No business exists in a vacuum and operates in a closed system without any form of interaction with its environment. Hence, based on their activities, they tend to have some level of impact on the environment and the society through this constant interaction with their environment. As organizations seek to achieve competitive advantages over their competitors, the businesses grow complex and quite industrious, this, in turn, will affect the environment and the society. Industrialization is also associated with economic, social and environmental hazards ranging from environmental degradation, air and water pollution which has dramatically increased deforestation and loss of habitats for aquatic and terrestrial animals (Utile, 2016).
Traditionally, a corporation's main objective is to grow, survive and maximize value for its owner (shareholders), to meet these objectives they prepare conventional financial reports to investors, potential investors, shareholders and other stakeholders who show their financial performance but this reports usually do not reflect the effect of the operations of the corporation on the environment. According to Simnet, Vanstraelen & Chua (2009), over the past decade, conventional financial reporting has been criticized for not representing multiple dimension of a corporation's value. The criticism of financial reporting coupled with the current global financial predicament has asserted more pressure on accounting to represent and present the multiple dimension of firm's value (Utile, 2016). Furthermore, the increasing need for non-financial disclosures and the growth of global ecological awareness and the movement for sustainable economic growth are bringing to the attention of firms towards making its operations sustainable and ecological sensitivity.
The above discussion birthed or gave rise to the sustainability agenda (sustainability reporting) which is linked to earlier ideas like the accounting for human resource and social audits in the 1970s and triple bottom line reporting and environmental reporting in the 1990s, corporate social responsibility reporting and various versions of the GRI (Global Reporting Initiative) guidelines on reporting (Simnet, Vanstraelen & Chua, 2009). Sustainability reporting has become important to both developed and developing economies with the increasing concern for the global environment and preservation of the ecosystem to make it sustainable. In Nigeria for example, the situation is no different because the industry that gives great concern for the effect of their activities on the environment is the oil and gas industry. The Nigerian crude comes from productions fields situated in the swamplands of the Niger Delta. According to Asaolu et al. (2011), the multinationals corporations in the oil and gas industry have been consistently accused of lacking transparency, insensitivity to stakeholders concern, environmental degradation and have continually been targets of community unrest and public criticisms. Nigeria is however classified in the corporate sustainability reporting quadrant tagged "starting behind" (Asaolu et al., 2011). As a matter of fact, Nigeria has no mandatory environmental or social reporting requirement for public companies, though there have been significant efforts like the Nigerian Stock Exchange (NSE) sustainability disclosure guideline 2016.
Prior studies in Nigeria (Olayinka & Temitope, 2011; Uwuigbe & Uadiale, 2011; Uwuigbe, Olubukunola & Anijesushola, 2011; Akinlo & Iredele, 2014) all evaluated corporate social responsibility and environmental disclosure on firm performance in Nigeria. Various studies have examined the link between Sustainability Performance (SP) and Financial Performance (FP) the results are often non-conclusive. According to Belascu & Horobet as cited in Ching, Gerab & Toste (2017) "the link between social and financial performance can be explained in four categories: (a) unilateral causality-social performance causes financial performance, (b) unilateral causality-financial performance causes social performance, (c) bilateral causality-social performance causes financial performance and financial performance causes social performance and (d) no causal relationship".
Based on the above background, the study basically takes a bi-directional approach in examine the link between sustainability reporting and firm performance in Nigeria. The study looked at the unilateral causality-sustainability reporting causes, firm performance and unilateral causality-firm performance sustainability reporting in order to understand the bi-directional relationship. The remaining sections of the paper following the introduction are the scope the study; theoretical framework; literature review and hypothesis development; methodology; data analysis; discussion and conclusion.
There are a number of social contract theories that explain the reason behind corporate social and environmental reporting; these theories also apply to sustainability reporting (Kwaghfan, 2015). They include legitimacy theory, the stakeholder's theory and the political economy theory. This study adopts the legitimacy theory, signaling theory and slack resource theory as theories concerning social performance could not be considered in isolation since they complement each other. These adopted theories will enable us to achieve the objectives of this study. Unlike the stakeholder's theory which considers the interest of all stakeholders, legitimacy theory strictly examines the interaction between the company and the society and the motivation for disclosure of environmental and social issues by the company. According to Brown & Deegan (Mousa & Hassan, 2015), Legitimacy theory focuses on the idea of a social contract, suggesting that the survival of a company is largely reliant on the degree to which the company functions within the bounds and norms of society. This means that for the continued survival of a company it must maintain its legitimate status by aligning its operations in line with the society expectations and norms. Failure to align with norms firms may face problems in procurement of the required resources. Some members of the community like, employees, consumers, investors may reject any deal or association with companies that have repute for poor environmental and social behavior (Coopers & Lybrand, 1993).
Therefore, in order for companies to maintain their legitimacy status, they disclose the corporations view on various environmental and social issues in order to make impressions about the company's activities; they do this through the legitimacy device, usually the annual report. The signaling theory helps us understand that firm usually report or disclose positive information about their activities to show their performance above others (Shehata, 2014). Consequently, this will help improve their reputation and make them attractive to the society. Hence, the legitimacy theory suggests that when firms disclose information on sustainable development, this improves their reputation which in turn will attract members of the society. The attraction could lead to the influx of highly qualified employees, investors and more customers, hence leading to better performance of the firm. This theory attempts to explain sustainability reporting as a determinant of firm performance and expects a positive link from sustainability reporting as a determinant of firm performance.
The slack resource theory as adopted to explain the firm performance as a determinant of sustainability reporting. According to Ahlstrom & Ficekova (2017), "the availability of slack resource in company plays an important role due to resources available that can be allocated to social or environmental domains. Corporate slack is the ability to use the available corporate resources and reach a set of goals". Wissink (2012) also put forth that "slack resources theorists argue that firms with better financial performance will have resources available to invest in CSR activities". More investment in CSR activities will improve social performance which will, in turn, improve the reporting content and practice of firms on sustainability issues based on the signaling theory. Therefore, the slack resource theory attempts to explain firm performance as a determinant of sustainability reporting and expects a positive link.
According to GRI (2011), "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". There are a variety of benefits a firm stands to gain from reporting on its sustainability activities. These benefits could include fostering investor confidence, trust and employee loyalty to the firm. Market analyst often reflects on a company's sustainability disclosures in an attempt to assess the...