Information disclosure and environmental regulation: Green lights and gray areas

Abstract

This research examines the potential of information disclosure for environmental regulation. The research attempts to answer questions of what impact information disclosure has on corporate environmental practices and what interferes with its effective use. A case study of Indonesia's pioneering informational environmental regulation reveals (i) both indirect (e.g. anticipation of external pressure) and direct (e.g. internal learning support) informational effects that enhance environmental awareness at the top management level and stimulate changes in production processes and (ii) detrimental effects of disclosed information that maintain or strengthen the extant power of regulated firms over environmental groups and local communities affected. Regulatory efforts can be leveraged by public disclosure of information regarding firms' environmental performance, especially where the state monitoring and enforcement capacities are weak. However, the introduction of policies of this kind without consideration of different market conditions and political and administrative culture may impede the effectiveness of this potentially useful regulatory method.