Environmental Reporting and Good Practice of Corporate Governance: Petroleum Industry Case Study

Abstract

Because environmental reporting remains voluntary on an international level, there are major differences in terms of the quality and quantity of environmental information, reported by entities from varied industries and countries. Starting from the agency theory, the company is accountable for the decision to report environmental information, decision which is made by the management to serve for the best interest of the shareholders (Buniamin et al., 2011: 56). Within this study, we would therefore focus on certain factors related to the entity's internal characteristics, consisting mainly in how the entity is managed, in order to identify if good corporate governance practices explain the voluntary environmental reporting. The research is conducted as an empirical study which explains how the disclosure of environmental information varies across the largest entities operating in the petroleum industry and reflects factors that could account for these variations. The paper identifies the corporate governance characteristics such as the percentage of independent directors and the existence of an environmental committee as factors that explain the variation in environmental information disclosure. We conclude that in order to secure the transparency of environmental performance within a company, the board should ensure a sufficiently number of independent members able to exercise an independent reasoning for solving potential conflicts of interests. Also, the environmental committee monitors the company's activity in terms of its environmental impact, bringing about increasing transparency regarding the environmental aspects. We can therefore consider that implementing good corporate governance practices by establishing environmental, safety or responsibility committees that monitor the environmental impact of the company and introducing a sufficient numbers of directors ensuring transparency and objectivity can solve the agency's theory conflict and determine companies to report more voluntary information regarding their environmental performance and other aspects. The paper contributes to an understanding of the correlations between corporate governance practices and voluntary environmental reporting.