Representative account or greenwashing? Voluntary sustainability reports in Australia's mining/metals and financial services industries

Why are more and more companies voluntarily issuing costly, potentially exposing standalone sustainability reports on environmentally and socially problematic issues? Using legitimacy theory, this study analyses ways companies seek to strategically enhance legitimacy by leaning towards either ‘representative’ reporting of both favourable and unfavourable information especially in an industry's highest impact domains, or ‘greenwashing’ (including whitewashing non-environmental issues), which downplays unfavourables and high-impact domains and highlights favourable but less relevant points. Content analysis compared Global Reporting Initiatives (GRI) reports from 2011 to 2019 by Australian financial services companies (107 reports) and mining and metals companies (122). Specifically, to critique reporting quality in fine grain, it disaggregated results into levels (from omission to full quantitative treatment) of disclosure of good/bad/neutral news indicators and violation-related/non-violation-related ones and identified highest impact domains. Neither industry's reporting was very representative. Relatively though, mining and metals leant towards representation: fuller disclosure on environmental aspects (its highest impact domain), including unfavourables: bad and violation-related indicators. Financial services companies only led in disclosing neutral social indicators, not bad or violation-related ones, so leant towards greenwashing. Results also suggest that after the GRI clarifying materiality principle in 2016, financial services disclosure quality dropped further by de-emphasising environmental without lifting social disclosures, while mining and metals' stayed unchanged. The results confirm and better specify widely indicated reporting weaknesses, contributing to content analysis methodology and legitimacy theory. This arms guideline setters, investors and other stakeholders to better evaluate/design reports and might encourage firms to voluntarily improve disclosures.     

An Empirical Analysis of Triple Bottom-Line Reporting and its Determinants: Evidence from the United States and Japan

This paper investigates triple bottom‐line (TBL) disclosures of 50 of the largest US and Japanese companies. Twenty disclosure criteria were developed for each of the TBL disclosure areas: economic, social, and environmental. Disclosure information was examined in annual reports, stand‐alone reports, and special website reports. Regression analysis was used to examine empirically the determinants of TBL disclosure practice. Our results indicate that, for total TBL disclosure (combining economic, social, and environmental categories), the extent of reporting is higher for firms with larger size, lower profitability, lower liquidity, and for firms with membership in the manufacturing industry. Further analysis indicates that the results for the total TBL disclosure are primarily driven by non‐economic disclosures. We also find that the extent of overall TBL reporting is higher for Japanese firms, with environmental disclosure being the key driver. This result could be attributed to the differences in national cultures, the regulatory environment, and other institutional factors between the United States and Japan.     

Driving Public Sector Environmental Reporting

Abstract

This article analyses environmental reporting practices within public sector entities. It explores the type and extent of environmental disclosures by all 19 Australian Commonwealth Departments in annual reports and sustainability reports, through a legitimacy approach and a content analysis instrument based on the global reporting initiative (GRI). The findings of this research indicate that there is relatively little difference in the reporting practices of departments with legitimacy drivers of size and mission than other departments. We see little evidence of a wide-spread adoption of GRI reporting and argue that drivers internal to government, particularly the coercive influence of legislation and government-regulation, are a better explanation of public sector environment reporting than a legitimacy explanation. We argue that there is some support for a legitimacy argument in that the most significant category of environmental reporting was reporting of departmental initiatives which could be seen as having potential legitimacy motivation and benefits. We conclude with the argument that a more sophisticated approach to legitimacy is required to understand the role of environmental reporting in the public sector context.     

The Influence of Board Composition on Sustainable Development Disclosure

Despite knowing the potential effect of social reporting on firms' continuity, there is limited research into the influence of the composition of boards of directors on CSR disclosure. This paper adds to the emerging CSR literature empirical evidence by examining how board composition relates to a firm's social and environmental disclosure as well as the implementation of social policies. Using a sample of FTSE 350 firms for the period 2007–2012, the results show that higher board independence facilitates the conveying of firms' good citizenship image through enhancing societal conscience. The results also show that female participation on boards is favorably affecting CSR engagement and reporting as well as the establishment of ethical policies. Hence, the research suggests that boards with higher female participation and independence boost the legitimacy of CSR reporting. Board gender diversity and independence facilitates directing part of the firm's scarce resources toward value maximizing social projects and subsequent reporting on these. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Board structures,liberal countries,and developed market economies. Do they matter in environmental reporting? An international outlook

Previous empirical evidence has shown the effect of most corporate governance mechanisms on corporate social responsibility and environmental disclosure. However, there is scant empirical evidence that examines the influence of liberal countries, developed market economies, and board structures on environmental disclosure. Thus, this research aims to explore how liberal and developed countries and board structures affect environmental reporting. We hypothesise a linear and positive association between companies located in countries with liberal and developed market economies and environmental reporting. Moreover, we hypothesise that one‐tier board structures negatively affect environmental disclosure. Focusing on 13,100 companies domiciled in 39 different countries from 2005 to 2015, it is established that those companies located in liberal and developed economies are more likely to disclose environmental information, whereas one‐tier boards have a negative effect.     

Environmental strategy in the global banking industry within the varieties of capitalism approach: The moderating role of gender diversity and board members with specific skills

This research sets out to analyse environmental disclosure in the banking industry by considering the varieties of capitalism framework. This approach is concerned with the way companies interact strategically to resolve coordination issues arising from their operations, and it is supported by prior research. This is a fruitful perspective for exploring the association between country‐level factors and disclosure by firms, such as environmental reporting. This research is based on an international sample of countries operating in coordinated market economies (CMEs) and liberal market economies (LMEs). The results obtained show that financial institutions operating in CME countries are involved in more environmental matters than banks domiciled in LME countries. As regards the moderating variables, the evidence shows that women on the boards of banks in CME countries encourage the reporting of environmental information, as predicted. Nonetheless, and contrary to our expectations, members with specific skills on boards within CME cultures do not favour greater disclosure of environmental information compared with those on boards of banks operating in LME contexts.     

Governance Role of Auditors and Legal Environment: Evidence from Corporate Disclosure Transparency

In a sample of firms originating from 20 countries, we examine whether and how auditor size (our proxy for audit quality) associates with corporate disclosure transparency. While prior studies examine the relation between auditor size and several aspects of financial reporting quality (e.g. discretionary accruals, restatements, etc.), there is limited evidence on how auditor size relates to disclosure transparency. There is also mixed evidence on how auditor size relates to reporting quality in different legal environments. We find that auditor size is positively associated with disclosure transparency around the world and that the association is stronger in code law regimes than in common law regimes. The latter finding supports the view that audits play a greater governing role in weaker legal environments.     

Environmental,Social and Governance Reporting in China

What is the current state of environmental, social and governance (ESG) reporting and what is the relation between ESG reporting and the financial performance of Chinese companies? This study analyses corporate ESG disclosure in China between 2005 and 2012 by analysing the members of the main indexes of the biggest Chinese stock exchanges. After discussing theories that explain the ESG performance of firms such as institutional theory, accountability and stakeholder theory we present uni‐ and multivariate statistical analyses of ESG reporting and its relation to environmental and financial performance. Our results suggest that ownership status and membership of certain stock exchanges influence the frequency of ESG disclosure. In turn, ESG reporting influences both environmental and financial performance. We conclude that the main driver for ESG disclosure is accountability and that Chinese corporations are catching up with respect to the frequency of ESG reporting as well as with respect to the quality. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment     

Environmental Policy,Sustainable Development,Governance Mechanisms and Environmental Performance

We investigate the effects of environmental policy (Climate Change Act – CCA), sustainable development frameworks (Global Reporting Initiative – GRI; UN Global Compact – UNGC) and corporate governance (CG) mechanisms on environmental performance (carbon reduction initiatives – CRIs; actual carbon performance – GHG emissions) of UK listed firms. We use the generalized method of moments (GMM) estimation technique to analyse data consisting of 2245 UK firm‐year observations over the 2002–2014 period. First, we find that the CCA has a positive effect on CRIs, and this effect is stronger in better‐governed firms. Second, we find that the GRI‐based framework is positively associated with CRIs. Third, we find that firms with poor CG structures have lower actual carbon performance compared with their better‐governed counterparts. Overall, our evidence suggests that firms can symbolically conform to environmental policy (CCA) and sustainable development frameworks (GRI, UNGC) by engaging in CRIs without necessarily improving actual environmental performance (GHG emissions) substantively. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Non‐Mandatory Approaches to Environmental Protection

The approach to environmental protection has been evolving from a regulation‐driven, adversarial 'government‐push' approach to a more proactive approach involving voluntary and often 'business‐led' initiatives to self‐regulate their environmental performance. This has been accompanied by increasing provision of environmental information about firms and products to enlist market forces and communities in creating a demand for corporate environmental self‐regulation by signaling their preferences for environmentally friendly firms. This paper provides an overview of the non‐mandatory approaches being used for environmental protection and surveys the existing theoretical literature analyzing the economic efficiency of such approaches relative to mandatory approaches. It also discusses empirical findings on the factors motivating self‐regulation by firms and its implications for their economic and environmental performance. It examines the existing evidence on the extent to which information disclosure is effective in generating pressures from investors and communities on firms to improve their environmental performance.     

Corporate Sustainable Development: is ‘Integrated Reporting’ a Legitimation Strategy?

In the field of sustainability reporting (SR), the so‐called ‘integrated report’ (IR) is gaining momentum. In spite of its voluntary nature, a growing number of firms are adopting IR by participating in the International Integrated Reporting Council (IIRC) Pilot Programme. Stimulated by concerns on the use of SR as a legitimation strategy, the paper investigates whether the decision to adopt an IR stems from the need to repair legitimacy threats. By showing that IR adopters have significantly higher Bloomberg ESG disclosure ratings relative to non‐adopters, we reject the hypothesis of firms adopting IR as a response to a poor rating. Additionally, we show that other proxies of legitimacy pressures (size, leverage, profitability, industry) do not play a role in explaining IR adoption. Overall, our evidence suggests that corporate engagement in IR is not a matter of strategic legitimation. Copyright © 2014 John Wiley & Sons, Ltd and ERP Environment     

Corporate carbon risk exposure,voluntary disclosure,and financial reporting quality

The study examines whether corporate carbon risk exposure is associated with financial reporting quality and whether voluntary carbon disclosure mediates the relationship. We analyze data drawn from firms traded on the Johannesburg Stock Exchange (JSE), for the period 2011 to 2015. We document robust evidence that firms with higher carbon risk exposure tend to provide financial statements of poorer quality (i.e., direct effect) and this association is partially mediated through voluntary carbon disclosure (i.e., indirect effect). The overall negative association between corporate carbon risk exposure and the firm's financial reporting quality is partly explained by the quality of voluntary carbon disclosure.     

Climate change mitigation: Carbon assurance and reporting integrity

Concern about climate change has increased the pressure on firms to be accountable for social impact and to report on environmental, social and governance (ESG) performance. Focusing on the view that sustainability-oriented firms are likely to consider wider stakeholder interests and pursue high financial reporting integrity, this paper examines the association between carbon assurance and earnings management. Using a sample of firms listed on the New York Stock Exchange, we find voluntary adoption of carbon assurance (level), carbon disclosure and gender diverse boards are negatively associated with earnings management. Additional tests using different components of carbon assurance (percent and verification) confirm our main results. Our results suggest that firms that voluntarily invest in carbon assurance, carbon disclosure and gender diverse boards are less likely to engage in earnings management and thus have higher reporting integrity. This aligns with the view that firms' ethical concerns translate into higher quality reporting.     

Factors influencing the quality of corporate environmental disclosure

Many firms choose to communicate their environmental strategies through voluntary environmental disclosures. This paper examines patterns in the quality of voluntary environmental disclosures made by a sample of around 450 large UK companies drawn from a diverse range of industrial sectors. The analysis distinguishes between five facets of quality, including the disclosure of group‐wide environmental policies, environmental impact targets and an environmental audit. We examine how the decisions firms face regarding each facet of quality are determined by firm and industry characteristics, and find the quality of disclosure to be determined by a firm's size and the nature of its business activities. Specifically, we find high quality disclosure to be primarily associated with larger firms and those in sectors most closely related to environmental concerns. In contrast to several recent contributions, we find that the media exposure of companies plays no role in stimulating voluntary disclosures. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.     

Relationship between Corporate Climate Change Disclosures and Firm Factors

As carbon regulation evolves and becomes specialized in addressing carbon reduction issues, stakeholders will demand that firms provide increased information regarding corporate climate change practices. This paper contributes to the international research that examines the relationship between environmental information disclosures and additional firm factors. To do so, we have conducted an empirical analysis of the relationship between the corporate climate change disclosure practices of firms listed in the Athens Stock Exchange and firm factors, such as size, profitability, leverage and activity sector. Our results indicate there is a significant positive relationship between size and increased corporate disclosures regarding climate change practices. However, no significant relationship is detected between profitability or leverage and corporate climate change disclosures. Copyright © 2014 John Wiley & Sons, Ltd and ERP Environment     

The effects of environmental,social and governance disclosure on the cost of capital in small and medium enterprises: The role of family business status

Environmental, social, and governance (ESG) disclosure has become a critical component of corporate reporting. However, the effectiveness of this type of disclosure remains poorly explored among small and medium enterprises (SMEs), despite the fact that these businesses represent the majority of firms around the world. By leveraging on a dataset of Italian listed SMEs, we fill this gap to shed new light on the effects of nonfinancial disclosure on the cost of capital. The study reveals that, in stark contrast with the evidence on large companies, environmental disclosure for SMEs is bound to provoke an increase in the cost of capital. Yet this pattern is capsized when the company is a family SME, as it benefits from environmental disclosure, as large companies do.     

Climate Change and Mandatory Carbon Reporting: Impacts on Business Process and Performance

As part of their annual directors' report, UK‐listed companies are now required to disclose their greenhouse gas emissions and account publicly for their contributions to climate change. This paper uses this mandatory carbon reporting to explore wider debates about corporate social responsibility and the purpose, practice, and impacts of such non‐financial reporting. Empirically, it combines documentary analysis of the carbon reporting practices of 176 large firms listed in the FTSE100 and/or subject to the UK government's adaptation reporting power with 60 interviews with stakeholders involved in carbon reporting. Firms disclose their emissions in response to financial incentives, social pressure and/or regulatory compulsion. In turn, rationales shape whether and how carbon reporting influences internal business processes and performance. The importance of reporting to the bottom line varies by sector depending on two variables – energy intensity and economic regulator status – yet there is limited evidence that carbon reporting is driving substantial reductions in emissions. Findings suggest reasons for caution about hopes for ‘nudging’ firms to improve their environmental performance and social responsibility through disclosure requirements.     

The impact of voluntary corporate disclosures on the ex-ante cost of capital for Swiss firms

The relationship between disclosure quality and cost of equity capital is an important topic in today's economy. In general, economic theory and anecdotal evidence suggest a negative association. Empirical work on this link, however, is confronted with major methodological drawbacks – neither disclosure level nor cost of capital can be observed directly – and has documented somewhat confounding results so far. Adopting a finite horizon version of the residual income model, I provide evidence on the nature of the above relationship and try to quantify the effect of a firm's voluntary disclosure policy on its implied cost of capital. Switzerland seems especially suited for an analysis of this kind given that Swiss firms have considerable reporting discretion and the mandated level of disclosure is low. For a cross-sectional sample of seventy-three non-financial companies I show a negative and highly significant association between the two variables. The magnitude is such that the most forthcoming firms enjoy about a 1.8 to 2.4% cost advantage over the least forthcoming firms. The findings persist even after controlling for other potentially influential variables, e.g. risk characteristics and firm size. Furthermore, adjusting for self-selection bias – a major concern in disclosure studies – the marginal effect remains of the same direction and even increases in magnitude, although at lower levels of statistical significance. One reason for the strong relationship might be found in differing institutional factors between the US and Swiss capital markets.     

Does Innovation Drive Environmental Disclosure? A New Insight into Sustainable Development

Sustainable development is a hot topic in business and the media, and there is a growing demand for reliable environmental disclosure from a wide range of stakeholders. Ethical performance, including social and environmental performance, is actively scrutinized. A firm's stakeholders expect reliable disclosure to correctly assess its performance. Research on the link between environmental disclosure and environmental performance shows mixed results. Both a positive and a negative association have been found. This study reexamines this association by considering environmental innovation as a key determinant of environmental disclosure. We find that environmental performance and environmental innovation jointly determine environmental disclosure. At low levels of environmental performance, innovative firms tend to disclose more than their non‐innovative counterparts to inform stakeholders about their innovation and strategy to obtain an improved environmental performance. This disclosure gap tends to diminish as innovative firms become better environmental performers. The higher levels of environmental disclosure are closely associated with firms' environmental performance for both groups. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Enhancing environmental information transparency through corporate social responsibility reporting regulation

This research aims to contribute to the scientific debate about the lack of interlinkages between mandatory non-financial reporting and sustainable business models. For our purposes, a counter-accounting analysis was conducted on the non-financial reports of a sample of 145 Italian firms interested by the Directive 2014/95/EU effects. Specifically, the study adopts an empirical approach to evaluate environmental information transparency, which represents one of the main critical issues concerning the non-financial declarations prepared by European Italian Public Interest Entities (PIEs) to comply with Directive 2014/95/EU. The results highlight that corporate governance and report characteristics affect environmental transparency. Furthermore, the results confirm the overall attitude to avoid the disclosure of unfavourable or unavailable environmental information through impression management strategies. Finally, the analysis underlines the opportunities for policymakers to rethink mandatory non-financial reporting to sustain the ecological transition of European PIEs.