Thought Leadership, Research & CPA Spotlights

Style Matters in CSR Reporting

A study supported by the CPA Ontario Centre for Accounting Innovation Research at the University of Toronto examined whether professional assessments of corporate social responsibility (CSR) performance truly consider all of the information available in disclosures. It turns out that it’s not just what firms say about CSR that matters, but also how and how much they say.

A Textual Analysis of US Corporate Social Responsibility Reports

From the CPA Ontario Centre for Accounting Innovation Research at the University of Toronto’s Rotman School of Management

Read the summary

Key takeaways from the paper

What, how and how much you write about CSR matters

Longer CSR disclosures are associated with good CSR performance, greater friendliness, ambition and sophistication. The number of words and sentences in a report predicted with 81% accuracy whether a firm had good or poor CSR performance.

Your writing style communicates key information

Computer-based approaches to analyzing CSR reports could identify stylistic features that communicate a different message to what is intended. This is especially important for firms changing from poor to good CSR performance.

Plain English performs best

CSR reports that are easier to read contribute more to a firm’s valuation premium than complex ones. This may be due to their imparting a greater sense of certainty and transparency. Firms benefit from producing CSR reports written in plain language.

Financial analysts and investors could use computer analysis to assess CSR disclosures when making valuations

Useful for private firms and initial public offerings whose CSR performance is not covered by investor research services.

Analyzing linguistic features of CSR reports can improve professional assessments of performance

This adds to what we can learn from measures of CSR performance used by professional assessors (e.g. ASSET4, KLD, MSCI and Trucost). Research firms could incorporate linguistic analysis of CSR reports to improve their assessments.