Readability of sustainability reports : evidence from Indonesia

Abstract

PURPOSE : This study aimed at investigating the readability of sustainability reports in Indonesia. The Indonesian government, through the Financial Services Authority of Indonesia (Otoritas Jasa Keuangan [OJK]), has issued regulation POJK 51/2017 concerning the implementation of sustainable finance, which requires public companies to prepare sustainability reports—either stand-alone reports or parts of annual reports. Until 2017, only 30% of the top public companies in terms of market capitalisation issued the required report. Companies' decisions to provide the report stem from the greater visibility and access to resources that flow from additional narratives. However, the usefulness of such a report can be questioned. DESIGN/METHODOLOGY/APPROACH : We used several linguistic techniques (Flesch Reading Ease [FRE], Flesch–Kincaid, and Gunning Fog measures) to evaluate the readability of sustainability reports. The analysis was performed using a software application called “Readability Studio 2015.” FINDINGS : We found the reports to have a low level of readability. This means that the information provided in the disclosures are very difficult to decipher and understand by the targeted users. Considering the similar levels of report readability in companies across industries, we observe a pattern of isomorphism in the way companies have implemented the same format and language construct in disclosing their sustainability information. They might apply the myth that complex language attracts investors or impresses others. RESEARCH LIMITATIONS/IMPLICATIONS : The techniques to measure readability that we use might not capture the whole dimensions of readability and understandability, especially in the non-English language. PRACTICAL IMPLICATIONS : The results from this study can be used as evaluation tools for companies and regulators in preparing more intelligible and readable sustainability reports, as mandated by POJK 51/2017. SOCIAL IMPLICATIONS : Sustainability reports act as a medium of accountability for a company's sustainable production and operations. Their usefulness for investors and other users often depends on the readability of the information. ORIGINALITY/VALUE : The readability of sustainability reports in the context of Indonesia as an emerging market has not been comprehensively investigated in previous research. This study is among the first of its kind to support the quality enhancement of the reports.