Development of mandatory & voluntary instruments of sustainability reporting ( SR ) according to carrots & sticks 2006-2016

* Corresponding author, email address: rbreliastiti@bundamulia.ac.id ABSTRACT Sustainability Reporting (SR) has become the main report of the world’s leading companies. In 2005, it was found that more than 250 top companies listed on the Fortune 500 had prepared SR separately from the Annual Report in which the number in each country varies. In the developed countries, awareness to compile and issue SR is supported by government regulations so that SR becomes mandatory. Yet, in developing countries, SR is still voluntary because there is still no regulation requiring the companies to compile and issue SR. This research aims to find out the development of the mandatory and voluntary instruments related to SR. It is a literature review done using instruments such as a tabulation containing the development of the mandatory and voluntary instruments (government policy). Enthusiasm for the application of SR and commitment, and efforts to achieve transparency and accountability all have increased. Countries with interest in SR have a significant development: 19 countries in 2006, 32 countries in 2010, 45 countries and regions in 2013, and 71 countries and regions in 2016. Indonesia, especially, has its SR regulations that have grown from 180 in 2013 to 400 in 2016, with government regulations dominating 80% of all regulations. Mandatory instruments dominate more than voluntary instruments. The application of SR 30% is for large companies listed on the stock exchange. SR reporting by public companies has covered all sectors on the stock exchange. All were greatly influenced by the role of the government encouraging the companies to disclose information about sustainability in their annual reports. Social reporting instruments show a faster development than environmental reporting instruments.


ABSTRAK
In Indonesia, the number of SRs compiled by companies is still very limited. Based on the number of participants in the Indonesia Sustainability Report Award (ISRA), it shows the level of the companies' awareness and concern to report on their environmental performance. For SR in 2014 (ISRA 2015 participants), there were 37 participating companies, while For SR in 2015 (ISRA 2016 participants), there were 55 participating companies (National Center for Sustainability Reporting, 2015Reporting, , 2016. Based on the description above, this study aims to determine the development of mandatory and voluntary instruments (government policies) related to SR in the world.

THEORETICAL FRAMEWORK AND HYPOTHESES Definition of Sustainability
Sustainability can be briefly defined as doing what we can today, and preserving the environment for future generations. There are three components of sustainability: environment, equity, and economy (Brinkmann, 2016). Environment focuses on the efforts to preserve and protect the environment. Equity focuses on ensuring that there is fairness in decision making, when we are ahead, in the middle, and as we are moving forward into the future. The economic component of sustainability focuses on the fact that we need to ensure that livelihoods remain protected but while still trying to protect the environment for future generations (Brinkmann, 2016). According to Rankin et al. (2012), research in the field of sustainability is a contemporary research field in Accounting.

History of Sustainability Report (SR)
Corporate sustainability has been the subject of research interest in social science since the mid-1900s. Sustainability reporting developed in the mid-1990s as a means for business organizations to manage and balance their productive efforts with the environment and surrounding communities (Deegan, 2002). The concept and essence of sustainability were popularized by the Brundtland Report publication in 1987, with the title "Our Common Future". In this report, sustainability was defined as "the ability to meet the needs of the present generation without sacrificing the ability of future generations to meet their own needs".
The Rio de Janeiro Conference on Environment and Development in 1992 played a major role in promoting the idea that corporate sustainability was the result of three pillars: economic growth, ecological balance, and social responsibility. Furthermore, the United Nations Global Compact (UNGC) was established in 2000 by UN agencies, governments and civil society groups, to guide business organizations to harmonize their operations and strategies to follow four principles of sustainability: (1) Universal declaration of human rights; (2) Declaration of the basic principles of international labor organizations and rights at work; (3) Rio's Declaration on the environment and development; and (4) UN Convention against corruption. Christofi et al. (2012).

RESEARCH METHOD Instrument Development
This research is qualitative and descriptive research methods. Qualitative research method is the method used to produce data findings without using statistical or measurement procedures. Descriptive research method is the method used to describe certain parameters without questioning what, how and why they occur. This research was conducted by photographing the facts as they were, then presented them as a report using certain scientific procedures and standards (Augustine & Kristaung, 2013). This research was a literature review/ literature research. Literature review is research that examines or critically reviews knowledge, ideas, or findings contained within the body of academic oriented literature, as well as formulating theoretical and methodological contributions for a particular topic. According to Bugin (2008), the literature method is one of the data collection methods

Malaysia
To explore the understanding of sustainable development and the concept of sustainability reporting among Malaysian local authority personnel

Japan and Indonesia
To detect problems in sustainability reports in two different countries based on sustainability reporting laws and their operation and to explore possible changes in laws and regulations due to investment interactions between the two countries.

Findings in the 2010 Carrots & Sticks Report
The 2010 Carrots & Sticks research involving 30 countries presents the following: • A total of 142 standards and / or laws including some reportings related to sustainability requirements or guidelines; • About two-thirds (65%) of the standard can be classified as compulsory and onethird (35%) can be classified as voluntary; • A total of 16 standards including some reporting requirements at the global level and at the regional level; and • A total of 14 insurance standards. The trend continued to develop, where there was an increasing emphasis on the complementary combination between voluntary approaches and mandatory approaches for organizational disclosure. There was a gradual integration of organizational performance data, with efforts to combine corporate governance, finance, and sustainability reporting.

Findings in the 2016 Carrots & Sticks Report
There was an increase in the number of reporting instruments that had been identified since the 2013 Carrots & Sticks report. The 2016 Carrots & Sticks report identified nearly 400 sustainability reporting instruments in 64 countries compared to 180 sustainability reporting instruments in 44 countries in the 2013 report. Reporting instruments in Europe, Asia Pacific, and Latin America were growing very strongly.
Government regulation was the largest proportion of instruments for sustainability reporting worldwide. With government instruments, more than 80 percent of countries in the world introduced some forms of sustainability reporting regulatory instruments. Mandatory instruments still dominated, but the growth of voluntary instruments was also quite strong. About twothirds of the instruments were mandatory and about one-third were voluntary.
The level of activity of the stock market and financial market regulators was an important note in the 2016 Carrots & Sticks report, where the two groups together were responsible for almost one-third of all sustainability reporting instruments that had been successfully identified. Nearly a third of the reporting instruments applied exclusively to large listed companies and around three quarters had been introduced by financial market regulators and stock exchanges. The remaining two-thirds applied to all companies and state-owned companies. Meanwhile, most reporting instruments covered all sectors (cross-sectoral scope). There were also reporting instruments that targeted certain sectors (such as the financial sector and heavy industry). The number of reporting instruments for companies in the financial services sector doubled or even more from 2013 to 2016 and accounted for nearly 40 percent of sectorspecific instruments.

SR Instruments in the World in 2016
Over the past three years, the total number of instruments that require or encourage organizations to report information about their sustainability performance has grown rapidly and significantly throughout the world. The 2016 Carrots & Sticks report found that sustainability reporting instruments had already existed in most of the world's largest economies: 64 out of 71 countries studied in 2016 had several types of sustainability reporting instruments. In the 2016 report there were 383 sustainability reporting instruments

Figure 2 Country and its SR Instruments
Source: Carrots & Sticks (2016) in 64 countries compared to 180 instruments in 44 countries in the 2013 report.
There was a fundamental trend of increasing the volume of reporting instruments: an average of 6.0 instruments per country studied in 2016 compared to an average of 4.1 instruments per country in 2013. This upward trend was supported by the fact that most (around 70 percent) of the new instruments identified in 2016 were carried out in countries that were also covered in 2013. This showed that the market was becoming more complex and modern and was increasingly hoping for businesses to report information not only on financial performance but also on the material aspects of non-financial performance.
There have been rapid developments in Europe, Asia Pacific and Latin America due to the main driver of growth in regulation with the "comply or explain" reporting approach and increased activity by financial market regulators and stock exchanges.

Mandatory and Voluntary Instruments
The majority of instruments identified in the 2016 Carrots & Sticks Report, around two thirds of the total were mandatory and about one third were voluntary. There were 115 new mandatory instruments. The proportion of mandatory instruments compared to voluntary instruments dropped to 65 percent of the total in 2016, compared to 72 percent in 2013. In the Carrots & Sticks Report for three editions (2006, 2010 and 2013), trends for the proportion of mandatory instruments always increased.
In many countries, initial voluntary reporting efforts by companies to measure and report on their corporate responsibility or sustainability performance have been followed by increased mandatory disclosure requirements introduced through government regulations. This is especially the case in OECD countries, where new reporting requirements have been introduced through laws such as company actions and accounting regulations, as well as instruments that address reporting on specific themes such as corporate governance and the environment. The thing to note in the European region is the emergence of mandatory requirements from the government or the European Union Commissions (EU Commissions) which require reporting not only on certain environmental or social issues but also on non-financial performance. One example is the historical evolution from the EU Accounts Modernization Directive (2003) to the EU Non-Financial Reporting Directive (2014). The government is the most common issuer of sustainability reporting instruments, but this does not mean that all government instruments require sustainability reporting. More than a quarter or 56 out of 223 government instruments identified in 2016 were voluntary. In addition, it is also important to consider which part of the government that issues reporting instruments (for example laws, regulations, guidelines, or action plans). The government and regulators encouraged companies to disclose their sustainability information in annual reports. The number of reporting instruments that required this provision grew from 67 to 127 instruments from 2013 to 2016. This increase was due to the fact that more countries studied in 2016 were also associated with greater pressure from financial institutions, especially investors and institutions, which aimed to improve information about the relevance of material sustainability risks. Reporting instruments that required self-disclosure in sustainability reports also increased but in lower proportions. The number of instruments that determined disclosures in annual reports increased by almost 100 percent while the number of instruments that determined disclosures in sustainability reports increased by more than 50 percent.

Organizations that Establish SR Instruments
About 45 percent of the instruments identified in 2016 required or encouraged companies to disclose their sustainability information in other ways (for example in the forms other than annual financial reports, integrated reports or independent sustainability reports). These other forms might include disclosure of data to independent governments such as greenhouse gas emissions, waste figures, or publication of policies or action plans on certain themes such as labor, social impacts or biodiversity.

The Focus of the Instrument
The first sequence was dominated by general sustainability themes and then focused on environmental and social themes. More than three-fifths (61 percent) of the instruments identified in the 2016 Carrots & Sticks Report explained environmental or social topics. The remaining two-fifths encouraged the reporting of sustainability information in general.

Figure 7 The Theme Raised by the Instruments in 2013 and 2016
Source: Carrots & Sticks (2016) The number of instruments focusing on reporting social information has almost doubled since 2013 compared to instruments focusing on reporting environmental information. The social information covered by this instrument includes human rights, health and safety, working conditions and training. As many as 46 percent of instruments that focus on reporting social information are in European countries, and around 25 percent are in Asia Pacific countries including Australia, Malaysia, China and Japan.

The portion of mandatory instrument
was two thirds of the total and voluntary instrument was one third of the total. One of the reasons was due to the shift of instruments that were initially voluntary to become mandatory instruments (especially in OECD countries). 3. The parties that determined SR instruments were the government, financial regulators, stock exchanges, industrial regulators and other institutions. The institution that set the largest SR instrument was the government, that is, three-fifths of the total instruments. 4. The sustainability information format required by the instrument consisted of Sustainability Report (SR), Annual Report (AR), and Integrated Report (IR). The government and regulators encouraged companies to disclose company sustainability information in an annual report (AR) of 127 instruments. In addition, there were instruments that required reporting sustainability information in SR (76 instruments), in AR / SR (2 instruments) and in IR (4 instruments

Suggestion
The government is the main institution that has the power to create sustainability reporting instruments. As of 2016, Indonesia only had eight mandatory SR instruments. The role of the Indonesian government is needed to improve the quality of company sustainability information in Indonesia. Information about sustainability does not have to be in SR format, but it can be in AR format. The most important thing is not the format of the report, but the content of the information conveyed in the report.