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There are a number of reasons why entities (in both the private and public sector) have adopted the practice of preparing and publishing sustainability disclosures. The majority of these reasons can be linked to the benefits which sustainability reporting has afforded reporting entities. These reasons for, or benefits of, sustainability reporting are discussed below.

Sustainability reporting assists in legitimising the reporting entity and its operations. According to the legitimacy theory, because it is the stakeholder who provides any entity with a “license to operate”, entities are required to justify and be accountable to stakeholders for their actions (Amran & Haniffa 2011:142; Comyns & Figge 2015:407; Dawkins & Ngunjiri 2008:288; Emeseh & Songi 2014:142; Greiling & Grüb 2014:211; Hahn & Lülfs 2014:404; Marx & Van Dyk 2011b:104; Ndhlovu 2009:73; Skouloudis et al. 2009:299; Steyn 2014b:486). The absence of this “license to operate” could be detrimental to the functioning of any entity. Negative

campaigns by human rights and environmental groups, the disruption of production by the local community, or the consumers refusing to purchase goods or services from the reporting entity illustrate scenarios which could negatively impact productivity, profitability and share value. (Emeseh & Songi 2014:141). Sustainability reporting also enhances the trust that stakeholders have in the entity (Marx & Van Dyk 2011b:104), influences the perceptions of stakeholders (Dawkins & Ngunjiri 2008:288; Ndhlovu 2009:73; Skouloudis et al. 2009:299) and impacts the decisions made by shareholders and customers alike (Freundlieb, Gräuler & Teuteberg 2014:20).

The signalling theory describes sustainability reporting as a tool to be used to manage the reputational risk of the entity (Legendre & Coderre 2013:183). The signalling theory aims to reduce information asymmetry between two parties, namely the preparer of the report, and the user or interpreter of the report (Connelly, Certo, Ireland & Reutzel 2011:40). According to Santos, Svensson and Padin (2013:107), as well as Ungerer (2013:30), sustainability reporting also improves the relationship which the reporting entity has with customers, suppliers and investors. Researchers have gone as far as to assert that investors are prepared to pay a premium for entities who manage their relationships with shareholders, suppliers and customers well (Hinson & Ndhlovu 2011:336). The issuing of sustainability disclosures would also ensure compliance with regulation, such as JSE listing requirements, and would prevent the payment of non-compliance penalties (Skouloudis et al. 2009:299; Steyn 2014b:486).

Sustainability reporting has reputational benefits by giving the entity a positive image and in so doing, maintains legitimacy (Comyns & Figge 2015:407; Freundlieb et al. 2014:20; Fourie & Lubbe n.d.:55; Gao 2011:266; Greiling & Grüb 2014:212; Marx & Van Dyk 2011c:85; Ndhlovu 2009:73; Ungerer 2013:30). Quality sustainability reports then sees increased profitability, also through a reduction in costs which is due to enhanced operating efficiency (English & Schooley 2014:27; Gao 2011:266; Greiling & Grüb 2014:212; Santos et al. 2013:107; Skouloudis et al. 2009:299; Turk et al. 2013:75). In addition, increased revenue is experienced due to enhanced customer loyalty and an increased customer base which come about as a result of a positive firm image (James 2013:92; Marx & Van Dyk 2011c:85; Turk et al. 2013:75).

through the improved management of environmental, social and governance impacts and risks, the increased entity reputation, and the ability to attract and retain customers and skilled employees. The resultant increased employee retention, which also may give an entity a competitive advantage, may also be due to enhanced employee morale (Gao 2011:266; MacLean & Rebernak 2007:2). According to Goa (2011:266) and Ungerer (2013:30), another benefit of issuing a sustainability report is the easier access to capital and the sourcing of such capital at a lower cost. The reason for the easier access to and lower cost of capital, as found in Lee, Faff and Langfield-Smith (2009:42), is that entities which are at the forefront of corporate social performance/non-financial performance are viewed by investors to be a lower risk entity as its management team is forward thinking and proactive in mitigating risk. Therefore, a lower return is expected by financiers, hence the lower cost of capital.

The reasons for issuing sustainability reports in the private sector are aligned with the reasons presented by the public sector. Marcuccio and Steccolini (2005) and Greco et al. (2012) both performed semi-structured interviews with local authorities with the objective of identifying the reasons for issuing sustainability reports (Marcuccio & Steccolini 2005 IN Greco et al. 2012:684; Greco et al. 2012:693-94). Marcuccio and Steccolini (2005) found that the main reason for issuing State of Environment Reports was to ensure that stakeholders viewed their entity as efficient, effective and accountable, as many other local authorities were issuing such reports. It should be noted that none of the local authorities identified the need to legitimise their operations as a reason for issuing environmental reports (Marcuccio & Steccolini 2005 IN Greco et al. 2012:684). Greco et al. (2012:693-94) found that the main reason why Italian local councils (which are the equivalent of South African municipalities) reported on sustainability was to improve transparency, due to pressure from social stakeholders, to legitimise the activities of local councils by educating stakeholders on local council performance, and to improve communication with external stakeholders. The GRI guideline (2012:4) identified the six reasons for public sector entities issuing sustainability reports as follows:

 Sustainability reports enhances the expectations from stakeholders regarding the role of public entities in society.

 The public sector has the specific civic responsibility due to its privileged position, to manage public resources in a manner which promotes sustainable development and

public interest. The issue of sustainability reports is a mechanism through which this can be achieved and expressed to stakeholders.

 Issuing sustainability reports enables transparency and accountability and therefore allows for the benefits which flow from transparency and accountability such as the increase in stakeholder confidence and the legitimising of operations, to mention a couple.

 Sustainability reports allows for comparability and as a result public entities are able to align with global counterparts.

 The issuing of a sustainability report will promote integrated thinking, in the process of preparing the sustainability report, but more importantly also in making business decisions. This integrated thinking will therefore filter down into the very core of the entity and its operations.

 Through the issuing of sustainability reports there is reduced reporting complexity as sustainability reports assist users and preparers alike in making relevant connections about the entity’s performance and promotes holistic thinking.

According to Adams et al. (2014:47), there is increased pressure on public entities to improve performance and remain viable in the current competitive environment, and this needs to be communicated to internal and external stakeholders. It is important for the public sector to actively produce sustainability disclosures not only because of its involvement in the economy, but also because the public sector exists for social and environmental purposes. Therefore, the public sector has a greater responsibility to sustainable behaviour than the private sector. (Guthrie & Farneti 2008 IN Adams et al. 2014:47). The public sector has a key role to play in the promotion of sustainable development (Marx & Van Dyk 2011b:104).

Amran and Haniffa (2011:152) conclude that in Malaysia a determining factor in private sector entities producing sustainability disclosures is the dependence of the private sector on government contracts. This indicates that the Malaysian government (a developing country like South Africa) place high importance on sustainability disclosures and would favour an entity which is transparent and accountable for its financial and non-financial performance. In addition to the fact that the public sector has a greater responsibility towards sustainable behaviour (Guthrie & Farneti 2008 IN Adams et al. 2014:47), given the challenges of corruption evident in the South African public sector, it would be important for the public

sector to prepare and issue sustainability disclosures in order to maintain legitimacy of their operations.