THE IMPACT OF THE QUALITY OF SUSTAINABILITY REPORTING ON THE FINANCIAL PERFORMANCE OF LARGE COMPANIES OPERATING IN PORTUGAL

Purpose- The purpose of this paper is to investigate if the quality of sustainability reporting influences the financial performance of the largest Portuguese companies. Specifically, the paper aims to: i) evaluate the quality of sustainability reporting among Portuguese companies; ii) determine whether sustainability reporting quality impacts their financial performance. Methodology- We evaluate sustainability reporting quality through content analysis of 2021 sustainability reports. Based on GRI Standards 502 disclosure requirements, we created a Sustainability Reporting Quality Index calculated as the ratio of disclosed items to total requirements. This global index is also divided into economic, environmental, and social sub-indices. To analyze the impact of sustainability reporting quality on financial performance, we used a multiple linear regression model with ROE for 2022 as the dependent variable, and the sustainability index as independent variable. We also control for company size, revenue growth, and leverage. Findings: The results indicate that Portuguese companies meet on average about 20% of GRI Standards disclosure requirements, indicating relatively low reporting quality. Among the sub-indices, companies disclose mainly information on economic performance, followed by social and environmental information. The findings also reveal that, although sustainability reporting quality has a positive effect on the financial performance of Portuguese companies, this impact is not statistically significant across all indices. Among the control variables, only revenue growth rate is statistically significant, exhibiting a positive relationship with financial performance. Conclusion: This study investigates the impact of sustainability reporting quality on the financial performance of large Portuguese companies, using an innovative sustainability reporting index based on all GRI Standards disclosure requirements. The study finds that sustainability reporting quality in Portugal is generally low and has no significant impact of financial performance. A key limitation is the focus on the short term, which may miss potential long-term effects. Keywords: Sustainability reports, GRI standards, financial performance JEL Codes: M14, M41