FACTA UNIVERSITATIS
Series: Economics and Organization Vol. 18, No 3, 2021, pp. 243 - 257

https://doi.org/10.22190/FUEO210616017D

Original Scientific Paper

WHAT CAN BE LEARNED FROM SUSTAINABILITY

REPORTING AT THE FRONTIER MARKETS? THE CASE OF

THE REPUBLIC OF SERBIA AND NORTH MACEDONIA1

UDC 502.131.1(497.11+497.7)

Ksenija Denčić-Mihajlov1, Klime Poposki2, Milica Pavlović1*

1Faculty of Economics, University of Niš, Niš, Serbia
2Faculty of Tourism and Hospitality, University St. Kliment Ohridski,

Ohrid, North Macedonia

ORCID iD: Ksenija Denčić-Mihajlov https://orcid.org/0000-0002-2419-0676
Klime Poposki https://orcid.org/0000-0002-7497-5826

Milica Pavlović https://orcid.org/0000-0002-3442-4560

Abstract. The paper examines the corporate social responsibility (CSR) reporting practice

at the frontier markets by using a comparative review of sustainability reporting practice

according to the GRI framework. The research covers 31 companies included in the

BELEXline and MBI10 indices in the period 2014-2018. The values of Social,

Environmental, Economic and aggregate Sustainability Index, calculated using content

analysis, indicate a low level of sustainability reporting practice. This is a consequence of a

passive ownership and modest stakeholder pressures to the companies at two frontier

markets and the lack of normative pressure on sustainability reporting. The grouping of the

companies into clusters in accordance with the disclosure of sustainability indicators

indicates significant inter- and intra-countries variations in practice. The reporting on

sustainability issues differs among the companies according to their size, ownership

structure, exchange market and industrial sector affiliation, which is on par with the

developed capital markets.

Key words: sustainability reporting, social, environmental, economic indicators, GRI

Standards, disclosure index, frontier markets

JEL Classification: G15, M14, M48, Q56

Received June 16, 2021 / Revised August 10, 2021 / Accepted August 12, 2021

Corresponding author: Milica Pavlović

* PhD Student at University of Niš, Faculty of Economics Niš
University of Niš, Faculty of Economics, Trg kralja Aleksandra 11, 18000 Niš, Serbia

| E-mail: milapavlovic@yahoo.com

https://orcid.org/0000-0002-2419-0676
https://orcid.org/0000-0002-7497-5826
https://orcid.org/0000-0002-3442-4560
mailto:milapavlovic@yahoo.com

244 K. DENČIĆ-MIHAJLOV, K. POPOSKI, M. PAVLOVIĆ

INTRODUCTION

Growing legislative pressure and increasing public concern about the global warming,

climate change and energy regulation, resource scarcity, social conflicts and migrations,

bring increasing demands for organizations to act in sustainable ways and, consequently,

to report on sustainability issues. Sustainability reporting, as an extended reporting model,

“aims to highlight the view that a company’s consideration of only financial matters as an

indicator of its success is inadequate” (Nolan, 2007, p.2). This reporting model should include

not only financial indicators, but also environmental and social aspects of the company`s

business. The economic dimension of sustainability refers to the impact of an organization on

the economic condition of its stakeholders, as well as to the economic system at the local,

national and global levels. The environmental dimension of sustainability reporting focuses on

the organization's impacts on living and non-living natural resources, including ecosystems,

land, air and water. Disclosure of information on social performance indicators is relevant for

considering the impact that companies have on the social system in which they operate, as

well as the ability to manage the potential risk that may arise from the interactions of

companies with their stakeholders.

The development of sustainability reporting largely depends on the adopted regulatory

measures and guidelines for reporting at the national level (Stojanović-Blab, Blab & Spasić,

2016). The research results conducted in the United States also show this, given that after the

adoption of the Sarbanes-Oxley Act, information on corporate social responsibility became

more comprehensive, and in some areas more transparent (Cohen et al., 2011). In addition to

legislation, some studies state that the development of sustainable accounting and

sustainability reporting depends on other factors. Zyznarska-Dworczak (2018), in her study,

shows that in the countries of Central and Eastern Europe, the progress of sustainability

reporting is determined by the national culture and the historical environment. Namely, in

these countries, political, structural, social and economic changes come to the fore, which

affect all activities of companies, and thus the reporting on sustainability (Zyznarska-

Dworczak, 2018). Mahmood, Kouser & Masud (2019), in their paper also point out that in

emerging markets, reporting on sustainable business is influenced by structural and cultural

conditions.

Promoting transparency and disclosure of non-financial information is a key issue on

the European Union agenda (see more: Denčić-Mihajlov & Stojanović-Blab, 2018). The

practice of the sustainability reporting among EU and other developed countries has been

broadly examined. Hąbek & Wolniak (2016) outline the practice of CSR reporting in

selected EU Member States and identify differences in the scope and quality of

disclosure, taking into account mandatory and voluntary reporting model. Research on

the scope and quality of CSR reporting in national economies across Europe can be found

in numerous studies (such as Holgaard & Jørgensen (2005) in Denmark, Kuznetsov &

Kuznetsova (2010) in Russia, Hąbek (2014) in Poland, Cerin (2002) in Sweden, Cormier

& Magnan (2003) in France). Many researchers in developed countries outside the EU

have also tried to identify the factors influencing the disclosure of information about

social responsibility (such as Giannarakis (2014) in US, Ashcroft (2012) in Canada and

US, Andrew & Wickham (2010) in Australia).

Unlike developed Western countries, reporting on sustainability issues is still in the

early stages of development in emerging and frontier economies. In accordance, the

studies on the sustainability reporting practice and determinants, and particularly on the

What Can Be Learned from Sustainability Reporting at the Frontier Markets? The Case of ... 245

relevance of sustainability reporting for the financial and market position of companies at

these markets are limited. The different level of sustainability reporting between

developed and developing countries is a consequence of differences in the institutional

framework, which mainly concern the degree of economic development and growth rate

(Filatotchev, Buck & Zhukov, 2000). Comparing Western and Central and Eastern

European countries, in terms of access to corporate social responsibility, Fijałkowska,

Zyznarska-Dworczak & Garsztka (2018) conclude that Central and Eastern European

countries are more oriented towards maximizing economic growth goals, while Western

European countries that generally have a higher level of economic security and stability

are more geared towards addressing environmental, social protection and sustainability

issues. Due to these reasons, in emerging and frontier markets, sustainability reporting is

mainly practiced by large corporations or subsidiaries of multinational companies.

According to Dow Jones’ description (CME Group Index Services LLC, 2012),

“frontier markets are typically much less accessible to foreign investors, exhibit notable

limitations in their regulatory and operational environments, and support a smaller

investment landscape.” The fact that the under-development of market and financial

services, the absence of an equity culture and a slow process of financial inclusion, are

the main features of many frontier economies generates opportunities, challenges and risks

for investors. Namely, as frontier markets face considerable sustainability challenges, such

as poverty, inequality, pollution, disease, corruption, unequal governance, weak institutions

and a lack of regulations, the practice, quality and materiality of the data on sustainability

issues are getting increasingly important (Odell & Ali, 2016).

This study aims to extend the current research on sustainability reporting practices in the

context of two frontier capital markets – the Republic of Serbia and North Macedonia in two

ways. First, to our best knowledge, this is the first study to give a comparative overview of

recent sustainability reporting practice according to the GRI framework at the two frontier

markets of Southeastern Europe. Second, we examine the development of sustainability

reporting practices over time, as well as the differences among two markets, companies´ size,

stock exchange segments, ownership structure and industrial sectors. Also, in this paper, by

discussing the combined institutional and stakeholder theory, we explain the practice of

sustainability reporting among Serbian and Macedonian companies and identify the

challenges that the sample companies face in the field of sustainability reporting. This offers a

more comprehensive view on the content of the reporting on the sustainability issues at the

frontier markets and offers some messages to policy makers, investors and companies.

The paper is structured as follows: a brief theoretical background is given in Section

1. Section 2 describes the dataset and the research method, while Section 3 discusses the

research findings. The last section concludes the paper.

1. THEORETICAL BACKGROUND

Theoretical background for understanding the nature of sustainability reporting and

CSR in most of the conducted research can be found in the institutional, legitimacy, and

stakeholder theory. These theories provide different but complementary explanatory

perspectives of analyzed sustainability issues.

According to the legitimacy theory, the legality of a business entity to operate in a

society is based on an implicit social contract between the business entity and society. If a

246 K. DENČIĆ-MIHAJLOV, K. POPOSKI, M. PAVLOVIĆ

company acts contrary to society’s norms and expectations, it can be deprived of the

permission to operate in society. In this regard, legitimacy theory anticipates that companies

use sustainability reporting to legalize their operations and ensure that their activities and

performance are acceptable to the community (Wilmshurst & Frost, 2000; Deegan, 2002;

O’Donovan, 2002). Even though some empirical evidence supports legitimacy theory, the

conclusion regarding its validity in explaining sustainability disclosure should be taken with

caution since most of these studies that test legitimacy theory are focused mainly on

environmental issues associated with public concern and fear. Yet, as indicated by Lanis

& Richardson (2013) there are many other issues at least as important to society as the

environment.

Developed by the business ethicists in the mid-1980s, stakeholder theory has become both

a model upon which many business people rely and the central point of many debates. As

Radin (2015) indicates “it signifies the recognition that firms have responsibilities to people or

entities in addition to stockholders”. Furthermore, according to Oruc and Sarikaya (2011) “the

stakeholder theory aims at increasing the efficiency of organizations by bringing new

definitions to organizational responsibilities. In this respect, the theory suggests that the needs

of shareholders cannot be met before the needs of stakeholders are met”.

The institutional theory has as a focal point the pressures and constraints of the

institutional environment and “illustrates how the exercise of strategic choice may be

preempted when organizations are unconscious of, blind to, or otherwise take for granted

the institutional processes to which they adhere” (Oliver, 1991, p.148). Institutional

theorists claim that organizations face similar institutional pressures, ending up with the

adoption of similar strategies. This happens because they integrate a society, and their

actions are influenced by stakeholders, “including governments (through regulations), an

industry (through standards and norms), competitors (through better business models), and

consumers (through loyalty)” (Tavares & Dias, 2018).

As it can be concluded, all three theories tend to provide a complementary perspective

in explaining corporate disclosure strategies. This theoretical background has typically

been applied in the context of developed countries. However, as indicated by Islam &

Deegan (2008), “there is no apparent reason why the theories would be more appropriate

in one national context as opposed to another”. Hence, for the purposes of this study, and

having in mind the above-mentioned theories, the main aim of this paper is to explore the

reporting activities on sustainability issues among companies operating at two frontier

markets. Further, we explore whether the sustainability reporting practices are shaped by

stakeholder demands and expectations or by institutional pressure at the frontier markets

in which companies operate.

2. MATERIALS AND METHODS

2.1. Research design

The empirical part of this paper is devoted to the consideration of the practice of the

sustainability reporting at two capital markets of Southeast Europe – Serbian and North

Macedonian. The situation and trends in these markets, which in terms of size, liquidity,

risk and level of development belong to the group of frontier markets (FTSE Russell,

2020), have not sufficiently captured the attention of the academic public. We will try to

fill the gap in the empirical research and provide answers to two important questions:

What Can Be Learned from Sustainability Reporting at the Frontier Markets? The Case of ... 247

RQ1: What is the degree and the content of the sustainability indicators disclosed among

companies included in the BELEXline and MBI10 indices? Is it possible to classify these

companies according to their sustainability reporting practices into special groups (clusters)?

RQ2: Does the sustainability reporting of companies included in BELEXLine and MBI10

differ according to the size, ownership structure, exchange market and industrial sector

affiliation?

When it comes to the regulation in the sustainability reporting area, in the Republic of

Serbia, some progress has been made with the introduction of the Law on Accounting

from 2013 which pursuant to Article 29, binds large and listed companies to publish

information on certain dimensions of sustainable business, through the business report

starting from 2014 (Law on Accounting, 2013). With regard to North Macedonia, there is

no legal obligation to disclose information on non-financial indicators. However, in the Law

on Companies from 2016 pursuant to Article 348, paragraph 7, companies, among other

things, shall disclose information on their activities in the field of research and development,

as well as information on the rights and benefits of the management and supervisory board

members within the annual business report (Law on Companies, 2016).

In order to assess CSR disclosure, researchers mainly use content analysis (Akin &

Yilmaz, 2016; Kansal, Joshi, & Batra, 2014). There are several different approaches to

this analysis, the most objective being the one that involves Disclosure Index calculation,

where the presence or absence of certain information is determined by binary coding, e.g.

assign “1” to the index position if the information exists or “0” if the information is not

available, and formulate the index based on the summary result of all information (Ehsan

et al., 2018). This study employs content analysis technique and develops four indices:

Social Disclosure Index, Environmental Disclosure Index, Economic Disclosure Index,

and aggregate, Sustainability Index.

The social dimension of sustainable development has been taken into account and covered

by the following GRI standards: GRI 401: Employment, GRI 403: Occupational Health and

Safety, GRI 404: Training and Education and GRI 413: Local Communities. In accordance

with the practice of disclosing social performance indicators in the Republic of Serbia and

North Macedonia, 11 indicators that make up the Social Disclosure Index (SDI) structure have

been identified: Qualification structure, Gender structure, Age structure, Number of

employees, Termination of employment, Volunteer activities, Employee training, Support for

employees, Internal and external communication capabilities, Injuries at work and Work days

lost due to work injuries.

With regard to the environmental dimension of sustainability, the analysis includes

environmental performance indicators covered by GRI 302: Energy, GRI 305: Air emissions,

GRI 306: Effluents and Waste and GRI 307: Environmental Compliance. Based on the

reporting practice on these indicators, the structure of the Environmental Disclosure Index

(EnvDI) consists of five indicators: Energy Management, Harmful substances air emissions,

Waste management, Wastewater management and Environmental Compliance.

Economic Disclosure Index (EconDI) has been developed taking into account the

standards GRI 201: Economic Performance, GRI 203: Indirect economic impacts and

GRI 205: Anti-corruption. Five indicators make up the structure of the index: Defined

benefits when retiring, Donations, Investments in environmental protection, Investments

in research and development and Procedures related to anti-corruption activities.

248 K. DENČIĆ-MIHAJLOV, K. POPOSKI, M. PAVLOVIĆ

The positions of indices in this paper are coded with 0 (if the information about indicators

is not disclosed), 1 (if the information in the report is descriptive, for example - the possibility

for internal and external communication) or 2 (the information is disclosed and of a

quantitative nature, for example, the number of employees). SDI index is determined as a sum

of equally weighted SDI positions giving the possible maximum index value of 22.

Consequently, the maximum index values of both EnvDI and EconDI are 10, while the

aggregate Sustainability Index (SI), calculated as a sum of SDI, EnvDI and EconDI, takes the

highest value of 42.

In order to answer RQ1, the paper uses hierarchical cluster analysis to statistically

determine similarities and differences between companies, taking into account the level of

disclosure of economic, environmental and social performance (the Ward clustering method

and Euclidean distance were used) (for more details, see: Kaufman & Rousseeuw, 2009).

2.2. Sample description

In order to explore the practice of non-financial reporting at two frontier markets, we used

samples of companies included in two stock market indices – BELEXline and MBI10. While

opting for companies constituents of the indices, we have two facts in mind. Firstly, market

indices properly represent the situation on the market. They are made up of respectable

companies whose shares are traded frequently; they have satisfactory liquidity, and a solid

approximation of market value. Second, these shares are in the focus of institutional investors

(foreign and domestic), so they are relevant from the point of view of disclosure of financial

and non-financial information, and thus for research on disclosure of information on

sustainability reporting. In the process of disclosure indices developing, secondary data were

collected from external sources, mainly through the search of companies' websites and access

to relevant data, documents and annual reports on the Belgrade Stock Exchange and

Macedonian Stock Exchange’s website from 2014 to 2018.

Table 1 presents characteristics of the sample companies. The analysis is based on the data

from 21 real and financial sector companies that made up the BELEXline index basket on

August 17th , 2019. As to MBI10 index, the analysis included 5 companies from real and 5

from financial sector. The sample companies are classified according to: 1) Market segment

(trading at the Belgrade SE is organized at the Regulated Market (Prime Listing, Standard

Listing and Open Market) and multilateral trading facility – MTP, while Macedonian Stock

Exchange consists of Super, Mandatory and Exchange listing segments); 2) Sector

affiliation (the secondary sector includes production activities - industry, construction and

manufacturing, while tertiary sector covers non-manufacturing activities - transport, trade,

tourism, catering, craft services, banking and utilities); 3) Ownership structure (the companies

are differentiated according to the existence of a majority owner, owning 51% of the shares),

and 4) Company size (companies are classified according to annual turnover into small (≤

EUR 10 million), medium (≤ EUR 50 million) and large ones (> EUR 50 million) (European

Commission, 2016). A detailed overview of the sample companies according to their listing

on the Macedonian and Belgrade Stock Exchanges is given in Appendix.

What Can Be Learned from Sustainability Reporting at the Frontier Markets? The Case of ... 249

Table 1 Aggregate characteristics of the sample companies

Number of companies

Market segment*

Prime

Listing

Standard

Listing

Open

Market

Super

Listing

Mandatory

listing

Exchange

listing

3 3 15 1 3 6

Sector of economy
secondary tertiary

18 13

Company size
small medium large

6 7 18

Ownership

structure

majority shareholder diffuse ownership

14 17

Source: Authors’ calculation

We analyzed 155 annual reports published between 2014 and 2018 by 31 companies

constituencies of two national capital markets indices. Having previously applied content

analysis, we based our study on 11 topic indicators related to social, five related to

ecological and five related to economic dimension of sustainability.

3. RESULTS AND DISCUSSION

We conducted cluster analysis and content analysis for each sustainability issue,

including its development over time, its distribution over industries, and size of organization.

Based on this analysis, we came up with eleven findings that are summarized and presented

in Table 2.

Finding 1: Companies included in the two indices report on environmental, social,

and economic sustainability, yet fragmentarily and not equally distributed. The cluster

analysis findings point to significant inter- and intra-countries variations in practice.

According to the hierarchical grouping method, companies are classified into three

clusters in 2014, 2015 and 2016, and into four clusters in 2017 and 2018. Based on the data

shown in Table 3, changes in the cluster structure can be observed, given that, during the

analyzed period, there were changes in the level of reporting in the companies from the

sample. The first cluster includes companies that disclose information on the largest number

of economic, environmental and social indicators and which also have the highest values of

the aggregate Sustainability Index, compared to companies grouped in other clusters.

Within this cluster, the companies that stand out are three companies whose shares are

traded on the Belgrade Stock Exchange (NIIS, ALFA, MTLC) and one company (ALK)

whose shares are traded on the Macedonian Stock Exchange. These companies are

characterized not only by a significant level, but also by better quality of reporting on all

dimensions of sustainability. Namely, the mentioned companies paid great attention to

socially responsible business and sustainable development, which resulted in a serious

approach to reporting on sustainability.

For companies grouped in the second cluster, reporting on selected indicators is at a

slightly lower level compared to companies grouped within the first cluster, with these

companies generally disclosing qualitative information on economic, environmental and

social performance. Companies classified in the third cluster in the period from 2014 to

2016, as well as companies in the fourth cluster in 2017 and 2018 report on sustainability

250 K. DENČIĆ-MIHAJLOV, K. POPOSKI, M. PAVLOVIĆ

at an extremely low level, given the fact that these companies disclosed only information

on the number of employees, defined benefits upon retirement, as well as information on

compliance with laws and standards in the field of environmental protection.

Table 2 Results of the analysis

Findings

1 The data on environmental, social, and economic sustainability are mainly presented in annual

reports; organizations pay more attention to the form than to the content and value of the

information provided. Taking into account the level of disclosure of sustainability performances,

the companies can be classified into special groups (clusters).

2 Environmental, social, and economic sustainability issues are not equally disclosed in

companies reports.

3 The indicators that are the most frequently disclosed are those that are easily quantified and

measured (e.g. the number of employees).

4 Social sustainability topics are of increasing importance for organizations.

5 As to the environmental dimension of sustainability, organizations report mostly qualitative

information on waste management processes and compliance with laws and standards in the

field of environmental protection.

6 Regarding the economic dimension of sustainability, the most frequently reported are data on

defined benefits when retiring and investments in research and development.

7 Serbian companies on average report more frequently on CSR and a decline in the average

value of SI for companies included in MBI10 is observed.

8 Large companies disclose more information on sustainable development indicators in their

annual reports compared to small and medium-sized companies.

9 The highest level of information disclosure on corporate social responsibility is observed in

companies listed on the Standard Listing at the Belgrade Stock Exchange.

10 Companies from the secondary sector report more on sustainable development in relation to

companies from the tertiary sector.

11 Companies with diffuse ownership report more on all dimensions of sustainable business.

Source: Authors

Only one company (NIS, a.d. Novi Sad) has organized and presented information on

sustainability development in the form of a separate sustainability report. Like in most

other emerging and frontier markets, there is a substantial gap between companies that

are leaders in CSR and doing a great deal in sustainability reporting (e,g. NIS Novi Sad,

Serbia and Alkaloid Skopje, North Macedonia) and those that are doing little or nothing.

Finding 2: Information on the environmental, social, and economic sustainability

issues is not equally disclosed among analyzed companies. Indicators on social

performances are more frequently disclosed in comparison to two other categories of

indicators. Average values of SDI among Serbian and Macedonian companies are 7.15

and 5.58 respectively. This finding indicates that social concerns and challenges

dominate in these frontier markets. Such a conclusion is expected, taking into account

that weak institutions, social poverty, limited consumer protection, human rights abuses

or employee exploitation are at the heart of social debate in these countries.

What Can Be Learned from Sustainability Reporting at the Frontier Markets? The Case of ... 251

Table 3 Results of the cluster analysis

Cluster 2014 2015 2016 2017 2018

I ALK, NIIS, MTLC,
KMBN, ALFA,
FITO, IMPL,

LSTA

ALK, NIIS, TEL,
KMB, AERO,
TIGR, DNOS,
ALFA, MTLC

ALK, MTLC,
NIIS, FITO, IMPL,

LSTA, SJPT,
VBSE, ALFA

ALK, NIIS, ALFA,
MTLC

II TTK, TNB, KMB,
SJPT, JMBN

TTK, TNB,
KMB, SJPT,
JMBN, FITO,
IMPL, LSTA

KMBN, TTK,
TNB, JMBN,

KMB

TTK, TNB, KMBN,
JMBN

TTK, TNB, KMB,
AERO, KMBN,

TIGR, IMPL,
DNOS, JMBN

III GRNT, MPT,
MTUR, SBT, TEL,

STB, ENHL,
AERO, JESV,

TIGR, EPEN, EPIN,
KOPB, VDAV,
VBSE, TGAS,
DNOS, GLOS

GRNT, MPT,
MTUR, SBT,
STB, ENHL,
JESV, EPEN,
EPIN, KOPB,

VDAV, VBSE,
TGAS, GLOS

GRNT, MPT,
MTUR, SBT, STB,

TEL, ENHL,
AERO, JESV,
TIGR, EPEN,
EPIN, KOPB,

VDAV, TGAS,
DNOS, GLOS

MTUR, FITO,
IMPL, LSTA, SJPT,

VDAV, VBSE,
GLOS

MTUR, FITO,
LSTA, SJPT,

VDAV, VBSE,
GLOS

IV GRNT, MPT, SBT,
STB, TEL, KMB,

ENHL, AERO,
JESV, TIGR, EPEN,

EPIN, KOPB,
TGAS, DNOS

GRNT, MPT, SBT,
STB, TEL, ENHL,

JESV, EPEN,
EPIN, KOPB,

TGAS

Source: Authors’ calculation

Note:* Symbols from the Belgrade Stock Exchange and Macedonian Stock Exchange were used to

indicate companies

Finding 3: The indicators that are the most frequently disclosed are those that are

easily quantified and measured (e.g. the number of employees and defined benefits when

retiring) (Table 4). This finding is in accordance with Szekely & Kemanian (2016), who

state that “most emerging market firms cannot afford to divert resources from their main

business activities to focus on areas not generating returns”.

Finding 4: The most disclosed social topics are on the number of employees and

internal and external communication capabilities (topics reported from 90.32% and

64.52% companies during 2018) (Table 4). Even though companies have been slow to

integrate social dimension of sustainability into their reporting practice, a trend of a slow

improvement of this practice is present among companies included in BELEXLine (SDI

average value is 6.62 in 2014 and 7.76 in 2018).

Table 4 Most commonly disclosed social, environmental and economic indicators in the

period 2014-2018

Indicators 2014 2015 2016 2017 2018

Social
indicators

Number of employees 90.32% 90.32% 90.32% 90.32% 90.32%
Internal and external
communication capabilities

58.06% 64.52% 64.52% 64.52% 64.52%

Environmental
indicators

Environmental Compliance 74.19% 77.41% 74.19% 77.41% 80.64%
Waste management 58.06% 58.06% 58.06% 58.06% 58.06%

Economic
indicators

Defined benefits when retiring 90.32% 93.54% 93.54% 93.54% 93.54%
Investments in research and
development

67.74% 74.19% 77.41% 77.41% 77.41%

Source: Authors’ calculation

252 K. DENČIĆ-MIHAJLOV, K. POPOSKI, M. PAVLOVIĆ

Finding 5: As to environmental dimension of sustainability, organizations report

mostly in a qualitative manner on waste management processes and compliance with laws

and standards in the field of environmental protection. Research results show that

companies from industries that may have a potential negative impact on the environment

(processing industry and mining - e.g. Alkaloid, NIS, Metalac) on average disclosed more

information on the environmental dimension of sustainability compared to companies from

the financial sector.

Finding 6: Regarding the economic dimension of sustainability, as shown in Table 4, the

most often disclosed information is about defined benefits during retirement (93.54% of

companies), which are mostly quantitative in nature, as well as the information on investments

in research and development (77.41% of companies). The practice of reporting on economic

dimension of sustainability is a reflection of corporate ownership structures, immature capital

markets and investors` passiveness immanent to these two frontier markets.

Finding 7: Serbian companies on average report more frequently on CSR, and a trend

of improvement in sustainability reporting can be observed among companies included in

BelexLine index (average value of SI rises from 14.48 in 2014 to 16.19 in 2018 reaching

40.23% of compliance level) (Table 5). On the other hand, a decline in the average value

of SI for companies included in MBI10 is observed. During 2018, the average value of SI

was 10.00, which corresponds to 23.8% compliance level of maximal SI value.

Finding 8: Company size plays an important role in determining the level and quality

of sustainable development reporting. Large companies from the sample have on average

higher SI values in comparison to small and medium-sized companies (Table 5). These

companies have also seen a shift in transparency (the SI average values reach 14.50 and

15.89 in 2014 and 2018 respectively). The results are consistent with Nayak & Venkatraman

(2011) who state that large companies report more since they are exposed more to

pressure from stakeholders, regulatory bodies and the community.

Finding 9: The highest level of information disclosure on CSR is observed in companies

listed on the Standard Listing at the Belgrade Stock Exchange. The SI average values for

companies listed on Prime and Standard Listing in 2018 are 20.00 and 21.33 respectively

(Table 5). Having in mind more rigorous conditions for inclusion of securities of companies

on these two segments of the Belgrade Stock Exchange, the listed companies are under

pressure to increase the quality of disclosure.

Finding 10: Companies from the secondary sector (dominantly from processing industry

(44%), construction and mining sector) report more on sustainable development in relation to

companies from the tertiary sector. This analysis indicates that a higher level and quality of

information disclosure on social, environmental and economic dimension of sustainability is

expected from those companies whose sector is closely related to sustainability issues.

Finding 11: Companies without majority owner report more on all dimensions of

sustainable business, with the SI average values ranging from 13.71 to 14.29 (Table 5).

This finding is in line with La Porta et al. (1998), who state that in companies with

concentrated ownership the need for disclosing additional non-financial information

decreases, since the companies are less dependent on external shareholders.

What Can Be Learned from Sustainability Reporting at the Frontier Markets? The Case of ... 253

Table 5 Trends in the SI average values by exchange markets, size of company, stock

market segment, sector and ownership structure

Classification Average value of Sustainability Index

2014 2015 2016 2017 2018

Exchange market index

BelexLine 14.48 14.90 15.00 15.66 16.19

MBI10 10.50 10.30 10.20 10.2 10.00

Company size

Small 9.00 9.17 9.00 9.17 9.33

Medium 13.43 13.57 13.28 13.57 14.00

Large 14.50 14.78 15.00 15.61 15.89

Stock market segment

Prime Listing 13.33 14.67 16.33 17.67 20.00

Standard Listing 18.67 17.67 17.33 20.33 21.33

Open Market 13.87 14.40 14.26 14.33 14.40

Exchange listing 8.67 8.67 8.67 8.67 8.67

Mandatory listing 12.67 12.00 11.33 11.67 11.00

Super Listing 15.00 15.00 16.00 15.00 15.00

Sector of the economy

Secondary sector 14.00 14.22 14.50 15.00 15.50

Tertiary sector 12.07 12.31 12 12.38 12.38

Ownership structure

Majority shareholder 12.57 13.14 13.43 13.64 14.07

Diffuse ownership 13.71 13.64 13.47 14.11 14.29

Source: Authors’ calculation

CONCLUSION

Emerging and frontier markets offer both attractive opportunities for investors, and

multiple environmental, social, and governance-related challenges. As indicated in this

study, these challenges are often neglected and not considered in the long-term business

strategies and disclosed in the companies` annual reports.

Disclosure practices are one of the most acknowledged and favoured means of being

accountable to society and stakeholders. In contrast to this trend at the developed capital

markets, this study indicates a serious level of resistance by companies operating at two

frontier markets related to transparency and accountability towards sustainability

performance. The mean values of SI during the period 2014-2018 of companies included in

BelexLine and MBI10 index are 15.25 and 10.24 respectively (maximum 42). The disclosure

at these two frontier markets still appears to be driven by survival concerns. Still, the

findings of cluster analysis show that there are some groups of companies at these markets

that make real efforts to embrace broader accountability and take into account sustainability

issues in order to acquire competitive advantage and manage risks. The degree and the

content of reporting on sustainability issues differ among the companies according to the

size, ownership structure, exchange market and industrial sector affiliation, which is in line

with sustainability practice drivers at the developed capital markets.

The theoretical background used to explain sustainability reporting practices at developed

capital market can also be applied at the frontier markets. The reporting practices among the

Serbian and Macedonian companies can be explained by a combined consideration of

254 K. DENČIĆ-MIHAJLOV, K. POPOSKI, M. PAVLOVIĆ

stakeholder and institutional theory. The low level and the quality of sustainability reporting

can be interpreted as a consequence of a modest stakeholder pressures to the companies

existing at these two markets and the lack of normative pressure on sustainability reporting.

We consider this result consistent with Zyznarska-Dworczak (2018) who concludes that

market participants in the Central and Eastern European countries are not sufficiently

interested in socially responsible business issues, due to the cultural and historical

environment, as well as the lack of widely accepted and used ethics and ethical standards.

In spite of the apparent sustainability challenges in the Republic of Serbia and North

Macedonia (such as inequality, pollution, corruption, weak institutions and a lack of

regulations), recognition of these challenges and the contribution of sustainability reporting,

even by the most successful and liquid companies included in the national capital markets

indices, is quite modest. This is in line with previous research on sustainability reporting

practice in the emerging economies (Islam & Deegan, 2008; Kansal et al, 2014; Odell & Ali,

2016). This sends a clear message to policy makers, industry affiliations and companies`

management to engage in a creation of a more transparent and accountable business

environment with active ownership which is leading to sustainable development goals

achievement.

Acknowledgement: The paper is a part of the research done with the support of the Erasmus+

Programme of the European Union within the project no. 611831-EPP-1-2019-1-RS-EPPJMO-

MODULE.

REFERENCES

Akin, A., & Yilmaz, I. (2016). Drivers of corporate social responsibility disclosures: Evidence from Turkish

banking sector. Procedia Economics and Finance, 38, 2–7. https://doi.org/10.1016/S2212-5671(16)30171-X

Andrew, N.P. & Wickham, M. (2010). The voluntary CSR disclosure in corporate annual reports: Evidence
from Australia. Corporate Ownership and Control, 8(1), 49-55. https://doi.org/10.22495/cocv8i1p4

Ashcroft, P. A. (2012). Extent of environmental disclosure of US and Canadian firms by annual report location.

Advances in Accounting, 28(2), 279-292.
Cerin, P. (2002). Characteristics of environmental reporters on the OM Stockholm exchange. Business Strategy

and the Environment, 11(5), 298-311. https://doi.org/10.1002/bse.336

Cohen, J. R., Holder-Webb, L., Wood, D., & Nath, L. (2011). Retail investors’ perceptions of the decision-
usefulness of economic performance, governance and corporate social responsibility disclosures.

Behavioral Research in Accounting, 23(1), 109-129. https://doi.org/10.2308/bria.2011.23.1.109

Cormier, D., & Magnan, M. (2003). Environmental reporting management: A continental European perspective.
Journal of Accounting and Public Policy, 22(1), 43-62. https://doi.org/10.1016/S0278-4254(02)00085-6

CME Group Index Services LLC (2012). Dow Jones Indexes country classification system. Chicago: CME

Group Index Services LLC.
Deegan, C. (2002). Introduction: The legitimising effect of social and environmental disclosures – A theoretical

foundation. Accounting, Auditing & Accountability Journal, 15(3), 282-311. https://doi.org/10.1108/

09513570210435852
Denčić-Mihajlov, K., & Stojanović-Blab, M. (2018). Sustainability reporting – trends in regulation and

challenges in implementation. In: Michalke, A., Rambke M. & Zeranski, S. (Eds.), Vernetztes Risiko- und

Nachhaltigkeitsmanagement - Erfolgreiche Navigation durch die Komplexität und Dynamik des Risikos
(pp. 27-42). Wiesbaden: Springer Gabler.

Ehsan, S., Nazir, M. S., Nurunnabi, M., Raza Khan, Q., Tahir, S., & Ahmed, I. (2018). A multimethod approach

to assess and measure corporate social responsibility disclosure and practices in a developing economy.
Sustainability, 10(8), 1-18. https://doi.org/10.3390/su10082955

European Commission. (2016). What is an SME?. Retrieved from: https://ec.europa.eu/growth/smes/business-
friendly-environment/sme-definition_en Accessed on: 10 May 2021.

https://doi.org/10.1016/S2212-5671(16)30171-X
https://doi.org/10.22495/cocv8i1p4
https://doi.org/10.1002/bse.336
https://doi.org/10.2308/bria.2011.23.1.109
https://doi.org/10.1016/S0278-4254(02)00085-6
https://doi.org/10.1108/09513570210435852
https://doi.org/10.1108/09513570210435852
https://doi.org/10.3390/su10082955
https://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition_en
https://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition_en

What Can Be Learned from Sustainability Reporting at the Frontier Markets? The Case of ... 255

Fijałkowska, J., Zyznarska-Dworczak, B., & Garsztka, P. (2018). Corporate social-environmental performance
versus financial performance of banks in Central and Eastern European Countries. Sustainability, 10(3), 1-

22. https://doi.org/10.3390/su10030772

Filatotchev, I., Buck, T., & Zhukov, V. (2000). Downsizing in privatized firms in Russia, Ukraine, and Belarus.
Academy of Management Journal, 43(3), 286–304. https://psycnet.apa.org/doi/10.2307/1556396

FTSE Russell. (2020). Equity Country Classifications, Retrieved from: https://research.ftserussell.com/

products/downloads/FTSE-Country-Classification-Update_latest.pdf Accessed on: 23 July 2020.
Giannarakis, G. (2014). The determinants influencing the extent of CSR disclosure. International Journal of

Law and Management, 56(5), 393–416. https://doi.org/10.1108/IJLMA-05-2013-0021

Hąbek, P. (2014). Evaluation of sustainability reporting practices in Poland. Quality & Quantity: International
Journal of Methodology, 48(3), 1739–1752. https://doi.org/10.1007/s11135-013-9871-z

Hąbek, P., & Wolniak, R. (2016). Assessing the quality of corporate social responsibility reports: the case of

reporting practices in selected European Union member states. Quality & Quantity: International Journal
of Methodology, 50(1), 399-420. https://doi.org/10.1007/s11135-014-0155-z

Holgaard, J. E., & Jørgensen, T. H. (2005). A decade of mandatory environmental reporting in Denmark.

European Environment, 15(6), 362-373. https://doi.org/10.1002/eet.397
Islam, M. A., & Deegan, C. (2008). Motivations for an organisation within a developing country to report social

responsibility information: Evidence from Bangladesh. Accounting, Auditing & Accountability Journal,

21(6), 850-874. https://doi.org/10.1108/09513570810893272
Kansal, M., Joshi, M., & Batra, G. (2014). Determinants of corporate social responsibility disclosures: Evidence

from India. Advances in Accounting, incorporating Advances in International Accounting, 30(1), 217-229.

https://doi.org/10.1016/j.adiac.2014.03.009
Kaufman, L., & Rousseeuw, P. J. (2009). Finding groups in data: an introduction to cluster analysis. Hoboken,

NJ: John Wiley&Sons.

Kuznetsov, A., & Kuznetsova, O. (2010). The role of stakeholders in shaping managerial perceptions of CSR in
Russia. European Journal of International Management, 4(3), 257–272. https://doi.org/10.1504/EJIM.

2010.033003

Lanis, R., & Richardson, G. (2013). Corporate social responsibility and tax aggressiveness: A test of legitimacy
theory. Accounting, Auditing & Accountability Journal, 26(1), 75–100. https://doi.org/10.1108/

09513571311285621

La Porta, R., Lopez‐de‐Silanes, F., Shleifer, A., & Vishny, R. (1998). Law and finance. Journal of Political
Economy, 106(6), 1113-1155. https://doi.org/10.1086/250042

Law on Accounting (2013). Official Gazette of the Republic of Serbia, 62/2013, 30/2018, 73/2019 – other law.

Law on Companies (2016). Official Gazette of the Republic of Macedonia, 28/2004, 84/2005, 25/2007, 87/
2008, 42/2010, 48/2010, 24/2011, 166/2012, 70/2013, 119/2013, 120/2013, 187/2013, 38/2014, 41/2014,

138/2014, 88/2015, 192/2015, 6/2016 and 61/2016.

Mahmood, Z., Kouser, R., & Masud, A. K. (2019). An emerging economy perspective on corporate
sustainability reporting – main actors’ views on the current state of affairs in Pakistan. Asian Journal of

Sustainability and Social Responsibility, 4(1), 1-31. https://doi.org/10.1186/s41180-019-0027-5
Nayak, R., & Venkatraman, S. (2011). Does the business size matter on corporate sustainable performance? The

Australian business case. World Review of Entrepreneurship, Management and Sustainable Development,

7(3), 281-301. https://doi.org/10.1504/WREMSD.2011.040810
Nolan, J. (2007). Corporate accountability and triple bottom line reporting: Determining the material issues for

disclosure, Retrieved from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=975414 Accessed on: 6

August 2020.
Odell, J., & Ali, U. (2016). ESG Investing in Emerging and Frontier Markets. Journal of Applied Corporate

Finance, 28(2), 97-103. https://doi.org/10.1111/jacf.12181

O’Donovan, G. (2002). Environmental disclosures in the annual report: Extending the applicability and
predictive power of legitimacy theory. Accounting, Auditing & Accountability Journal, 15(3), 344–371.

https://doi.org/10.1108/09513570210435870

Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management Review, 16(1), 145-
179. https://doi.org/10.5465/amr.1991.4279002

Oruc, I., & Sarikaya, M. (2011). Normative stakeholders theory in relation to ethics of care. Social

Responsibility Journal, 7(3), 381–392. https://doi.org/10.1108/17471111111154527
Radin, T. J. (2015). From imagination to realization: A legal foundation for stakeholders theory. In: Pava, M. &

Primeaux, P. (Eds.), Re-Imaging Business Ethics: Meaningful Solutions for a Global Economy (pp. 31-49).

Bingley: Emerald Group Publishing.
Stojanović-Blab, M., Blab, D., & Spasić, D. (2016). Sustainability reporting-A challenge for Serbian companies.

TEME, 40(4), 1349-1366. https://doi.org/10.22190/TEME1604349S

https://doi.org/10.3390/su10030772
https://psycnet.apa.org/doi/10.2307/1556396
https://research.ftserussell.com/products/downloads/FTSE-Country-Classification-Update_latest.pdf
https://research.ftserussell.com/products/downloads/FTSE-Country-Classification-Update_latest.pdf
https://doi.org/10.1108/IJLMA-05-2013-0021
https://doi.org/10.1007/s11135-013-9871-z
https://doi.org/10.1007/s11135-014-0155-z
https://doi.org/10.1002/eet.397
https://doi.org/10.1108/09513570810893272
https://doi.org/10.1016/j.adiac.2014.03.009
https://doi.org/10.1504/EJIM.2010.033003
https://doi.org/10.1504/EJIM.2010.033003
https://doi.org/10.1108/09513571311285621
https://doi.org/10.1108/09513571311285621
https://doi.org/10.1086/250042
https://doi.org/10.1186/s41180-019-0027-5
https://doi.org/10.1504/WREMSD.2011.040810
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=975414
https://doi.org/10.1111/jacf.12181
https://doi.org/10.1108/09513570210435870
https://doi.org/10.5465/amr.1991.4279002
https://doi.org/10.1108/17471111111154527
https://doi.org/10.22190/TEME1604349S

256 K. DENČIĆ-MIHAJLOV, K. POPOSKI, M. PAVLOVIĆ

Szekely, F., & Kemanian, V. (2016). Emerging markets’ approach to corporate sustainability, IMD Publication,
Retrieved from: https://www.imd.org/research-knowledge/articles/emerging-markets-approach-to-corporate-

sustainability/ Accessed on: 22 July 2020.

Tavares, M. d. C. d. C., & Dias, A. P. (2018). Theoretical perspectives on sustainability reporting: A literature
review. In: Salman, A. & Razzaq, A.M. (Eds.), Accounting from a Cross-Cultural Perspective (pp. 51-70).

London: IntechOpen Limited. https://doi.org/10.5772/intechopen.76951

Wilmshurst, T. D., & Frost, G. R. (2000). Corporate environmental reporting: A test of legitimacy theory.
Accounting, Auditing & Accountability Journal, 13(1), 10–26. https://doi.org/10.1108/09513570010316126

Zyznarska-Dworczak, B. (2018). The development perspectives of sustainable management accounting in Central and

Eastern European countries. Sustainability, 10(5), 1445-1466. https://doi.org/10.3390/su10051445

ŠTA SE MOŽE SAZNATI IZ IZVEŠTAVANJA O ODRŽIVOM

RAZVOJU NA GRANIČNIM TRŽIŠTIMA KAPITALA?

SLUČAJ REPUBLIKE SRBIJE I SEVERNE MAKEDONIJE

Cilj sprovedenog istraživanja je da se kroz uporedni pregled prakse izveštavanja o održivosti u

skladu sa GRI okvirom dođe do zaključaka o nivou prakse izveštavanja o društvenom odgovornom

poslovanju na dva posmatrana granična tržišta kapitala. Istraživanje obuhvata 31 kompaniju uključenu

u strukturu indeksa BELEXline i MBI10 u periodu 2014-2018. godine. Vrednosti Društvenog,

Ekološkog, Ekonomskog Indeksa Obelodanjivanja, kao i zbirnog Indeksa održivosti, izračunate

primenom analize sadržaja, ukazuju na nizak nivo prakse izveštavanja o održivosti. To je posledica

pasivnog vlasništva i skromnih pritisaka stejkholdera na kompanije na ovima graničnim tržištima, kao

i izostanka normativnog regulisanja izveštavanja o održivosti. Grupisanje kompanija u klastere u

skladu sa obelodanjivanjem pokazatelja održivosti ukazuje na značajne razlike u praksi nefinansijkog

izveštavanja unutar i između dva posmatrana tržišta. Izveštavanje o pitanjima održivosti razlikuje se

između analiziranih kompanija prema njihovoj veličini, vlasničkoj strukturi, berzanskom tržištu i

pripadnosti industrijskom sektoru, što je u skladu sa praksom na razvijenim tržištima kapitala.

Ključne reči: izveštavanje o održivom razvoju, društveni, ekonomski, ekološki indikatori, indeks

obelodanjivanja, GRI standardi, granična tržišta kapitala

https://www.imd.org/research-knowledge/articles/emerging-markets-approach-to-corporate-sustainability/
https://www.imd.org/research-knowledge/articles/emerging-markets-approach-to-corporate-sustainability/
https://doi.org/10.5772/intechopen.76951
https://doi.org/10.1108/09513570010316126
https://doi.org/10.3390/su10051445

What Can Be Learned from Sustainability Reporting at the Frontier Markets? The Case of ... 257

APPENDIX

Table A1 Classification of companies from the sample according to market segment,

sector of economy, company size and ownership structure

Belgrade Stock Exchange

Companies Market segment Sector of

economy

Company

size

Ownership structure

Nis (NIIS) Prime Listing secondary large majority shareholder

Energoprojekt Holding (ENHL) Prime Listing secondary large diffuse ownership

Aerodrom Nikola Tesla (AERO) Prime Listing tertiary large majority shareholder

Metalac (MTLC) Standard Listing secondary large diffuse ownership

Jedinstvo (JESV) Standard Listing secondary medium diffuse ownership

Komercijalna banka (KMBN) Standard Listing tertiary large diffuse ownership

Alfa Plam (ALFA) Open Market secondary medium diffuse ownership

Tigar (TIGR) Open Market secondary medium diffuse ownership

Galenika Fitofarmacija (FITO) Open Market secondary medium diffuse ownership

Impol Seval (IMPL) Open Market secondary large majority shareholder

Energoprojekt Entel (EPEN) Open Market secondary medium majority shareholder

Energoprojekt Industrija (EPIN) Open Market secondary small majority shareholder

Sojaprotein (SJPT) Open Market secondary large majority shareholder

Kopaonik (KOPB) Open Market secondary medium diffuse ownership

Voda Vrnjci (VDAV) Open Market secondary medium diffuse ownership

Valjaonica bakra Sevojno (VBSE) Open Market secondary large majority shareholder

Messer Tehnogas (TGAS) Open Market secondary large majority shareholder

Lasta (LSTA) Open Market tertiary large diffuse ownership

Dunav osiguranje (DNOS) Open Market tertiary large majority shareholder

Globos osiguranje (GLOS) Open Market tertiary small diffuse ownership

ALTA banka (JMBN) Open Market tertiary small diffuse ownership

Macedonian Stock Exchange

Companies Market segment Sector of

economy

Company

size

Ownership structure

Alkaloid (ALK) Exchange listing secondary large diffuse ownership

Granit (GRNT) Exchange listing secondary large diffuse ownership

Makpetrol (MPT) Exchange listing secondary large diffuse ownership

TTK Banka (TTK) Exchange listing tertiary small majority shareholder

Makedonija Turist (MTUR) Exchange listing tertiary small diffuse ownership

Stopanska banka Bitola (SBT) Exchange listing tertiary small diffuse ownership

Stopanska banka Skopje (STB) Mandatory listing tertiary large majority shareholder

Makedonski Telekom (TEL) Mandatory listing tertiary large diffuse ownership

NLB banka (TNB) Mandatory listing tertiary large majority shareholder

Komercijalna banka (KMB) Super Listing tertiary large diffuse ownership

Source: Authors