How does market competition affect the reporting of sustainability practices? Insights from the UK and Germany

Purpose - This study tests the proprietary cost of reporting sustainability practices. It explores how market competition impacts the reporting of corporate sustainability information. Further, it examines whether the influence of market competition on sustainability reporting is affected by firm size. Design/methodology/approach - It uses two samples of the UK FTSE 350 and German Frankfurt CDAX nonfinancial firms from 2010 to 2023. The sustainability reporting scores for UK and German firms are their Environmental, Social and Governance (ESG) disclosure scores based on the Bloomberg disclosure index. The Herfindahl–Hirschman index has been utilized to measure a firm’s degree of market competition. Findings - The results reveal that reporting sustainability practices is a negative function of the degree of market competition. Specifically, companies in highly competitive industries disclose less information about their sustainability practices, suggesting that firms view sustainability reporting as a potential source of competitive disadvantage and, therefore, choose to limit such disclosures to maintain a strategic advantage over rivals. Further, the findings reveal a negative impact of market competition on sustainability reporting among small firms. However, this effect is weak or absent among medium and large firms. The results are more observable in the liberal market economy (i.e. the UK) than in the coordinated market economy (i.e. Germany). Practical implications - It provides implications for policymakers and market participants to advocate for more significant policies that promote transparency and encourage companies to report their sustainability practices and performance, especially companies in highly competitive industries. Originality/value - It provides the first evidence of how market competition influences corporate sustainability reporting, adding a deeper insight into another non-financial dimension of sustainability reporting. Likewise, it reflects the varying priorities of companies of different sizes in managing both competition and sustainability reporting. Besides, it is the first to explore this nexus in two distinct jurisdictions: the UK and Germany.