Does Sustainable Performance Matter for Nonfinancial Disclosure Readability? A Fog Index Analysis on Italian‐Listed Companies

Giuseppe Maria Bifulco, Carlo Caserio, Francesca di Donato and Sara Trucco

Business Strategy and the Environment, 2025, vol. 34, issue 5, 5601-5623

Abstract: This study aims to shed light on how corporate sustainable performance can influence the degree of nonfinancial disclosure (NFD) readability, determining which pillar of environmental, social and governance (ESG) performance has the most significant impact. To address these research questions, the study was conducted on a sample of Italian companies listed between 2017 and 2022, following the introduction of Directive 2014/95/EU. Using a panel regression, we aimed to examine the presence of a correlation between ESG performance and the readability of the reports (measured by the Gunning Fog index) employed by companies to disclose nonfinancial information. We successively conducted several robustness tests and verified the absence of multicollinearity and endogeneity. The results show that there is a positive and significant relationship between environmental performance and NFD readability, suggesting that companies with better environmental performance tend to make their disclosures more understandable and transparent. This result supports the signalling theory, according to which companies with good sustainability results try to distinguish themselves from others through clear and readable information. In contrast, no significant relationships are found for the social and governance dimensions, indicating that these variables may be less relevant in determining NFD readability. Practical implications highlight the importance of promoting accountability and transparency in sustainability reporting. Regulators, on the other hand, could use these findings to refine existing regulations and introduce more stringent standards in terms of transparency and readability, to reduce the risk of greenwashing and improve the overall quality of information provided to stakeholders.

Date: 2025
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