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 China’s Financial Sector Sustainability and “Green Finance” Disclosures

Abstract

Purpose – This paper provides longitudinal analysis of influences on China’s financial

sector’s sustainability reporting practices, examines “green finance” disclosures, and
undertakes subsector comparisons. The state’s impact on the quantity and quality of
reporting practices is analyzed.

Design/methodology/approach – Content analysis is employed to examine the volumes,

frequency, and content of sustainability disclosures by China’s financial institutions.
Survival analysis is employed to identify factors significant in firms’ initiation of these
disclosures. 308 firm-year observations on disclosures are examined for 2007–2016.

Findings – China’s financial sector’s sustainability reporting evidences an “emerging stage”

(2007–2009), “developing stage” (2010), and “greening stage” (2011–2016). The roles
of institutional theory and regulatory pressure in explaining Chinese financial firms’
reporting behaviours are supported.

Research limitations/implications – This study has several limitations. First, given data
restrictions, use of a relatively small sample size. Second, it examines different categories
of disclosures made by financial firms, not the more detailed content. Third, is potential
overlap in disclosure themes under the classification scheme.

Practical implications – China’s financial sector’s adoption of sustainability reporting has

been institutionalized, mainly in its banking subsector, consistent with general regulatory
pressures.

Social implications – "Greening the finance system" is examined in China’s context, as

the country transforms from a resource and pollution-intensive to a green economy.

Originality/value – The financial sector is normally excluded from in-depth qualitative

research. This study examines China’s financial sector’s responses to recent governmental
pressures on green finance disclosures.

Key words: financial institutions; sustainability reporting; green finance disclosures;

institutional theory; content analysis; survival analysis

1
1. Introduction

Both the Rio Earth1 and Johannesburg2 summit reports emphasize the private sector’s role
in reducing poverty, minimizing economic activity’s environmental impacts, and contributing
to sustainable development (UN, 1992, 2002). The UN’s 2015 Sustainable Development
Summit’s3 sustainable development goals (SDGs) also highlight that full implementation “of
the new Agenda requires a revitalised Global Partnership … bringing together Governments,
the private sector, civil society … and mobilizing all available resources (UN, 2015, p.10).
These goals rely on a healthy financial sector and financial markets.

As the United Nations Environment Programme (UNEP) inquiries acknowledge, the finance
sector is uniquely placed to influence the course of industrial development—enhancing its
compatibility with the sustainable development agenda requires a realignment of the two
(UNEP, 2002, 2015). However, while public finance’s contribution is essential to the UN’s
agenda, its quantum is insufficient; access to private capital is needed to achieve sustainability
goals (UNEP, 2015). Through its interactions with other sectors, consumers, and own financing,
investment and trading activities, the private financial sector has an important sustainable
development role (UNEP Finance Initiative, 2011). It has potential to direct economic activities
in a way that takes account of social, ethical, and environmental issues (Scholtens, 2006).
Financial institutions (FIs) can act as catalysts in influencing behaviors of other sectors through
their roles as intermediaries, lenders, money managers, evaluators of risk (Cuesta-Gonzàlez et
al., 2006), including imposing environmental and sustainability principles onto clients’
financing and investing decisions (Matei and Voica, 2013). To achieve this, FIs must ensure
their products provide economic security for society and be accountable for product outcomes
(Barclift, 2012). Additionally, key FIs need to integrate meaningful corporate social
responsibility (CSR) roles into their governance structures. Thus, a distinct shift in the sector’s
role in the development process is required to increase its positive impact on the economy,
society, and environment (Pathak and Tewari, 2017).

Recognition of the above has seen increasing demands on FIs for improved corporate
sustainability disclosure and transparency from investors, employees, suppliers, customers,
academia, rating research firms, and non-governmental organizations (NGOs) (UNEP Finance
Initiative, 2008). The UNEP Finance Initiative identifies that FIs active in regional and global
capital markets can derive a clear advantage from well-tailored sustainability reporting and
becoming leaders on sustainability issues, deriving benefits in terms of revenue growth, risk
management, access to capital, and cost savings and efficiency (UNEP Finance Initiative, 2006).

1 The 1992 United Nations Conference on Environment and Development (UNCED) held in Rio de Janeiro.
2 The 2002 World Summit on Sustainable Development (WSSD) held in Johannesburg.
3 The 2015 United Nations summit “Transforming our world: the 2030 Agenda for Sustainable Development”, held
in New York.

2
The UNEP Statement of Commitment by Financial Institutions on Sustainable Development
declares that FIs should develop and publish a statement of their sustainability policy and
periodically report on steps taken to promote integration of environmental and social
considerations into their operations (UNEP Finance Initiative, 2011). Both the SDGs for the
new era and Paris Climate Agreement 20154 clarify that the financial sector should act and
demonstrate leadership on climate change in the context of sustainable development. This
includes either allocating capital and steering financial flows or embedding broad sustainability
and/or climate change issues into their market practice. Amongst specific actions, improvement
of risk and performance measurement and reporting are crucial building blocks (UNEP Finance
Initiative, 2002, 2014). Improved sustainability or CSR disclosures have the potential to
increase market transparency for financial products, provide information on systemic industry
risks, and identify potential economic harm to communities targeted for loan products (Barclift,
2012). Responding to the SDGs, UNEP’s banking and investment members released the
“Positive Impact Manifesto (PIM)” in October 2015 as a new financing paradigm, encouraging
FIs to provide transparency and disclosures on financed activities, projects, programs, and/or
entities considered “Positive Impact” and intended positive impacts (UNEP Finance Initiative,
2015). In 2017, the Financial Stability Board (FSB) released the “Recommendations of the Task
Force on Climate-related Financial Disclosures” to provide guidance on how the financial
sector could improve disclosure on climate-related financial risks under existing requirements.
Such disclosures by FIs would foster an early assessment of these risks, facilitate market
discipline, and encourage firms to manage what they are measuring (FSB, 2017).

Despite the nexus between the finance sector and sustainability, empirical investigation of
developed and developing country FIs’ disclosures on sustainability, particularly
environmental, performance are incomplete. Although some studies on European or western
countries provide insights on the extent, content, determining factors, or consequences of the
financial sector’s disclosures on sustainability performance, most focus on banks rather than
FIs more generally (e.g. Branco and Rodrigues, 2006; Scholtens, 2009; Matthews and Rusinko,
2010; Soana, 2011; Carnevale et al., 2012; García-Sánchez and García-Meca, 2013; Wu and
Shen 2013; Carnevale and Mazzuca, 2014; Jain et al., 2015; Shen et al., 2016; Wu et al., 2017;
Esteban-Sanchez et al., 2017; Pathak and Tewari, 2017). These studies reveal that sustainability
disclosure is becoming increasingly important for the banking industry. Banks have become
more informed on threats to their businesses as lenders and investors from clients’ management
of environmental and social risks, and of stakeholder requirements to improve their social
performance (Cuesta-González et al., 2006).

4 The Paris Climate Change Conference is the twenty-first session of the Conference of the Parties (COP) and the
eleventh session of the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (CMP).

3
Globally, when compared to studies on the banking industry, empirical evidence on the broader
FI sector is scarcer, reflecting a lack of adequate research focus (Sethi et al., 2017). In the global
context, KPMG’s surveys (KPMG, 2013, 2015, 2017) shed light on the sector’s sustainability
reporting practices, revealing a limited impact on FIs. While approximately 70 percent of FIs
have taken up sustainability reporting, overall quality is not high. The financial sector’s
sustainability performance, including reporting, business ethics and product responsibility,
labour issues, environmental performance, community issues, and corporate governance, is
significantly lower than the other sectors’ on average (Weber et al., 2014). As Sethi et al. (2017)
conclude, FIs are missing an important opportunity, using CSR reports only as ‘‘pro-company’’
communiqués, rather than powerful and potentially influential communication vehicles.
Additionally, integration of sustainability issues into FIs’ operations takes two dominant paths:
one through internal operations; the second their capital intermediary role (Cuesta-González et
al., 2006). However, previous studies tend to focus on the second path, and empirical evidence
on how FIs incorporate sustainability or environmental issues into internal operations is lacking.

One salient feature of our study is examination of this topic within China’s unique institutional
context. Rapid economic development has imposed tangible pressures on China’s natural
resources, environmental protection, and social harmony (Dong and Xu, 2016). Since 2006,
China has become the largest national producer of greenhouse gas with estimated annual
production of about 6,200 million tonnes (Guo, 2011). An excessive depletion of natural
resources and environmental degradation has underlined questions about China’s
environmental sustainability under current development patterns (OECD, 2007). Therefore,
transforming from a resource and pollution-intensive economy to a green economy has become
a national agenda. In this process, “greening the finance system” is integral, requiring FIs to
evaluate their investments’ environmental impacts, reduce or cut-off support to polluting
projects, increase support for environment restoration projects, and build a general framework
for a green finance system that incorporates social and governance risks (DRC-IISD, 2015).

Policies encouraging “Green Finance”—financing of investments providing environmental

benefits in the broader context of environmentally sustainable development (G20 Green
Finance Synthesis Group (GFSG), 2016)—were strengthened in China’s 11th and 12th Five-
Year Plans (2006–2010 and 2011–2015), and, for the first time, included in the G20 Summit
discussion agenda (Xinhua, 2016). Among other initiatives, better information for embedding
sustainability considerations in risk assessment and investment decisions is crucial (DRC-IISD,
2015). In 2016, the “Guiding Opinions on Building a Green Financial System” released by the
People's Bank of China, Ministry of Finance, National Development and Reform Commission,
and other Departments, strengthened information disclosure requirements, and specifically
supported improved disclosures on environmental information for FIs and non-FIs (Ministry of
4
Environmental Protection, 2016). Additionally, since 2008 the Shanghai Stock Exchange
(SHSE) has required listed FIs to disclose their CSR information (SHSE, 2008). However,
empirical evidence on this sector’s sustainability reporting practices or performance in the
Chinese context is limited (Weber, 2017). Although already participating in such activities, the
sector has largely been excluded from in-depth analysis (Noronha and Sammi, 2015). Therefore,
this study specifically examines China’s private financial sector’s sustainability reporting
practices across its three pillars—banking, securities, and insurance (Shan and Xu, 2012). Firms
are classified by their core activities according to the “Revision on Guidelines for the Industry
Classification of Listed firms” issued by the China Securities Regulatory Commission (CSRC)
in 2012. This study addresses gaps identified in the literature due to a focus on the western
context and banks.

The rest of paper is organized as follows. Section 2 reviews the literature on FIs’ sustainability
reporting practices in global and Chinese contexts. Section 3 follows with discussion on the
theoretical framework and propositions. Section 4 describes the research methods, and Section
5 presents the results and discussion. Section 6 provides conclusions, research limitations and
directions for future research.

2. Literature Review

Multiple European and western country studies have examined FIs’ (mostly banks) reporting
of evidence on their sustainability practices. For example, Cuesta-González et al. (2006),
analyzed both the internal and external dimensions of the social performance of four Spanish
banks. Internal dimensions were assessed through data derived from EIRIS (the Ethical
Investment Research Service), while assessment of the external dimensions was based on
analysis of bank annual reports. They find that banking institutions are more likely to offer
information on the internal dimensions of social performance, with corporate governance and
stakeholder management identified as the key issues.

One indicator of FIs’ potential CSR activity is their level of CSR disclosures. Day and
Woodward (2009) examine CSR disclosures in the UK financial services sector and identify
that the level is disappointingly low. Consistent with this, Andrikopoulos et al. (2014) explore
determinants of CSR disclosure practices in the European finance industry and identify that the
overall CSR performance of FIs listed in the Euronext remains low. Weber et al. (2014) also
identify that, globally, several aspects of the financial sector’s sustainability performance,
including reporting, are significantly lower than the average across other sectors. The extent to
which these comply with sector guidelines tends to be related to size and, although most large
financial companies published CSR reports on a regular basis, displayed a consistently low
overall level of quality. Similarly, Sethi et al. (2017), investigating variations in the quality and
5
comprehensiveness of 104 CSR reports published by the world’s largest FIs in 2012, find the
industry isn’t achieving the accountability agenda, and conclude it treats the guidelines partially
as a box-ticking exercise. However, there is substantial variation within the sector, with banks
achieving higher scores than other FIs (Andrikopoulos et al., 2014). This is due to increased
political pressure on the banking sector to engage in socially responsible practices, although
their CSR engagement is still limited. Pathak and Tewari (2017), comparing the sustainability
reporting of Indian and European banks, identify a focus upon areas catering to the immediate
and elementary needs of the business eco-system, while energy, agriculture, wind and water,
and areas such as “positive impact financing”, still being embryonic.

Listed banks must comply with a variety of regulators’ requirements, suggesting a baseline set
of CSR disclosures is required in their country of domicile or operation. Thus, voluntary
internalization of environmental and social effects, as embedded in banks’ strategy and conduct,
may provide a better indicator of active CSR performance. Scholtens (2009), identifies this with
respect to increased transparency of bank CSR conduct and the number of responsible financial
products for a sample of international banks. Chih et al. (2010) also conclude that the financial
industry’s self-regulation, including the Equator Principles developed via cooperation between
FIs and the International Finance Corporation (IFC), has had a significant positive effect on the
international financial industry’s CSR practices.

Evidence on whether investors assign value relevance to banks’ social reporting is provided in
Carnevale et al. (2012) and Carnevale and Mazzuca (2014), who find against this in the
European context. More generally, Soana (2011), based on a sample of 21 international and 16
Italian banks, reveals an absence of a statistically significant link between corporate social
performance (CSP), measured by global ethical ratings, and financial performance. A negative
relationship is found between socially responsible management of employees and financial
performance. In contrast, using cross-country studies, Wu and Shen (2013) and Shen et al.
(2016) identify that earnings and asset quality of banks with high levels of CSR exceed those
that do not engage in CSR. More recently, Buallay (2019), examines 235 listed banks on the
European Union countries’ stock exchanges over 10 years, identifying that CSR disclosures
negatively affect financial and operational performance (ROA and ROE), whereas
environmental disclosure positively affects ROE and Tobin’s Q.

Due to the specifics of national economic development, institutional quality, and culture, CSR
activity and disclosure likely embed country-level factors. Vilar and Simão (2015) focus on the
quantity and types of CSR disclosures in 11 regions for the global banking industry, confirming
that quantity, detail of information, and themes disclosed depend on location. This reflects
countries’ development, measured by the human development index and GDP per capita, where

6
the banks operate. Alberici and Querci (2016) also identify that the quality of voluntary
disclosures on environmental policy is associated with the FI’s attributes and home country
characteristics, including national wealth and environmental performance.

With respect to the Chinese banking sector’s CSR practices, evidence is limited and indirect.
Bouvain et al. (2013) compare the CSR practice–brand value association in East Asian and US
banks, identifying that Chinese banks’ brand value is only associated with the community
aspect. The result is consistent with Sun et al. (2015), who conclude that, supporting
institutional theory, early adoption and spread of CSR reporting within China’s banking
industry is influenced by the local community where the bank operates. By comparing CSR
reporting in the six largest banks by market capitalization from Japan, China, Australia and
India, Jain et al. (2015) identify that Chinese banks, the largest, have CSR scores lower than
their counterparts in terms of ethical standards, extent of reporting, environment, products,
community, employees, supply chain management and benchmarking. However, these results
may not be generalizable to China’s mainland listed FIs, as the banks studied, such as HSBC
Holdings PLC, are only Hong Kong listed. Weber (2017) investigates Chinese banks’
sustainability reports to examine the connection between sustainability performance and their
financial indicators. Weber finds that the environmental and social performance of Chinese
banks increased significantly between 2009 and 2013, with a bi-directional causality between
their financial and sustainability performance.

The review of the literature suggests gaps in evaluation of China’s mainland FIs’ engagement
in sustainability or CSR practices. Our study aims to address these gaps and, furthermore,
against the backdrop of China’s government’s advocacy of green finance, to understand how
China’s FIs engage with sustainability issues through their public reporting. Our study makes
five contributions. First, by providing a longitudinal analysis of the extent and content of
China’s finance sector’s environmental and sustainability reporting practice, to gauge how it
engages with sustainability issues and factors that are significant in determining changes in
engagement over time. As Schaltegger et al. (2007) identify, if accounting information isn’t
publicly communicated, it cannot exert influence or contribute towards the firm’s sustainable
development. Our study also involves a larger sample, over a longer and more recent period
than prior studies of China’s FIs. Second, the focus is on FIs’ disclosures on the sustainability
of green finance intermediation and credit decision-making processes, and how FIs incorporate
sustainability or environmental issues into internal operations. The latter is absent from the
literature. Third, we provide empirical evidence for the broadly defined financial sector and
comparison of intra-industry differences in both static and evolving contexts. Fourth, we
statistically examine the influence of the state on the quantity and quality of reporting. Finally,
our study uses a new research database, the China Listed Firm’s Corporate Social
Responsibility Research Database (CSRR Database), launched by GTA Information

7
Technology in 2015.5 In contrast to studies solely reliant on content analysis, requiring high
levels of subjectivity from researchers in the coding process (Milne and Adler 1999), our study
potentially provides a more objective and comparable analysis.

3. Theoretical Framework

Within the interpretative paradigm, accounting is socially created, and influences, in addition
to economic and social relations, individual psychological aspects and the balance of power
amongst divergent interest groups (Mathews, 1987). The interpretative approach emphasizes
individual perceptions of accounting information and therefore the status quo is neither rejected
nor reinforced (Gray et al., 1987, p.202). It is considered a ‘middle of the road’ and more
pertinent approach in social and environmental accounting research (Tilt, 1994). Within the
interpretative paradigm, previous studies rely primarily on legitimacy theory, stakeholder
theory and institutional theory, to explain the underlying rationale for corporate social and
environmental reporting, concerning the role of information in the organization-society
dialogue (Deegan, 2006). As Gray et al. (1996) argue, these theories originate in a broader
theory—political economy theory—which views society, politics and economics as inseparable;
economic issues cannot be meaningfully studied without the political, social and institutional
frameworks in which the economic activity takes place. Therefore, a company’s disclosure
policy is considered to constitute a strategy to interact with other parties in the political, social
and institutional context where the company operates (Deegan, 2006).

From a higher level of specificity, institutional theory explains how particular organizational
forms might be adopted in order to conform to institutionalized norms or rules, leading to
legitimacy of that organization in the context of where they operate (Chen and Roberts, 2010).
Thus, according to institutional theory, organizations operate in a context where similar
institutional structures tend to adopt homogeneous forms of behavior. This is by three
mechanisms of isomorphism—coercive, mimetic, and normative isomorphism—ensuring
stability and survival, and facilitating political power and institutional legitimacy (DiMaggio
and Powell, 1983; Campbell, 2007). Sustainability reporting practice is one such homogeneous
behavior by a group of organizations, reflecting conformity to institutionalized norms or rules
shaped by isomorphic mechanisms (Shabana et al., 2017). Institutional theory also shares
common views with stakeholder theory, as the external pressures explored in institutional
theory and questions of power, legitimacy, and other sources of influence, are also talked about
in the study of stakeholder relationships (Majoch et al., 2017). The coercive isomorphism,
stemming from ‘political influence and problem of legitimacy’, refers to both formal and
informal pressures exerted on organizations by other organizations upon which they are

5 GTA is a leading global provider of China financial market data, China industries and economic data. It has major
database including the China Stock Market & Accounting Research Database (CSMAR).

8
dependent and “[s]uch pressures may be felt as force, as persuasion, or as invitations to join in
collusion” (DiMaggio and Powell, 1983, p.150). This form of isomorphism is related to ‘power’.
The coercive isomorphism overlaps with the managerial branch of stakeholder theory whereby
a company will, for example, use sustainability disclosures to address the social and
environmental concerns of those stakeholders who have the most power over the company
(Deegan 2006, p.307). Therefore, under coercive isomorphism, an organization may adopt a
particular kind of organizational practice, such as sustainability disclosures, as a response to
government mandated behaviour, conformance to environmental regulation, or compliance tax
law requirement (DiMaggio and Powell, 1983).

In social and environmental accounting studies, institutional theory, particularly the isomorphic
mechanism, is widely applied in studying sustainability reporting or CSR disclosures.
Therefore, this study adopts perspectives of institutional theory, and the coercive isomorphism,
to examine China’s FIs’ sustainability disclosures and, specifically, ‘green finance’ disclosures,
to shed light on how the sector uses these in response to coercive pressure from the government.
There is a traditionally high ‘power distance’ in Chinese culture, which results in the
centralization of power and authority in the government. Thus, Yang et al. (2015) argue that the
institutional perspective provides a better insight into economic, social, and organizational
changes in China, and leads to a better understanding of Chinese firms’ behaviors and
characteristics. For example, Sun et al. (2015) highlight the usefulness of institutional theory in
understanding China’s banking industry’s initial adoption of CSR reporting practices. They
identify that these banks are more likely to be CSR reporting first-movers, if they operate under
normative, local government or other regulatory pressures. Acting as both regulator and
facilitator, the state plays an important role in promoting development of CSR and sustainability
reporting practice by setting norms, standards, and guidance. Without the state’s coercive
pressure, sustainability reporting is less likely to occur. As a recent institutional arrangement,
green finance policy has played important roles in the market-based promotion of
environmental protection and building of an ecological society in China (Green Finance Task
Force, 2015). The concept of “green finance” promoted by China’s government over the last
decade, overlaps with, but is conceptually differentiated from, sustainable development and
CSR (G20 Green Finance Study Group, 2016). It represents a new policy-driven space for FI
development, requiring all financial flows be “greened” in response to environmental risks.
This is primarily through promotion and provision of green credit, green securities, and green
insurance by commercial FIs (DRC-IISD, 2015). The period also overlaps that when the
Chinese government and capital market promoted CSR practice in business (Dong and Xu,
2016). In response to these policy pressures, we expect evidence of FI’s greater engagement
with sustainability through increased sustainability reporting over 2007–2016. Given China’s
government’s green finance policy advocacy and establishment of a green finance system, we
expect the financial sector to place priority on green finance reporting.

9
The financial sector is bank-dominated and concentrated; half of total loans being originated
by the five largest, and central government majority-owned, commercial banks (DRC-IISD,
2015). “Green credit” has been the key green finance policy within China’s bank-dominated
financial system, and accounts for most of China’s green financial business. In 2012, the China
Banking Regulatory Commission (CBRC) issued the “Notice of the China Banking Regulatory
Commission on Issuing Green Credit Guidelines”. It stipulates that banks effectively identify,
measure, monitor and control environmental and social risks in credit business activities, and
establish a management system incorporating environmental and social risks (CBRC, 2012).
Compared to green banking, green bond 6 and green insurance are still developing, with
regulations and rules being incomplete (DRC-IISD, 2015). Therefore, intra-sector differences
in sustainability and green financial disclosures are expected in FIs’ sustainability, particularly
green finance, disclosures, with banks playing a leading role.

4. Method

4.1 Data and Sample

We focus on SHSE and SZSE listed FIs over 2007–2016. The period selected enables
assessment of how sustainability and green finance disclosures by China’s mainland listed FIs
have changed, extends that in previous studies, and provides more recent evidence. It also
coincides with China’s government’s promotion of CSR practices for the private sector,
particularly FIs. Numerous regulations and voluntary CSR initiatives were issued during this
period. CSMAR is the primary source for data collection in this study. CSMAR is used widely
for the collection of CSR Chinese financial data for China-based economic and financial
research (e.g., Zeng et al., 2012; Lu and Abeysekera, 2014; Meng et al., 2014). In 2015 CSMAR
introduced a new sub-database, the “China Listed Firm’s Corporate Social Responsibility
Research Database” (CSRR Database), which provides data on the general and detailed
sustainability and CSR information disclosed by listed Chinese firms. Therefore, this study
includes those FIs with available data in the database, even if for a single year, giving a total of
308 firm-year observations across 57 firms.

Appendix A provides the names, stock IDs, and stock exchange information of firms in the
CSRR database. Table 1 lists the number of sample firms with data in each year and the FIs’
subsector distribution. Table 2 identifies the level of sample FIs’ government shareholdings as
of 31 December 2016. As shown, the government has shareholdings in over 70 percent of these
sample firms. However, one major drawback of the CSRR database is it only provides common
disclosure categories; sector-specific disclosure categories are not provided. To overcome this,
the “Chinese CSR Report Preparation Guide (CASS-CSR 2.0)” issued by the Chinese Academy

6 According to G20 Green Finance Synthesis Report (2016), green bonds are debt instruments used to finance green
projects that deliver environmental benefits.

10
of Social Sciences (CASS) is adopted to capture sector-specific themes for disclosures made
by FIs. Currently, CASS-CSR 2.0 is the most frequently referenced local reporting guideline in
China, providing information on issues of national importance and addressing regional issues
(GRI, 2014).

Insert Table 1 here

Insert Table 2 here

4.2 Content Analysis and Choice of Unit of Analysis

4.2.1 Content analysis and Construction of Classification Scheme

Content analysis involves codifying qualitative and quantitative information into pre-defined
categories to derive patterns in the presentation and reporting of information (Guthrie et al.,
2004), an appropriate research technique for this study. It allows for the systematic, numeric
analysis of a large amount of text customized to the research being conducted (Majoch et al.,
2017), and is a technique with a long history and widely employed in accounting-related
research on social and economic issues (Parker, 2015). This includes recent studies on corporate
disclosures (Campopiano and Massis, 2015; Florio and Leoni, 2017), particularly CSR
disclosures in annual or CSR reports. Other recent studies have also applied content analysis to
sustainability disclosure databases (e.g., Bradford et al., 2017). Here, content analysis is applied
to both the CSRR database and firm CSR reports to identify the volumes, frequency, and
content of FIs’ sustainability disclosures.

The core activity in performing content analysis is to develop a classification scheme with well-
defined categories for disclosures and decision rules (Hackston and Milne, 1996). However, a
limitation is potential researcher subjectivity involved in coding (Milne and Adler, 1999). To
reduce the potential for subjectivity, a classification scheme was developed based on the
previous literature (i.e. Cuesta-González et al., 2006; Green Finance Task Force, 2015) and
information sources (i.e. the CSRR database; and CASS-CSR 2.0). The scheme was designed
as follows. First, based on the CSRR database, sustainability disclosures made by Chinese
companies are originally categorized under shareholder, creditor, work safety and employee,
supplier, customer, environmental protection, and public relations and system construction. The
first seven categories are concerned with different types of stakeholder interests, with a category
named “protection of stakeholder interests” being adopted to analyze protection of these
disclosures (Appendix B). Then, common sustainability disclosures made by FIs are analysed
11
in four main categories: “environmental sustainability”, “public relations and social welfare”,
“system construction” and “protection of stakeholders’ interests”. Second, unique themes for
FIs’ disclosures within each category are identified to capture sector-specific disclosures. Third,
based on Cuesta-González et al. (2006), we examine sample FIs’ sustainability disclosures from
both internal and external dimensions, reflecting that integration of CSR into the financial
sector should take two dominant directions. These are: (1) social and environmental
responsibility initiatives in internal firm operations; and (2) integration of CSR into banking
intermediation and stock market investments. The internal dimension includes items identifying
direct and indirect impact of activities on environmental management, energy/water use,
materials, waste management, recycling and compliance with national/international standards,
and identifying and maintaining ongoing dialogue with key stakeholders. The external
dimension includes embedding social and environmental considerations in product design,
credit policy, socially responsible investment funds or ethical deposits (Cuesta-González et al.,
2006, p.291). A socially responsible FI should be transparent in both internal operation and
externally intermediary decisions (see Appendix B). Last, we narrow our examination to issues
related to “Green Finance” against the background of the Chinese government’s green financial
system agenda, examining the influence of governmental pressure. In its 2015 report, the Green
Finance Task Force co-sponsored by the Research Bureau of the People’s Bank of China (PBC)
and the UNEP Inquiry into the Design of a Sustainable Financial System (UNEP Inquiry)
designed policy recommendations and acting mechanisms (p.8). Based on its work, we examine
financial sector disclosures on issues related to “Green Finance” (See Appendix C).

4.2.2 Choice of Unit of Analysis and Measurement

The identification of codable units is important in content analysis, to ensure coding

reliability. The selection of unit of analysis is a matter of judgment, and individual researchers
must exercise subjective choice (Krippendorff, 2004). As Jain et al. (2015) identify, the
complexities of defining CSR activities has led to different measurement approaches being
adopted. Soana (2011) provides a synthesis of five groups of CSR performance measurement
methods from previous studies: counting words, lines, or sentences providing CSR information;
quantification of social performance levels from management questionnaires; corporate
reputational scores or indexes; one-dimensional indicators, such as local community,
philanthropy or environment interactions; and an ethical rating developed by rating agencies.
As objectives in this study include identifying both general reporting trends and the content of
disclosures, including those related to green finance, three measures were employed. First, the
number of FIs that made sustainability disclosures over the study period is counted. Changes
in the number of reporting firms may directly reflect company responses to institutional
pressure to undertake CSR activities (Dong and Xu, 2016). Second, we use a dichotomous
variable to measure the adoption of sustainability reporting practices, coded “1” if the sample
firm issues a stand-alone sustainability or CSR report in a particular year, and “0” otherwise

12
(GRIADOPT). Likewise, in considering green finance disclosures we coded “1” if the sample
firm discloses green finance information in a particular year, and “0” otherwise (GREENFIN).
Third, the number of themes of the sustainability information disclosed by the firm, is collected
directly from the CSRR database. In the case of missing data, the total number of themes is
manually collected and quantified from firm sustainability or CSR reports where available
(Simão and Vilar, 2015). We then classify each theme into the corresponding disclosure
category.

4.3 Survival Analysis

A focus in this study is to evaluate the potential role of institutional factors in influencing
FIs’ sustainability, and specifically green finance, disclosures over 2007–2016. However, our
interest should not just be in if a decision to provide these disclosures occurred, but also the
time at which the decision to provide these disclosures was made. As not all FIs made the
decision to provide sustainability, including green finance, disclosures by 2016, the end year of
our sample, our data is right-censored. Both the nature of our study and the sample data’s
characteristics, which also includes the presence of time-varying covariates, support use of
survival analysis as an empirical methodology (Hoepner et al. 2019; LeClere 2005; Liu 2012).7

Our dependent variable is the hazard rate, in this case the conditional probability of the initial
release of either sustainability or green finance disclosures by a Chinese mainland listed FI
during a particular time interval, the individual events of interest in our study. Given its wide
application and tractability (Liu, 2012), we follow Hoepner et al. (2019) in using a parametric
Weibull model for parameterization of the unobservable hazard function (h(t|x)) in terms of time
(t) and covariates (x). This proportional hazard rate model is specified as follows (Liu, 2012):

ℎ(𝑡|𝒙) = ℎ0 (𝑡)exp(𝒙′𝜷) (1)

Here the function h0(t) = 𝜆𝑝̃(𝜆𝑡)𝑝̃−1 is the baseline hazard function, which describes changes in
the hazard function in relation to survival time. This reflects both a scale parameter () and shape
parameter 𝑝̃ which define the increasing or decreasing exponential path of the function over time.
Finally, we present results based on estimation in the form of a generalized linear regression based
on the use of log values (Liu 2012):

7 We thank an anonymous reviewer both for suggesting use of survival analysis to manage econometric issues
related to our data, and well as identifying examples of its use in the business literature.

13
𝑙𝑛[ℎ(𝑡|𝒙)] = 𝑙𝑛[ℎ0 (𝑡)] + 𝒙′ 𝜷 = 𝛼 ∗ + 𝒙′ 𝜷 (2)

where *, the intercept is the log of the baseline hazard function. The default value of estimated
coefficients is zero, with positive (negative) coefficients identifying a proportional increase
(decrease) in the probability of the initial release of either sustainability or green finance
disclosures by a Chinese mainland listed FI.8

5. Results and Discussions

5.1 Trends in FIs’ sustainability disclosures

China’s financial sector’s overall sustainability disclosures imply its response to government
agendas. The sector’s sustainability reporting is divided into three periods: “emerging stage”
(2007–2009); “developing stage” (2010); and “greening stage” (2011–2016). A positive,
increasing trend is evident from 2010 (Figure 1). Over 2007–2016, increases in the number of
companies making discloses in common sustainability areas—environmental sustainability,
public relations and social welfare, CSR system construction and improvement, and protection
of various stakeholders’ interests—is substantial. In 2007, two FIs made sustainability
disclosures, accounting for three percent of the total sample firms (Table 3). In 2016, the
number increased to 56 firms, accounting for 90 percent of the sample firms. We interpret this
trend in the general institutional context of China, and specific context of the finance sector.
During 2007–2009 the Chinese government strongly promoted CSR practices by issuing
various CSR regulations and guidance. The finance sector underwent an “emerging stage” in
sustainability engagement, with only a slightly increase in the number of FIs reporting on
sustainability.

Prior studies have reported a strong growth in CSR reporting practices among Chinese
companies (i.e., Syntao, 2013). In May 2008 the SHSE launched the “Guide on Environmental
Information Disclosure for Companies Listed on the Shanghai Stock Exchange” and “Notice
on Strengthening Social Responsibility of Listed Companies”, requiring listed firms to fulfill
their social responsibilities by reporting CSR engagement through CSR or sustainability reports.
However, the SHSE’s 2008 guide had a general feature which could be applied to all industries.
Later that year, the SHSE required companies in the Corporate Governance Index, issuing
shares overseas, and in the financial sector, to publish CSR reports in 2008 and subsequent
years (SHSE, 2008). Our sample results identify only 10 listed FIs disclosing the required
information in 2009, indicating the SHSE did not make the requirement mandatory. Moreover,

8 Following Hoepner et al. (2019) we also use a similarly transformed semi-parametric Cox hazards model in
robustness tests, given the Weibull model assumes hazard rates increase or decrease exponentially over time. We
find that are results for coefficients (sign and statistical significance) hold across estimation models.

14
due to general features in regulations and CSR interpretations, FIs tended to make narrow
disclosures on CSR rather than wider sustainability issues. This is consistent with prior studies,
as 2008 to 2009 is generally accepted as an emerging point in Chinese companies’ adoption of
CSR practices involving the issue of stand-along sustainability or CSR reports (KPMG, 2008).

A sharp increase is identified during the “developing stage” (2010), as there is a 70 percent
increase in the number of the sampled FIs reporting on sustainability (Figure 1). On average, a
total of 73 themes on sustainability practice were disclosed by sample firms in 2010, compared
to 31 themes reported in 2009, a growth of nearly 1.35 times (Table 3). The “developing stage”
may be attributable to release of CSR guidance for FIs by the China Banking Association
(CBA), who promoted comprehensive CSR programs within the Chinese banking system (CBA
2009).

Insert Table 3 here

Insert Figure 1 here

2011-2016 is the finance sector’s “greening stage”, during which two significant guidelines,
requiring “green practice” in the finance sector, were issued. In 2012 the “Notice of the China
Banking Regulatory Commission on Issuing Green Credit Guidelines” was issued by the CBRC.
This stipulated that banking institutions provide green loans by impeding the availability of
funds for polluting projects. And, in 2016, the “Guiding Opinions on Establishing a Green
Finance System” were issued by seven government departments in China, including the
People's Bank of China, Ministry of Finance, and Ministry of Environmental Protection,
requiring FIs to incorporate environmental factors into decision-making processes, adopt
environmental risk management tools, and improve environmental disclosures. Overall, our
findings suggest that from 2007 to 2016 Chinese FIs’ sustainability reporting practices became
institutionalized, as the number of disclosing firms increased over time. This increase aligns
with the general regulatory pressures emerging in each phase (e.g., see Sun et al., 2015).

Finally, with respect to FIs reporting green finance information, peaks are identified in 2013
(17) and 2016 (24) (Table 3). However, compared to disclosures in the same years on
environmental sustainability (25 and 34, respectively) and protection of stakeholders’ interests
(40 and 49, respectively), green finance disclosures have not been a finance sector priority.
These results indicate that the financial sector’s green finance awareness has not matured.
15
5.2 Qualitative Analysis of Financial Sector’s Sustainability Reporting Content

In terms of common disclosures of sustainability issues arising from internal operations and
external dimensions, themes in four main categories are examined according to the 2015 “China
Listed Firm’s Corporate Social Responsibility Research Database”. These are “environmental
sustainability”, “public relations and social welfare”, “system construction” and “protection of
stakeholders’ interests”. On average, sample FIs report 111 themes related to “protection of
customers’ interests”, followed by 82 on “public relations and social welfare”, 75 on
“environmental sustainability”, and 68 on “protection of employee interest and work safety”
(Table 3). However, “CSR system construction and improvement” are FIs’ least reported areas.
The “protection of customers’ interest” category has the greatest number of reported themes,
implying that FIs treat clients and customers as important stakeholders. Within this category,
FIs report themes including customer satisfaction, solution of customer complaints, customer
education, protection of customer privacy, and loans provided to different industrial sectors and
high polluting industries, etc.

In terms of sector-specific reported themes, our sample FIs disclose information, such as
financial knowledge training for customers, technology and production addressing climate
change. However, our survey of disclosures indicates that sample FIs’ disclosures on
“protection of customer interests” focus mainly on their “day-to-day” transactions with
customers, rather than the impact of FIs’ sustainable operations on their customer. “Public
relations and social welfare” disclosures indicate how companies respond to public demands
and expectations and develop good relationships with the public. The themes reported include
“community education”, “sports and cultural events”, “sponsorship”, “volunteering activities”,
and “charitable donations”. Disclosures in this category reveal a tendency for FIs to service
public relations and social welfare responsibilities through charitable donations. In terms of
community involvement themes, FIs reported their SME (138), low-income (6), and less
developed area (9) credit policies. Within the “environmental sustainability” category, the top
three themes disclosed by FIs are “energy use in the daily operation”, “green credit” and “loans
provided for high energy use, high polluting industries and industries with excessive capacity”.
Within the “employee interest and work safety” category, the FIs mainly report salaries,
pensions, and other well-being provided for employees.

A survey of disclosures in the CSRR database indicates that FIs disclosed 33 “risk management
system” themes. Most FIs disclose their compliance with international standards, also an
indicator in internal operations, such as ISO 9000ISO9001, GB/T28001, ISO14001,
ISO20000:2005, ISO27001:2005, ISO20000 IT. Compared to other sectors, FIs emphasize
their “policies and training against money laundering”, a sector-specific theme responding to

16
government regulation and supervision. “Training of staff” is a commonly reported theme, but
the training provided mostly relates to employees’ day-to-day work in order to improve their
skills rather than changing their behaviour to be “green”. The last category “CSR system
construction and improvement” is, surprisingly, the least reported category by FIs, with the
most reported narratives being on CSR policies, deficiencies and improvement measures, rather
than construction of a CSR system and governance structures to transfer to a “green” business
model. Disclosures of sustainability issues arising from external dimensions highlight that the
FIs have not integrated social and environmental issues into the product design process, instead
disclosing polices on socially responsible investment, the amount and balances of
environmental credit provided, and EIA compliance rates for loan projects.

5.3 “Green finance” disclosures issues

In this section, we focus on issues related to “Green Finance” across different subsectors
given the China’s government’s agenda of establishing a green financial system. We use
dichotomous variables (yes or no) (Weber, 2017), with assessment of the disclosure content
being based on the “acting mechanism” provided by the Green Finance Task Force (2015) (see
Appendix C).

Although emerging since 2009, the financial sector’s disclosure of green finance information
has been limited. For banks, which account for 70 per cent of total green finance disclosures,
the most frequently reported information is the “provision of green credit and green loans” to
environmentally friendly or energy saving projects. The green credit policy initiated by the
CSRC in 2012 may have contributed to a “green credit” disclosure bias. For the “securities”
and “insurance” subsectors, disclosures are more limited. Five “securities” firms state that they
have issued a “green bond”, and the amount of “environmental liability insurance” for high-
risk industries is reported by one insurance firm. Our results confirm that while FIs have
considered sustainability and environmental issues, and even green finance issues in
determining both internal operational and external lending policies, green finance products
remain limited in type and coverage. Bank loans provide the main source (DRC-IISD, 2015).
At the institutional level, existing regulatory pressures in the banking sector may explain its
superior environmental sustainability reporting practices, particularly on green finance
disclosures.

5.4 Comparison of subsector responses to pressures

On average, the “Five Largest” banks and the banking subsector reported the highest average
number of sustainability themes, including environmental sustainability, green finance, social
and public welfare, and protecting the interests of clients and customers (Table 4). The “Five

17
Largest” banks average reporting performance on environmental sustainability themes exceeds
that of non-state-owned banks over the study period, with 141 and 123 themes, respectively.
The “Five Largest” banks’ leading practices imply that central government-owned institutions
are under more political scrutiny and exposed to more regulatory pressure than non-government
banks. Our result is consistent with Andrikopoulos et al. (2014), who conclude that banks’
achievement of the highest scores in CSR performance is due to increased political pressures
for socially responsible sector practices, and with China’s financial system being bank-
dominated. Thus, most regulations issued focus on banks, such as the CBRC’s green credit
policy, and CBA’s guidance. “Green credit” accounts for 43 percent of banks’ overall green
finance disclosures. Our results imply coercive pressure from government agencies has the
most significant influence on FIs adoption of environmental sustainability and green finance.
However, influence on other subsectors’ practices appears limited. The Chinese banking
industry also follows a similar trend in comparison to the industry banking industry, as
identified by Scholtens (2009) and Chih et al. (2010). Overall, China’s banking industry has
increased transparency over the period, based on the number of banks making sustainability
disclosures, and the quantity and content of disclosures made. In addition to government
regulations, industry self-regulation, including CSR guidelines issued by the CBA, has had a
significant positive effect on bank’s CSR practices. Additionally, as shown in Figure 2, the FIs
reporting environmental sustainability and green financial information are those headquartered
in the coastal region, and in Beijing, and Shanghai where the economy is relatively strong
compared to other regions. In coastal regions where economic development is higher and occurs
more rapidly, awareness of CSR, sustainability, even green finance is heavily promoted, with
government policy potentially being implemented better or at an earlier stage. This suggests the
FIs in these regions are more likely to respond through relevant disclosures. However, as shown
in Table 5, sample banks, including the “Five Largest”, did not report any green finance
information until 2009, despite being concentrated in these regions. Furthermore, sample firms
in the securities and insurance subsectors only started to show partial information in 2013. The
data in Table 5 support our previous section’s findings regarding the “emerging stage” of the
financial sector’s engagement with general sustainability issues before 2009, and the “greening
stage” from 2010. Additionally, compared to banks, practices within the “Green Securities” and
“Green Insurance” subsectors’ are evolving slowly. As the G20’s Green Finance Synthesis
Report (2016) identifies, a number of factors are impeding these subsectors’ green practices.
These include a lack of awareness of the benefits of green bonds and green bond guidelines,
and an inadequate incorporation of environmental risk into investment analysis.

Insert Figure 2 here

Insert Table 4 here

18
 Insert Table 5 here

To compare differences between the quantity and quality of bank and non-bank institution
disclosures, we conduct one-way ANOVAs on the absolute number of sustainability themes
disclosed and whether the firm reports in accordance with GRI reporting guidelines. This latter
indicator is often used as a proxy for the quality of disclosures (Dong and Xu, 2016). The one-
way ANOVA tests p values are equal to 0.000 (p < 0.05) (Table 6), identifying significant
differences between the quantity and quality bank and non-bank FIs’ sustainability disclosures.
The mean quantity of disclosures for banking (4.32) is greater than for non-bank sectors (3.25),
confirming that within the financial sector the bank subsector has a higher quantity of
disclosures. However, with respect to the quality of disclosures, the mean for the bank subsector
is 1.25, less than the mean of 1.7 for non-bank subsectors. Our results support the argument
that while existing institutional pressures focused on banks have triggered reporting, they have
had limited impact in improving the quality of these practices.

Insert Table 6 here

5.5 Governmental influence over reporting quantity and quality

To provide a snapshot of the impact of governmental influence on the quantity and quality of
FIs’ disclosures, state ownership is examined. In China, companies in which the state is a
majority shareholder account for over 60 percent of stock market capitalization (Hsu et al.,
2018). In the financial sector, state ownership is also significant. The banking system in China
is dominated by state-owned commercial banks, several of which have been listed on the stock
exchange (Yang and Ye, 2016).

As shown in the sample distribution (Table 2), 74.5 percent of FIs have state shareholdings.
Bivariate correlations between government ownership and disclosure quantity and quality are
estimated here. Using skewness/kurtosis tests we identify that the variables TOTGOVSHR, the
proportion shares held by the government, and the number of sustainability themes
(SUSTHEMES) are not normally distributed. Therefore, we use log-transformed variables,
ln(TOTGOVSHR) and ln(SUSTHEMES). We identify significant p values (p < 0.05), equal to
0.004 and 0.000, respectively, for the impact of government shareholding on the quantity and
quality of disclosure (Table 7). This suggests that government shareholdings in FIs and each of
the quantity and quality of sustainability disclosures are significantly correlated, consistent with
Hsu et al. (2018), who find that state-owned enterprises have a higher propensity to be engaged
in environmental issues. We also find support for the case that government ownership is
correlated to the decision of whether green finance disclosures (yes or no) are made.
19
Additionally, whether the FI’s CEO or Chair of Board have a political connection (PC) is also
coded and considered. Corporate political connectedness is a widespread phenomenon,
including in China (Cheng et al., 2017). FI political connection is coded by the number of CEOs
or members of the Board who are currently governmental officials (He et al. 2018). We find,
in 2016, that 80 percent of FIs in the sample are ‘politically connected’. Political connectedness
is significantly correlated with both the quantity and quality of sustainability disclosures, and
whether green finance disclosures are made. This is again consistent with previous studies, such
as Hsu et al. (2018), which identifies that state-owned enterprises are more responsive to salient
environmental events and change in government’s political orientation.

To summarize, our findings are consistent with the trend analyses in Section 5.1 and support
the explanatory power of institutional theory in explaining the financial sector’s adoption of
sustainability reporting practices. The institutional isomorphism, particularly the coercive
isomorphism, exerts significance on FI’s sustainability reporting practice and ‘green finance’
disclosures in the Chinese context. Acting as both regulator and promoter, the state plays an
important role in pushing the development of CSR and sustainability reporting practice by
setting norms, standards, and guidance.

Insert Table 7 here

5.6 Results from Survival Analysis

Our above qualitative and bivariate analyses suggest that several variables related to
institutional drivers may be associated with FIs’ disclosure of sustainability or green finance
information. Geographical location (REGION and FREECITY), state influence via state
ownership (TOTGOVSHR) and/or political connectedness (POLCONNECT), plus being in the
banking subsector (SUBSECT), are identified. Thus, firms located in areas such as the coastal
regions or the directly administrated municipalities of Beijing and Shanghai, firms with higher
levels of state ownership or greater board political connectedness, and those in the banking
subsector may be more highly represented in the group of FIs disclosing sustainability and/or
green finance information. However, this does not directly address the dynamics associated
with the decision by FIs to commence sustainability and/or green finance disclosures during
the sample period, the focus of our survival analysis. Additionally, to control for the potential
impact on FI disclosure decisions of internal factors related to the board composition, we add a
range of standard governance variables (Post, 2015; Shan and Xu, 2012; Yermack, 1996) to
accompany our location, state influence, and subsector variables. These include audit
certification by a ‘Big 4’ auditor (CERTIF), board size (BOARDSIZE), a dummy variable for
female board representation (FEMBRDMBR) and a measure of board independence in the form
of the proportion of independent directors (PROPNINDEP), and whether the CEO is chair of

20
the board (CEODUAL).

Insert Table 8 here

Summary statistics on our survival data for both the release of a separate sustainability report
and green finance disclosures are presented in Table 8. Column identifies data for 56 firms that
initiated reporting in these areas between 2007 and 2016. Of these firms, 30 began issue of a
separate sustainability report, and 25 undertook initiation of green finance disclosures. While a
few sample firms already provided such disclosures, for those beginning in the period the
average year in which this commenced was 2013 for sustainability and 2014 for green finance
disclosures. That the median firm undertook either of these activities first in 2016, highlights
the rapid growth in adoption of each of these forms of disclosure over the period.

Insert Table 9 here

Our survival analysis results, presented in Table 9, provide substantial support for many of the
insights derived from our bivariate analyses, but also highlight some key differences with
respect to the importance of geographical locations and state influence on sustainability and
green finance disclosures.

We find, on balance, significant geographical variation between firms in terms of their initiation
of disclosure practices. REGION, although not statistically significant in the case of
sustainability reporting, is both positive and statistically significant for the initiation of green
finance disclosures. As noted, the coastal regions are locations where economic development
is higher, where awareness and promotion of sustainability and green finance is likely to be
more heavily promoted, with potential for earlier implementation of government policy
regardless of sector. However, although representing a large proportion of firms in the sample,
we identify that location in one of the directly administrated municipalities (here Beijing,
Shanghai, and Chongqing) reduces the probability of initiating reporting. This holds both for
creation of separate sustainability reports and introduction of green finance disclosures over the
sample period, as captured in the negative and statistically significant coefficients on our
FREECITY dummy in each regression.

We find important support for the continuing role of the banking subsector in adopting
21
sustainability and green finance disclosures, with coefficients on our SUBSECTOR dummy
being both positive and statistically significant. Rather than being at the forefront simply due
to the earlier introduction of institutional pressures to report on sustainability and green finance
issues, our results indicate that banks are also more likely to initiate reporting in these areas
over the sample period. This suggests strong support for the continued impact of the coercive
and mimetic pressures applied by both professional associations and regulators in this industry
sector.

In contrast to our bivariate analysis, we find limited support for the influence of state pressure
on FIs to begin to provide sustainability and green finance disclosures. Where significant, rather
than initiation of reporting being influenced by direct ownership by the state, and consistent
with the role of continued privatization of equity in China’s former SOEs, our results suggest
that political connectedness may be a more important factor. The coefficients on TOTGOVSHR
are approximately zero and statistically insignificant in the case of each of our dependent
variables. However, for green finance disclosures, a more recently emphasized government
priority, the coefficient on POLCONNECT is both positive and statistically significant. This
may reflect the high level of politically connectedness within China’s financial sector, with 80
percent of our sample FIs having current government officials as CEOs in 2016, and the current
priority being placed by China’s government on this area.

Finally, with respect to our internal governance variables, we find limited support, with most
coefficients, with the most apart from those on CERTIF being statistically insignificant. In the
case of CERTIF we find that rather than enhancing the probability of initiating sustainability or
green finance reporting, that audit by a major auditor reduces it during the sample period. The
other exception is for BOARDSIZE, in the case of the introduction of sustainability reports,
where we find an increase in board size reduces the probability of initiating sustainability
reporting over the sample period.

6. Conclusions

In developed countries, private rather than public sector FIs have led sustainable finance,
while in developing countries public sector FIs have led (UNEP, 2002). Given the realignment
of sustainable development and the financial system advocated in the international context
following the GFC, this study uses a longitudinal analysis to examine the Chinese financial
sector’s sustainability reporting practices. We exam the topic in China’s context, as it is
transforming from a resource and pollution-intensive economy to a green economy. “Greening
the finance system” is therefore an integral component.

22
In this study, the entire finance sector, incorporating the banking, securities, and insurance
subsectors, is examined, based on 308 firm-year observations for 57 listed companies over a
ten-year period. Four research questions are addressed: (1) the trend and content of the finance
sector’s sustainability reporting practices; (2) the financial sector’s reporting of “green finance”
information; (3) intra-sector differences in terms of reporting quantity and quality; and (4) the
impact of state influence on quantity and quality of reporting. This is supported by both
bivariate analyses and multivariate survival analysis on the probability of initiating disclosure
of sustainability and green finance information during the sample period.

The study identifies three stages for the financial sector’s sustainability reporting practices: an
“emerging stage”; a “developing stage”; and a “greening stage”. The financial sector’s
engagement in sustainability reporting has been institutionalized, as the practice has been
adopted over time and in line with the general regulatory pressures existing in each phase.
However, the financial sector’s adoption of green finance is still growing and has not achieved
mature status. China’s banking sector has taken a leading role, in both the reporting of
environmental sustainability practice and green finance information and continues to do so with
respect to its continued adoption in the sector. Compared to the banks, the green practices of
the securities and insurance subsectors are evolving slowly. Therefore, additional policy
reforms are needed to stimulate FIs’ development of green financial products and capacities
(DRC-IISD, 2015). Additionally, we find that while government shareholdings and the quantity
and quality of sustainability disclosures are correlated, an artefact of history, that this is not
reflected in the role of government ownership on the initiation of adoption of sustainability and
green disclosure reporting by China’s FIs. Thus, it is institutional pressure, largely via
government-imposed regulatory pressures, that is more likely to drive change, rather than
simply state ownership or control of listed FIS. Additionally, government ownership and the
quantity of sustainability disclosures, measured by the absolute number of sustainability themes
disclosed, are negatively correlated. The latter result is consistent with prior studies, such as
Shan and Xu (2012) on financial performance but contradicts Zhang et al. (2012) which uses
an earlier sample. Overall, especially with respect to the banking sector, the study supports the
explanatory power of institutional theory and governmental pressure in explaining Chinese FIs’
sustainability reporting behaviour.

The results in this study reflect several limitations. First, a relatively small sample is adopted
due to data availability, with this largely reflecting firms with CSR data in the CSRR
database. Second, the study examines themes associated with different categories of FI
disclosures, but the detailed content of these disclosures has not been examined. Third, is
overlap of themes under the classification scheme. However, our review of the split between
FIs listed on the two exchanges, and the split between regions identified in Figure 2, suggests
23
that we have good representation of China’s major FIs.

Future studies may extend this analysis to examine relationships between FIs’ environmental
or green finance reporting practices and other variables, including their financial performance.
As transparency has not always driven better “green” performance (UNEP, 2016), future
studies could examine the relationship between disclosures and performance to avoid
“window dressing” behavior. Furthermore, future studies may undertake a more detailed
comparison of state-owned (or controlled) FIs and non-state-owned FIs.

24
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Appendix A: Sample listed financial institutions

Stock ID Stock Exchange Institution Name

600000 SHSE SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD.
600015 SHSE HUA XIA BANK CO., LTD.
600016 SHSE CHINA MINSHENG BANK
600030 SHSE CITIC SECURITIES CO., LTD.
600036 SHSE CHINA MERCHANTS BANK CO., LTD.
600109 SHSE SINOLINK SECURITIES CO., LTD.
600291 SHSE INNER MONGOLIA XISHUI STRONG YEAR CO., LTD.
600369 SHSE SOUTHWEST SECURITIES CO., LTD.
600643 SHSE SHANGHAI AJ GROUP CO., LTD.
600705 SHSE AVIC CAPITAL CO., LTD.
600816 SHSE ANXIN TRUST CO., LTD.
600837 SHSE HAITONG SECURITIES CO., LTD.
600909 SHSE HUAAN SECURITIES
600919 SHSE BANK OF JIANGSU
600926 SHSE BANK OF HANGZHOU
600958 SHSE ORIENT SECURITIES
600999 SHSE CHINA MERCHANTS SECURITIES CO., LTD.
601009 SHSE BANK OF NANJING CO., LTD.
601099 SHSE THE PACIFIC SECURITIES CO., LTD.
601166 SHSE INDUSTRIAL BANK CO., LTD.
601169 SHSE BANK OF BEIJING CO., LTD.
601198 SHSE DONGXING SECURITIES
601211 SHSE GUOTAI JUNAN SECURITIES
601229 SHSE BANK OF SHANGHAI
601288 SHSE AGRICULTURAL BANK OF CHINA LIMITED.
601318 SHSE PING AN INSURANCE (GROUP) COMPANY OF CHINA, LTD.
601328 SHSE BANK OF COMMUNICATIONS CO., LTD.
601336 SHSE NEW CHINA LIFE INSURANCE COMPANY LTD.
601375 SHSE CENTRAL CHINA SECURITIES
601377 SHSE INDUSTRIAL SECURITIES CO., LTD.
601398 SHSE INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED.
601555 SHSE SOOCHOW SECURITIES CO., LTD.
601601 SHSE CHINA PACIFIC INSURANCE (GROUP) CO LTD.
601628 SHSE CHINA LIFE INSURANCE COMPANY LIMITED.
601688 SHSE HUATAI SECURITIES CO., LTD.
601788 SHSE EVERBRIGHT SECURITIES CO., LTD.
601818 SHSE CHINA EVERBRIGHT BANK COMPANY LIMITED.
601901 SHSE FOUNDER SECURITES CO., LTD.
601939 SHSE CHINA CONSTRUCTION BANK CORPORATION.
601988 SHSE BANK OF CHINA LIMITED.
601997 SHSE GUIYANG BANK
601998 SHSE CHINA CITIC BANK CORPORATION LIMITED.
32
 000001 SZSE PING AN BANK CO., LTD.
000166 SZSE SHENWAN HONGYUAN GROUP CO., LTD.
000563 SZSE SHAANXI INTERNATIONAL TRUST CO., LTD.
000627 SZSE HUBEI BIOCAUSE PHARMACEUTICAL CO., LTD.
000686 SZSE NORTHEAST SECURITIES CO., LTD.
000712 SZSE GUANGDONG GOLDEN DRAGON DEVELOPMENT INC.
000728 SZSE GUOYUAN SECURITIES COMPANY LIMITED.
000750 SZSE SEALAND SECURITIES CO., LTD.
000776 SZSE GF SECURITIES CO., LTD.
000783 SZSE CHANGJIANG SECURITIES CO., LTD.
002142 SZSE BANK OF NINGBO CO., LTD.
002500 SZSE SHANXI SECURITIES COMPANY LIMITED.
002673 SZSE WESTERN SECURITIES CO., LTD.
002736 SZSE GUOSEN SECURITIES CO., LTD.
002797 SZSE FIRST CAPITAL SECURITES CO., LTD.
Note: SHSE, Shanghai Stock Exchange; SZSE, Shenzhen Stock Exchange.

33
Appendix B: Classification Scheme for Content Analysis

Sustainability issues arising from internal operation Sustainability issues arising from external dimension

1) Environmental sustainability 1) taking social and environmental considerations in product design, credit
policy policies of socially responsible investment funds or ethical deposits
a) energy/water use, materials, waste management, recycling, etc.
2) performance of SRI
b) energy saving building and business outlet*
3) considering clients’ social and environmental standards and risks associated
c) direct and indirect impact of activities on environmental management
with their investments, etc.
d) compliance with national/international standards
4) monitor customers’ implementation of environmental regulations in credit
e) risk management system and training* contracts*

2) Public relations and social welfare 5) policies of environmental credit; environmental credit amount and ratio*

a) sponsorship of cultural and educational activities, charity donations, 6) EIA compliance rate for loan project*
encouraging community involvement, etc.

b) credit policy, amount and balances for SMEs*

c) credit policy, amount and balances for low-come*

d) credit policy, amount and balances for less developed areas*

3) CSR system construction and improvement

a) CSR policies; deficiencies; improvement measures

34
4) Protection of Stakeholder Interests

a) identify key stakeholders

b) maintaining ongoing dialogue with stakeholders and periodically report

c) timely information disclosures

4.1) protection of interests of shareholders, creditors and suppliers

a) policies and training against money laundering*

4.2) protection of interests of clients and customers

a) managing product quality or striving for customer satisfaction and

retention

b) protection of customer privacy

c) financial knowledge training for clients and customers*

d) financial products addressing climate change*

e) policies and measures of ensuring transparent product information,

customer service fees, and payment terms*

f) policies of Online transaction safety and efficiency*

4.3) protection of interest of employees and work safety

a) integrating aspects like equal opportunities, training and development,

35
 health and safety, human rights or work environment in management
strategies

*sector-specific disclosure themes as recommended by the “Chinese CSR Report Preparation Guide (CASS-CSR 2.0)

36
Appendix C: Acting Mechanisms in “Green Finance” Issues

Green Finance Information could be disclosed according to “acting mechanism” Bank Securities Insurance
Green Banks -Increase the return on green activities - - -

-Reduce the investment risk and cost of private capital for green projects by leveraging economies Yes* - -
of scale and specialized green services and operations

-Reduce the cost of funds for green projects - - -

Green Bonds -Reduce the cost of funds for green projects - - -

-Build up the economies of scale and specialized green services and operations - yes yes

-Reduce the cost of green investment - - -

Green IPO -Facilitate green companies to raise funds; indirectly reduce financing costs - yes -

Green Ratings and Indices -Reveal environmental risks, reduce the investments in polluting projects by increasing their costs - - -

-Reduce the financing costs of green projects and foster more of these projects by showing their - - -
positive externalities

-Indirectly reduce the investment costs of green projects by channeling more funds into green yes yes -
industries

Green Insurance -Expose environmental risks through insurance policies, which indirectly increases the projects - yes -

-Discourage investment in cost polluting projects - yes -

37
 -Increase investee companies’ preference for green projects through pressure from institutional - - -
investors

Green Investor Education -Increase investors’ preference for green projects through online educational programs - - -

-Strengthen the social responsibilities of investors, impede the availability of funds for polluting yes - -
projects

-Encourage (discourage) companies to invest in green (polluting) projects by emphasizing greater - - -

corporate social responsibilities

38
Table 1: Sample Distribution of firms providing sustainability and/or green finance disclosures by year and subsector

Year/ Subsectors 2007 2008 2009 2010 2011

Banking 1 2 4 16 16

Securities 1 4 4 14 17

Insurance 0 1 1 3 4

Total 2 7 9 33 37

Year/ Subsectors 2012 2013 2014 2015 2016

Banking 16 16 16 16 20

Securities 16 18 19 24 27

Insurance 4 4 4 4 6

Others 3 4 4 4 2

Total 39 42 43 48 55

39
Table 2: Sample distribution by proportion of government shareholding (as of 31 December 2016)

Subsectors ≥50% <50% =0 Total

Banking 5 11 4 20

Non-Banking 6 19 10 35

Total 11 30 14 55

40
Table 3: Financial Institutions’ Disclosures in China by Category, 2007 to 2016

Overall Environmental Green Finance CSR system Public relations and Protection of stakeholders' interests
sustainability construction and social welfare
Customer interest Shareholder, Employee, work
improvement
protection creditor, supplier safety
interest protection

Year No.a Ave.b No. Ave. No. Ave No. Ave. No. Ave. No. Ave. No. Ave. No. Ave.

2007 2 31 0 0 0 0 1 1 2 11.5 1 16 1 12 1 10

2008 8 29 2 5.5 0 0 2 2 8 7.37 6 10.5 4 3 7 12.28

2009 10 31 6 6.7 1 3 1 1 9 11.66 7 9.7 5 2.8 7 11.57

2010 35 73 22 19.18 6 2.5 4 1.25 33 19.75 33 26.48 30 4.4 31 15.06

2011 39 70 22 18.13 7 5.14 4 1 36 15.44 33 31.45 34 6.29 36 14.52

2012 40 45 25 11.64 6 1.33 6 1 32 10.56 33 16.03 29 6.1 36 12.44

2013 44 71 25 21.04 17 5.35 3 1.67 41 14.87 39 30.87 33 6.15 40 14.47

2014 46 68 23 21.26 13 3.38 2 1.5 44 16 42 28.09 39 4.48 42 13.19

2015 50 50 29 12.13 16 2.68 4 1 47 12.14 44 16.65 42 7.28 45 11.4

2016 56 46 34 13.8 24 3.8 16 1 52 15.65 44 10.22 47 5.85 49 11.14

Note: a number of reporting financial institutions in the year; b average number of themes disclosed.

41
Table 4: Comparison of Number of Environmental Sustainability and Green Finance Disclosure Themes by Subsector, 2007 to 2016

Average no. of themes Five largest Banking Securities Insurance

Environmental sustainability 141 123 12 113

Green finance 17 17 2.5 5

Social and public welfare 196 134 50 54

Protection of Stakeholders’
interest:
1. Client/customer 312 201 42 105

2. Shareholder/creditor/supplier 28 28 29 21

3. Employee/secure production 119 77 37 197

42
Table 5: Green Finance and Environmental Sustainability Disclosures by Subsector, 2009 to 2016

Green finance 2009 2010 2011 2012 2013 2014 2015 2016

No. Ave. No. Ave. No. Ave. No. Ave. No. Ave. No. Ave. No. Ave. No. Ave.

“Five largest” banks 3 1 2 2.5 3 3 3 1.6 5 2.8 5 3.8 4 3 4 5.25

Banking 3 1 6 2.5 7 5.14 6 1.3 14 5.35 13 3.38 12 3.25 16 5

Securities - - - - - - - - 1 9 - - 4 1 7 1.42

Insurance - - - - - - - - 2 3.5 - - - - 1 3

Environmental 2009 2010 2011 2012 2013 2014 2015 2016

sustainability

No. Ave. No. Ave. No. Ave. No. Ave. No. Ave. No. Ave. No. Ave. No. Ave.

“Five largest” banks 2 15.5 5 22 4 24 5 14 5 18 5 23 5 20.6 5 19

Banking 4 9.5 15 23.5 14 23 16 12 16 26 15 27 16 17 19 16.5

Securities 1 1 4 4.5 4 1.5 5 2.6 5 7.6 6 4.3 10 3.8 12 4.75

Insurance 1 1 3 17 4 14.5 3 26 3 22 2 26.5 3 12 3 33

43
Table 6: One-Way ANOVA for Subsector Comparison

Summary of Variables

Disclosure Quantity Disclosure Quality

Sub-sector Mean Std. Dev. Freq. Mean Std. Dev. Freq.

0 3.2567 0.8961 190 1.7031 0.4581 192

1 4.3242 0.6825 123 1.2520 0.4360 123

Total 3.6762 0.9702 313 1.5270 0.5001 315

Analysis of Variance

Quantity SS df F Prob > F

Between groups 85.0838 1 126.86 0.0000

Within groups 208.5876 311

Quality SS df F Prob > F

Between groups 15.2555 1 75.48 0.0000

Within groups 63.2651 313

44
Table 7: Pearson Correlation Results

Disclosure quantity Disclosure quality Green finance disclosure

(existence or not)

Government shareholdings (sig. 2-tail) 0.004** 0.000** 0.002**

Political Connections (sig. 2-tail) 0.000** 0.003** 0.023*

**
Significant at the 0.01 level, *significant at the 0.05 level

45
Table 8: Summary of survival data

Category Total Mean Min Median Max

(1) (2) (3) (4) (5)

GRI adoption

No. of firms 56

No. of records 178 3.18 1 2 9

Disclosure date 2013 2008 2016 2016

Firms disclosing 30 0.54 0 1 1

Green finance disclosures

No. of firms 56

No. of records 220 3.93 1 4 9

Disclosure date 2014 2009 2016 2016

Firms disclosing 25 0.45 0 0 1

This table provides summary statistics of our 2007-2016 sample’s regression survival data. Column (1) reports the total number of firms and records in the
regression data. Columns (2) to (5) show, respectively, the mean, minimum, median, and maximum.

46
Table 9: Parametric Weibull model results

Variables Impact on probability of initiating disclosure

GRIADOPT GREENFIN

REGION 0.301 (0.56) 15.086*** (29.72)

FREECITY -2.925** (-2.28) -1.449* (-1.92)

SUBSECT 2.313** (2.26) 3.335*** (3.55)

POLCONNECT 0.086 (1.41) 0.179*** (3.13)

TOTGOVSHR 0.007 (0.90) -0.002 (-0.22)

CERTIF -3.762*** (-3.69) -1.996*** (-4.62)

BOARDSIZE -0.092** (-1.96) -0.083 (-1.42)

FEMBRDMBR 1.532 (1.37) 0.106 (0.15)

PROPNINDEP -2.059 (-0.57) 7.960 (1.60)

CEODUAL -0.451 (-0.56) 0.438 (0.70)

CONSTANT -7251.473*** (-7.31) -8907.024*** (-8.34)

ln_p 6.860*** (50.06) 7.063*** (58.78)

Observations 178 220

47
This table reports the results from our parametric Weibull modelling on the institutional and governance covariates specified in our analysis of the decision
to introduce sustainability reporting (GRIADOPT) or green finance disclosures (GREENFIN). The institutional and governance variables are as follows:
Geographical location in coastal regions (REGION) and directly administered municipality (FREECITY) are dummy variables, as is being part of the
banking subsector (SUBSECT), political connectedness of the CEO and board (POLCONNECT), state influence via state ownership (TOTGOVESHR),
audit certification by a ‘Big 4’ auditor (CERTIF), board size (BOARDSIZE), a dummy variable for female board representation (FEMBRDMBR), the
proportion of independent directors (PROPNINDEP), and whether the CEO is chair of the board (CEODUAL). We report coefficients and t statistics (in
brackets) for each variable, including the constant. ln_p reports results on the shape parameter for the baseline function.

*,**,and ***, identify, respectively, statistical significant at the 10, 5, and 1% levels.

48
Figure 1. No of Financial Institutions disclosing sustainability and “Green Finance” disclosures, 2007 to 2016

60
No of FI making "green
finance" disclosures
50
No of FI making
sustainability disclosures
40

30

20

10

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

49
Figure 2: No of FIs Disclosing Environmental Sustainability and Green Finance Disclosures by Region, 2007 to 2016

70

60
No of FI disclosing green finance
50
No of FI disclosing environmental sustainability
40

30

20

10

0
Coastal Region Non-Coastal Beijing Shanghai Chongqing Tianjin
Region

50