Early Experience of Mandatory Non-Financial Information Reporting in Sweden: A case study of how listed SMEs in the industrial sector have implemented the new law

Abstract

Motivation/Purpose: Increasing societal pressure on companies for higher transparency and accountability has led to a significant growth in issuance of non-financial reporting. As a result, the Swedish parliament has decided to extend the EU directive on disclosure of non-financial information and diversity information to force more Swedish companies to produce a sustainability report. However, there are two research gaps related to mandatory non-financial information reporting. First, the impact from the implementation of mandatory non-financial information reporting has scarcely been investigated, especially in small and medium-sized enterprises. Second, there is a limited understanding of how sustainability reports are developed. Our research purpose was to examine how industrial small and medium-sized enterprises in Sweden have implemented the law on mandatory non-financial information reporting. Design/Methodology: An exploratory case study was employed by studying four listed companies within the industrial sector in Sweden. The four case companies were investigated through interviews with key personnel and by reviewing their sustainability reports and annual reports. In addition, two external organizations were interviewed to get an outside perspective. Findings: We have identified four patterns of implementation of mandatory non-financial information reporting. These four patterns are: 1) implementation focus on both internal and external perspectives 2) focus on the internal perspective; focus on the external perspective 3) and 4) focus on reporting as usual. The patterns are shaped by internal and external motivational drivers, which is why the case companies have implemented the Swedish law in a certain way. Although, the four patterns of implementation consist of similar implementation steps, they do that to various degrees. Also, the patterns of implementation show different behaviors of legitimacy (i.e. institutional, strategic and material), but these cannot be clearly separated. Contribution: Firstly, our major contribution is the discovery of the four patterns of implementation of mandatory non-financial information reporting, particularly within the industrial sector in Sweden. In a broader perspective, the Swedish law is one version of the EU directive. Our exploratory case study serves as an account of early experience from the implementation within a Swedish regulatory setting. Secondly, our findings support previous researchers’ claim that strategic and institutional legitimacy is not mutually exclusive. We have applied legitimacy theory in an unconventional way. Finally, we urge policymaker to consider the fact that GRI or other similar sustainability reporting frameworks are not employed in the case companies to implement the Swedish law.