The Implementation of Legal Obligations on Sustainability Reporting: Legislative Insights, Key Drivers and Corporate Impacts

Abstract

In 2016, Article 66 d. was added to the Annual Accounts Act No. 3/2006, which obligated companies of a certain type and size to disclose extensive non-financial information in their annual accounts. The provision implemented the European Union’s Non-Financial and Diversity Information Directive 2014/95/EC into Icelandic law. The objective of this study is to shed light on the experience gained from the legislation. The study also seeks to analyse the impact that the legislation has had on Icelandic companies in the context of other factors that play a role in the sustainability journey of companies, thereby aiming to shed light on the main factors that may be of significance for the quality and scope of sustainability information, as the legislation gives companies considerable leeway in the reporting practices of companies. On the basis of this objective, the study seeks to answer the following research question: What is the experience of those who work on the preparation and dissemination of sustainability information from the implementation of the EU Directive on nonfinancial reporting, what impact has it had on the operations and activities of Icelandic companies, and what other influencing factors and incentives are significant in relation to the scope and quality of their sustainability information? The results of the study indicate that Icelandic companies are lagging behind in international comparisons. The legislation has helped to put sustainability on the agenda but is not of key importance in the process of disclosure today. A variety of incentives and drivers affect companies’ sustainability reporting, above all pressure from stakeholders. However, sustainability reporting practices has a variety of direct and indirect effects on the operations and activities of companies.