
91
Series: X2
Date: 11/26/18 Time: 15:31
Sample: 2013 2017

ADF - Choi Z-stat 2.54877 0.9946

Cross
1 0.2562 0 0 4
2 0.5037 0 0 4
3 0.9843 0 0 4
4 0.4750 0 0 4
5 0.8971 0 0 4
6 0.7763 0 0 4
7 0.9782 0 0 4
8 0.0004 0 0 4
9 0.9889 0 0 4
10 0.9976 0 0 4
11 0.6905 0 0 4
12 0.9006 0 0 4
13 0.5562 0 0 4
14 0.9947 0 0 4
15 0.3912 0 0 4
16 0.9743 0 0 4
17 0.0031 0 0 4
18 0.5637 0 0 4
92
Series: X2
Date: 11/26/18 Time: 15:31
Sample: 2013 2017

ADF - Choi Z-stat 2.54877 0.9946

Cross
1 0.2562 0 0 4
2 0.5037 0 0 4
3 0.9843 0 0 4
4 0.4750 0 0 4
5 0.8971 0 0 4
6 0.7763 0 0 4
7 0.9782 0 0 4
8 0.0004 0 0 4
9 0.9889 0 0 4
10 0.9976 0 0 4
11 0.6905 0 0 4
12 0.9006 0 0 4
13 0.5562 0 0 4
14 0.9947 0 0 4
15 0.3912 0 0 4
16 0.9743 0 0 4
17 0.0031 0 0 4
18 0.5637 0 0 4
93
Series: X4
Date: 11/26/18 Time: 15:32
Sample: 2013 2017
Cross-sections included: 17 (1 dropped)

ADF - Choi Z-stat -1.08984 0.1379

Cross
1 0.3163 0 0 4
2 0.1210 0 0 4
3 0.2002 0 0 4
4 0.0485 0 0 4
5 0.7993 0 0 4
6 0.4916 0 0 4
7 0.6965 0 0 4
8 0.4576 0 0 4
9 0.7394 0 0 4
10 0.2688 0 0 4
11 0.0030 0 0 4
12 0.2615 0 0 4
13 0.7138 0 0 4
14 Dropped from Test
15 0.5398 0 0 4
16 0.5832 0 0 4
17 0.4771 0 0 4
18 0.8335 0 0 4
94
Series: X5
Date: 11/26/18 Time: 15:32
Sample: 2013 2017

ADF - Choi Z-stat -0.27281 0.3925

Cross
1 0.9007 0 0 4
2 0.3253 0 0 4
3 0.0023 0 0 4
4 0.9505 0 0 4
5 Dropped from Test
6 0.2296 0 0 4
7 0.7236 0 0 4
8 0.0040 0 0 4
9 0.8480 0 0 4
11 0.1400 0 0 4
12 0.6264 0 0 4
13 0.7199 0 0 4
14 0.8093 0 0 4
15 0.4265 0 0 4
16 0.5664 0 0 4
17 0.5114 0 0 4
18 0.6230 0 0 4
95
Series: X5
Date: 11/26/18 Time: 15:32
Sample: 2013 2017

ADF - Choi Z-stat -0.27281 0.3925

Cross
1 0.9007 0 0 4
2 0.3253 0 0 4
3 0.0023 0 0 4
4 0.9505 0 0 4
5 Dropped from Test
6 0.2296 0 0 4
7 0.7236 0 0 4
8 0.0040 0 0 4
9 0.8480 0 0 4
11 0.1400 0 0 4
12 0.6264 0 0 4
13 0.7199 0 0 4
14 0.8093 0 0 4
15 0.4265 0 0 4
16 0.5664 0 0 4
17 0.5114 0 0 4
18 0.6230 0 0 4
Conclusion: All the independent variables and the dependent variables have got unit
root.
96
Appendix 04: Hausman test result for Equation 03

Equation: Untitled
X4 0.000001 0.000000 0.000000 0.0422

X5 0.000630 0.000137 0.000000 0.0283
X6 0.000000 0.000000 0.000000 0.1867

Date: 11/26/18 Time: 14:04
Sample: 2013 2017
Periods included: 5
C 34.15925 4.642524 7.357903 0.0000

X4 5.94E-07 2.00E-07 2.968962 0.0041
X5 0.000630 0.000246 2.564684 0.0125
X6 5.35E-11 3.58E-11 1.497150 0.1389

H0 –Random effects model is appropriate
H1 – Fixed effect model is appropriate
If B value is less than 5% we reject H0.
B value is less than 5%. So we reject H0.
97
Therefore, fixed effect model is appropriate.
Appendix 05 – Hausman test for equation 04

Equation: Untitled
X4 0.000001 0.000000 0.000000 0.0342

X5 0.000491 0.000129 0.000000 0.0329
X6 0.000000 0.000000 0.000000 0.1326

Date: 11/26/18 Time: 14:24
Sample: 2013 2017
Periods included: 5
C 23.16064 3.565627 6.495532 0.0000

X4 5.56E-07 1.54E-07 3.618990 0.0006
Therefore, fixed effect model is appropriate.
98
Appendix 06 – Hausman test for Equation 05
Equation: Untitled
X4 0.000000 0.000000 0.000000 0.3927

X5 0.000139 0.000023 0.000000 0.0461
X6 0.000000 0.000000 0.000000 0.5991

Date: 11/26/18 Time: 14:41
Sample: 2013 2017
Periods included: 5
C 10.99861 1.193419 9.216049 0.0000

X4 3.79E-08 5.14E-08 0.736967 0.4636
X5 0.000139 6.32E-05 2.198689 0.0313
X6 1.18E-11 9.19E-12 1.287266 0.2023

B value is greater than 5%. So we accept H0.
Therefore, Random effect model is appropriate.
99
Appendix 07 – Hausman test for Equation 06
Equation: Untitled
X4 0.000000 0.000000 0.000000 0.0721

X5 0.000463 0.000178 0.000000 0.0379
X6 0.000000 0.000000 0.000000 0.3595

Date: 11/26/18 Time: 14:54
Sample: 2013 2017
Periods included: 5
C 9.702049 2.853306 3.400283 0.0011

X4 4.89E-07 1.23E-07 3.980047 0.0002
X5 0.000463 0.000151 3.065265 0.0031
X6 6.33E-11 2.20E-11 2.881086 0.0053

Therefore, Fixed effect model is appropriate.
100
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AN ANALYSIS OF THE STATE OF SUSTAINABILITY

REPORTING IN SELECTED SRI LANKAN COMPANIES.

The Department of Accounting of

The Faculty of Management Studies and Commerce of

The University of Sri Jayewardenepura

In partial fulfilment of the requirement for the

Bachelor of Science in Accounting (Special) Degree

Tharani Dakshina Sooriyaarachchi

University of Sri Jayewardenepura, Sri Lanka

Senior Prof. Kennedy D. Gunawardena

Faculty of Management Studies and Commerce

University of Sri Jayewardenepura

Chapter 01: Introduction ............................................................................................................ 1

Figure 01: The conceptual diagram ......................................................................................... 21

Key words: State of sustainability reporting, Trends in sustainability reporting, Financial

1.1. Introduction to the study

Transparency, accountability and sustainability have become the slogans of the

Organizations use accounting as a method of discharging their accountability to stakeholders.

With the heavy attention placed on environmental impacts, sustainability, corporate

As per the GRI, “A sustainability report is a report published by a company or organization

Sustainability reporting and sustainability reporting is not a mandatory requirement in many

1.2. Problem Statement

The following problem statement was identified.

1.3. Objectives of the Study

1.5 Scope of the Study

1.7. Structure of the report

2.2. Sustainability report

2.3. Motivating factors that encourage organizations to adopt Sustainability Reporting.

2.4. The purpose of Sustainability Reports

As per the AccountAbility AA1000AS standard on accountability for sustainability,

2.5. Criticisms against Sustainability Reports.

The main criticisms regarding sustainability reports are presented below.

2.5.1. Voluntary Disclosure

2.5.2 Self-interest motives and Impression Management.

2.5.2.1 Self- Interest Motives

2.5.2.2 Impression Management tool.

2.5.3. Lack of expected level of accountability in the disclosed information.

2.5.4 Flaws of sustainability reports.

Furthermore, the lack of clarity in sustainability reports, information overload, inclusion of

2.6.1. Social Audits

Social auditing is being undertaken by organizations at a rapid rate and regarded as a

2.6.2. Stakeholder Engagement

AccountAbility Standard 100 ( Hereafter referred as AA 100), states that stakeholder

2.6.3.1 Counter Accounting

2.6.3.2. Criticisms against Counter Accounting

2.6.4 Application of Standards

2.6.4.2. Criticisms against GRI

2.6.5. External Assurance

2.6.5.1. External Assurance

2.6.5.2. Criticisms against External Assurance.

2.6.5.2.1. Unregulated nature of External Assurance

2.6.5.2.2. Independence of Auditors

2.6.5.2.3 Limitations of External Assurance

2.8. The relationship between organizational environmental performance and

However, prior researches conducted on the relationship between organizational

2.9. The state of sustainability reporting in Sri Lanka

2.9.2 The current state of sustainability reporting in Sri Lanka.

3.2. Conceptual Framework

Profit Before Tax The state of

Figure 01: The conceptual diagram