Previous empirical evidence provided mixed results on the relationship between corporate environmental performance and environmental disclosures. We revisit this relation by testing economics based theories of voluntary disclosure using a more rigorous research design. In particular, we improve on the prior literature by focusing on purely voluntary environmental disclosures and by developing two reliable environmental performance measures using actual toxic emissions and waste management data. We also develop a content analysis index based on the Global Reporting Initiative sustainability reporting guidelines to assess the extent of discretionary disclosures in environmental and social responsibility reports. This index better captures firm disclosures related to its commitment to protect the environment than the indices employed by prior studies. Using a sample of 191 firms from the five most polluting industries in the U.S., we find a positive association between environmental performance and the extent of discretionary environmental disclosures. The result is consistent with the predictions of the economics based voluntary disclosure theory.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID899974_code.pdf?abstractid=899974&rulid=5134755&mirid=2

Revisiting the Relation Between Environmental Performance and Environmental Disclosure: An Empirical Analysis

Previous empirical evidence provides mixed results on the relationship between corporate environmental performance and the level of environmental disclosures. We revisit this relation by testing competing predictions from economics based and socio-political theories of voluntary disclosure using a more rigorous research design. In particular, we improve on the prior literature by focusing on purely discretionary environmental disclosures and by developing a content analysis index based on the Global Reporting Initiative sustainability reporting guidelines to assess the extent of discretionary disclosures in environmental and social responsibility reports. This index better captures firm disclosures related to its commitment to protect the environment than the indices employed by prior studies. Using a sample of 191 firms from the five most polluting industries in the US, we find a positive association between environmental performance and the level of discretionary environmental disclosures. The result is consistent with the predictions of the economics disclosure theory but inconsistent with the negative association predicted by socio-political theories. Nevertheless, we show that socio-political theories explain patterns in the data (“legitimization”) that cannot be explained by economics disclosure theories. 2007 Elsevier Ltd. All rights reserved.

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Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis

Investors and stakeholders in continental Europe are becoming increasingly concerned about corporate environmental policies. As a result, many firms are voluntarily increasing the extent of their environmental disclosure in their annual report. While mostly unregulated, corporate environmental disclosure does have potential economic significance considering the scarcity of alternative information sources. The purpose of this study is to identify determinants of corporate environmental disclosure using multi-theoretical lenses that rely on economic incentives, public pressures and institutional theory. The study focuses on large firms from a continental Europe country, Germany, with a distinct legal and regulatory context and where environmental concerns are especially acute.  Results show that Risk, Ownership, Fixed Assets Age, Firm Size as well as routine determine the level of environmental disclosure by German firms in a given year. Moreover, consistent with institutional theory, results sugge...

Environmental disclosure quality in large German companies: Economic incentives, public pressures or institutional conditions?

This paper explores the factors associated with the voluntary decisions to assure social, environmental and sustainability reports. Since the market for assurance services in this area is in its formative stages, there is a limited understanding of the demand for this emergent non-financial auditing practice, which is evolving rapidly across different countries. Drawing from extant literature in international auditing and environmental accounting, we focus on a set of country-level institutional factors to explain the adoption of sustainability assurances statements among an international panel of 212 Fortune Global 250 companies for the years 1999, 2002 and 2005. Consistently with our expectations, our results provide evidence that companies operating in countries that are more stakeholder-oriented and have a weaker governance enforcement regime are more likely to adopt a sustainability assurance statement. Further, the demand for assurance is higher in countries where sustainable corporate practices are better enabled by market and institutional mechanisms. Our exploratory findings also indicate that the likelihood to choose a large accounting firm as assurance provider increases for companies domiciled in countries that are shareholder-oriented and have a lower level of litigation. We conclude the paper suggesting three directions of research in the area of sustainability assurance that have relevant academic and practical implications.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1306458_code105013.pdf?abstractid=1284589&mirid=1

Determinants of the Adoption of Sustainability Assurance Statements: An International Investigation

The objective of this study is to examine the market valuation of environmental capital expenditure investment related to pollution abatement in the pulp and paper industry. The total environmental capital expenditure of $8.7 billion by our sample firms during 1989-2000 supports the focus on this industry. In order to be capitalized, an asset should be associated with future economic benefits. The existing environmental literature suggests that investors condition their evaluation of the future economic benefits arising from environmental capital expenditure on an assessment of the firms' environmental performance. This literature predicts the emergence of two environmental stereotypes: low-polluting firms that overcomply with existing environmental regulations, and high-polluting firms that just meet minimal environmental requirements. Our valuation evidence indicates that there are incremental economic benefits associated with environmental capital expenditure investment by low-polluting firms but not high-polluting firms. We also find that investors use environmental performance information to assess unbooked environmental liabilities, which we interpret to represent the future abatement spending obligations of high-polluting firms in the pulp and paper industry. We estimate average unbooked liabilities of $560 million for high-polluting firms, or 16.6 percent of market capitalization.

The Market Valuation of Environmental Capital Expenditures by Pulp and Paper Companies

Many companies are becoming more responsive to investors' concerns about the environment by voluntarily compiling and issuing periodic environmental reports that are essentially independent of the annual financial reports. Because of an absence of environmental reporting standards, however, these reports differ significantly thereby confounding comparability. Additionally, the credibility of these reports is being questioned, as they are typically not verified by independent third parties. As many public accounting firms are currently attempting to develop additional assurance services to offer existing and potential clients, verification of environmental reports may be an appropriate application of accounting firms' attestation skills and their desire to expand the client relationship. Such verification engagements may also be beneficial for corporations, investors, regulators and, ultimately, the environment. Guidance and criteria for environmental verification services are scant, however, and the accou...

Corporate Environmental Reports: The Need for Standards and an Environmental Assurance Service

Many companies are becoming more responsive to investors? concerns about the environment by voluntarily compiling and issuing periodic environmental reports that are essentially independent of the annual financial reports. Because of an absence of environmental reporting standards, however, these reports differ significantly thereby confounding comparability. Additionally, the credibility of these reports is being questioned, as they are typically not verified by independent third parties. As many public accounting firms are currently attempting to develop additional assurance services to offer existing and potential clients, verification of environmental reports may be an appropriate application of accounting firms? attestation skills and their desire to expand the client relationship. Such verification engagements may also be beneficial for corporations, investors, regulators and ultimately, the environment. Guidance and criteria for environmental verification services are scant, however, and the accounting profession may benefit from expeditious development of such standards so that public accountants are empowered to offer a needed assurance service and compete effectively with other consulting firms.

Christopher C. Souther

Papers

Corporate Environmental Reports: The Need for Standards and an Environmental Assurance Service

Corporate Environmental Reports: The Need for Standards and an Environmental Assurance Service