Is your firm fulfilling Corporate Environmental Responsibility?

From IIM Kozhikode Society & Management Review

Corporate environmental responsibility has been a matter of intense debate for at least two and a half decades now. Earth Summit in 1992 was the formal starting point of the international advocacy for better corporate environmental performance. Research about the role of a corporation in societal and environmental context revolves around the strategy adopted by the business and business policy domain. It has been a long quest to find out an empirical relationship between corporate social and environmental performance and financial performance.

The fundamental research question has been to justify being socially and environmentally responsible for defying the economic rationality of shareholders’ wealth maximization. Margolis and Walsh (2003) conducted an extensive survey on the studies that focus on the empirical relation between corporate social and environmental initiatives and financial performance. Disclosure has been a prominent measure of environmental and social performance of firms. They covered 127 prominent studies that focus on this empirical association, out of which 105 studies followed the functional model where financial performance is taken as the dependent variable and environmental and social performance as the independent variable. Among these studies, 52 report positive association, 26 report non-significant association, 7 report negative association and 20 report mixed responses.

Corporate governance

Corporate governance as the determining factor of corporate social and environmental disclosures is another important dimension in this field of research. The Report of the SEBI Committee on Corporate Governance (Securities Exchange Board of India, 2003) conceptualizes corporate governance as the ethical conduct of business with commitment to values. Corporate governance represents the culture of a company and forms the basis for the social and environmental performances and disclosures of a company.

Internationally there is a high degree of difference between countries in their social and environmental reporting practices (Once & Almagtome, 2014). Netherlands and Scandinavian countries have legally enforceable environmental performance reporting requirements whereas companies in the United States have to submit their emissions data, which is publically available, to the Environment Protection Agency. Moreover, the Securities and Exchange Commission in the USA has defined a criterion for social and environmental disclosures that impact business. All this goes to show that the outcome of corporate behaviour is the result of interplay between social, cultural and legal systems of the country.

Corporate environmental disclosure: Summing up

Majority of the studies on the determinants of corporate environmental disclosure are for a limited number of countries only. Moreover, in case of cross-country studies, the country-specific variables are ignored and only firm-specific variables are taken into consideration. The choice of disclosure of corporate environmental information over and above regulatory disclosures is a trade-off between the desire of the corporate to disclose and the need of the stakeholders for the information.

Moreover, the legal system of a country is evolved around the needs of its people. Environmental regulations differ among countries and these are not always correlated with the scarcity of the natural resources. The culture determines how the citizens of a country value natural resources.

More than economic factors, the choice of environmental disclosures by corporates seem to be related with the culture of people of that country, its political freedom, legal system and freedom of press and media.

Article details

Determinants of Corporate Environmental Disclosure from an Asian Perspective Abhijit Roy, Santanu
Kumar Ghosh
First Published September 10, 2018 Research Article
DOI: 10.1177/2277975218784796
IIM Kozhikode Society & Management Review