# **<mark>1. INTRODUCTION</mark>**

Liberalization in global trade and investment, along with advances in transport and communications, have allowed multinational firms to expand their market reach, exploit resource opportunities, and offshore activities across global value chains (GVCs). But multinational enterprises (MNEs) are not only different from other types of firms in terms of their engagement in GVCs – they are also seen to enjoy technological and other advantages that result in higher levels of productivity (Hoekman and Javorcik 2006). At the same time, MNEs are under increasing pressure to comply with international labor and health, safety, and environmental (HSE) standards, which apply particularly to electronics, apparel, and food GVCs, in which final consumers perceive a more direct link between the consumer good and the working conditions (Taglioni and Winkler 2016).

Against this background, this paper examines the relationship between MNE status and sustainability reporting. Sustainability reporting provides detailed insights into the priorities given by the private sector, and MNEs in particular, to certain sustainability issues. In particular, this study assesses the relationship between MNE status and a company’s disclosure rate and probability of reporting on economic, labor and social, environmental and governance indicators. This analysis benefits from the fact that the number of companies producing corporate sustainability reports has strongly increased within a relatively short amount of time. The Global Reporting Initiative (GRI) database, for example, consisted of only 48 companies in 2000, but increased to 436 companies by 2005, more than 2,500 in 2010, and reached around 5,750 by 2015.<sup>2</sup> This paper uses company‐level information on sustainability reporting from the GRI covering 2,020 companies in 81 countries.

While this study does not measure the effect of multinationals on sustainable development, sustainability reporting can be linked to better development outcomes for several reasons. Mandatory sustainability reporting reflects a minimum level of disclosure as required by governments or regulators that companies have to comply with. In 2016, government regulation accounted for almost two‐thirds of sustainability reporting instruments worldwide, up from 58% ten years earlier.<sup>3</sup> Figure 1 indicates that among all reporting instruments identified in 2016, 65% are still mandatory.

On the other hand, the share of voluntary reporting instruments has increased from 28% to 35% since 2013. Voluntary sustainability reporting goes beyond mere compliance with mandatory requirements and targets the voluntary sphere and “best practices” of companies (KPMG, GRI, UNEP, and Centre for Corporate Governance in Africa 2010). In particular, voluntary standards (i) show a commitment of companies to greater transparency; (ii) reflect a commitment to greater accountability, and (iii) can be viewed as a tool for improving the quality of corporate sustainability leadership (GRI 2013).

> 2 GRI Reports List as of October 1, 2016.

> 3 Reporting instruments include regulation and policy; self‐regulation; requirements, guidance or recommendations for public, reporting on a single topic; voluntary guidelines and standards for sustainability reporting; and standards on sustainability (KPMG, GRI, UNEP, and Centre for Corporate Governance in Africa 2016).

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