Environmentally Sensitive Industries Research Articles

The impact of ESG controversies on the financial performance of firms: An analysis of industry and country clusters

Stakeholders have become increasingly interested in sustainable practices, leading to intense investigation in the literature of their effects on companies' returns. However, not much information is available about the effect of environmental, social, and governance (ESG) controversy on companies' financial performance. Inappropriate social behavior and environmental scandals attract attention in the media and, consequently, among investors. Therefore, this study analyzes the impact of ESG controversy on companies' return on equity, identifying differences between companies that operate in different clusters such as environmentally sensitive industries (ESI) or non–environmentally sensitive industries and emerging/developed countries. To this end, we investigate 625 publicly owned companies for the period 2011 to 2022, using a four-dimensional hierarchical linear regression model, comprising time, firms, industries, and countries. ESG controversies negatively impact the financial performance of companies operating in ESI and developed countries.

The Antecedents of Managers’ Environmental Management Practices and Financially Responsible Behaviour: Examining Managers’ Behaviour in Malaysia’s Environmentally Sensitive Industries

There has been an increasing focus on improving pro-environmental intentions and behaviour. This study has primarily assessed a conceptual model focusing on managers’ intentions and financially responsible behaviour. This study examined the direct influence of; managers’ attitudes, subjective norms, perceived behavioural controls, and religiosity in inducing their intentions to perform pro-environmental practices, leading them to conduct financially responsible behaviour in preserving the environment. This conceptual study employed a quantitative approach and was supported by interviews to understand the findings better. A partial least squares structural equation modelling technique was adopted in analysing and interpreting the data. Data were collected from environmental and financial managers in Public Listed Companies (PLCs) using a survey design questionnaire. Specifically, responses were sought from managers from environmentally sensitive industries. Interviews were conducted to understand managers’ behaviour better. The findings of this study revealed that; subjective norms, pressures, and religiosity positively and significantly influenced managers’ intentions to perform pro-environmental practices. However, these intentions did not lead them to execute financially responsible behaviour in preserving the environment. This study’s findings exposed the need for managers to have business and government support to make preserving the environment mandatory and be financially responsible for preserving the environment.

Pengaruh Pemangku Kepentingan Dan Pemegang Saham Terhadap Kualitas Laporan Berkelanjutan

The objective of this study is to analize the effect of environmental sensitive industries, employee pressure, and concentrated ownership on the quality of sustainability reporting of companies listed in the Indonesian Stock Exchange in the period of 2015 to 2019 with assurance statement as moderating variable. This study uses 16 stand–alone sustainability reports and multiple liniar regression as its statistical technique. The results of this study indicates that environmental sensitive industries and employee pressure positively and significantly affect the quality of sustainability reporting while concentrated ownership doesn't significantly affect the quality of sustainability reporting. This study also indicates that assurance statement strengthens the effect of environmentally sensitive industries towards the quality of sustainability reporting.

The affecting factors of circular economy information and its impact on corporate economic sustainability-Evidence from China

The Chinese government has implemented the circular economy-related legislation for guiding firms’ responsible production in 2009. In the 12th-five (2011–2015) and 13th-five (2016–2020) Economic and Sustainable Plans, circular economy is also deemed the core part of green development in China. However, a significant research gap remains that which types of firms actively disclosed circular economy information (i.e., reducing, reusing and recycling) following the national policy to establish legitimacy and create a green advantage in China. Based on this perspective, this research focuses on the period of 2011–2017. The sample consists of 3,768 firms and is analyzed using regression analysis. The coding technique of content analysis is applied to measure disclosure of circular economy information. Content analysis is an analytic technique that converts text descriptions into quantitative data in a systematic and objective manner. The empirical evidence of this study shows that firms in environmentally-sensitive industries and larger firms tended to disclose significantly more circular economy information to meet the information needs of stakeholders. It also shows that state-owned enterprises played the role of a leader in implementing circular economy during 2013–2017. Besides, firms which disclosed more circular economy information were associated with significantly higher sustainable growth rate and return on equity. The findings of this paper suggest that corporate managers redesign production processes towards zero waste and resource effectiveness. The contribution of this paper is that it clarifies the affecting factors and financial impacts of circular economy information for Chinese firms. The findings can fill the literature gap related to the new highlights of environmental disclosure-related circular economy actions in developing countries.

Is voluntary external assurance relevant for the valuation of environmental reporting by firms in environmentally sensitive industries?

PurposeThis paper aims to investigate whether providing voluntary external assurance on voluntary environmental information by firms operating in environmentally sensitive industries (ESI) is relevant in terms of market value. It also examines how various characteristics of assurance statements (i.e. level of assurance, scope of assurance and provider of assurance) affect the value-relevance of environmental disclosure by ESI firms.Design/methodology/approachTo mitigate the endogeneity problem, the authors use the two-step generalized method of moments estimation approach.FindingsFocusing on annual and social reports of French companies listed in the SBF120 index, results show that environmental disclosure by ESI firms and its assurance are destructive in terms of market value. Moreover, while providing a broader scope of assurance and having a professional accountant as the assurance provider enhance the value relevance of environmental reporting of the whole sample, this is unlikely to be the case for ESI firms. In particular, a higher level of environmental disclosure is financially rewarded by market participants for ESI firms that provide a higher level of assurance.Practical implicationsThe study provides a better understanding of the circumstances under which market participants assign value to voluntary environmental information disclosed by companies operating in ESI. It also provides insights into the value added to different characteristics inherent in the quality of assurance provided with regard to environmental disclosure.Social implicationsThe study indicates that the institutional context of the relationship between the firm and its shareholders influence the value obtained from assurance. Results provide value insights regarding cultural and legal dimensions of environmental reporting.Originality/valueThe study extends the prior literature on the capital market benefits of voluntary assurance practices by focusing on the French legal environment. France can be considered as a new institutional context that has been little addressed by the existing literature.

Corporate Accountability in Disclosing Carbon Information: Evidence from a Developing Nation

The issue of climate change has been a significant concern globally both in the developed and developing economies. This study aims to uncover the quality of carbon information disclosed in a developing country i.e. Malaysia. A content analysis of the annual and sustainability reports of Top 100 companies in environmentally-sensitive industries in Malaysia over a two-year period in 2011 and 2014 was undertaken. The results revealed that the quality of carbon information provided by companies improved over the two-year period and the changes were significant. The companies were also beginning to translate quantitative details into monetary amounts. The dimension Carbon reduction and costs had the highest mean score for both years. The findings revealed that the construction industry had the lowest mean score for all dimensions in both years and this finding is a concern as activities of the construction industry are generally known to have numerous effects on the environment. The findings from the study revealed that companies are taking the initiatives to set carbon reduction targets to be achieved in the future, hence, a signal of enhanced corporate environmental accountability. Nevertheless, the overall low disclosure of carbon information may require the intervention from stakeholders to improve the quality of the report.

Corporate Accountability in Disclosing Carbon Information: Evidence from a Developing Nation.

The issue of climate change has been a significant concern globally both in the developed and developing economies. This study aims to uncover the quality of carbon information disclosed in a developing country i.e. Malaysia. A content analysis of the annual and sustainability reports of Top 100 companies in environmentally-sensitive industries in Malaysia over a two-year period in 2011 and 2014 was undertaken. The results revealed that the quality of carbon information provided by companies improved over the two-year period and the changes were significant. The companies were also beginning to translate quantitative details into monetary amounts. The dimension Carbon reduction and costs had the highest mean score for both years. The findings revealed that the construction industry had the lowest mean score for all dimensions in both years and this finding is a concern as activities of the construction industry are generally known to have numerous effects on the environment. The findings from the study revealed that companies are taking the initiatives to set carbon reduction targets to be achieved in the future, hence, a signal of enhanced corporate environmental accountability. Nevertheless, the overall low disclosure of carbon information may require the intervention from stakeholders to improve the quality of the report.

Move your money? Sustainability Transitions in Regimes and Practices in the UK Retail Banking Sector

We present and test a new conceptual framework for understanding sustainable transitions in co-evolutionary sociotechnical systems. We apply this in the first study of sustainable transitions in UK retail banking. This system has suffered recently from banking crises, and links to environmentally-sensitive industries such as fossil fuels. Sustainability-focused values-based banks are a potential solution, but have had little impact on mainstream banking systems. We aim to understand the constraints on a potential transition and how to overcome them. Our new approach identifies the intersections between transitions in regimes (using the multi-level perspective MLP) and transitions in practices (using social practice theory SPT), two competing conceptual frameworks in the literature. We ask: what are the intersections between transitions in the banking regime and banking practices, and how may critical points of constraint be unlocked to become points of opportunity, thereby aiding a transition to more sustainable banking systems? We present new empirical findings from a mixed-method case study of the UK banking sector and two values-based banks in particular. Interventions for growing sustainable banking are identified and we demonstrate the added-value of the combined approach through indicating strategies for unlocking the transformative potential of sustainable innovations.

Exploring Twitter for CSR Disclosure: Influence of CEO and Firm Characteristics in Latin American Companies

Social networks, which are characterised by accessibility and interactivity, offer great potential for dialogue between companies and stakeholders, for example as platforms for publishing information on aspects of corporate social responsibility (CSR). In this paper, we use a synthetic index to analyse levels of CSR disclosure via Twitter, and identify explanatory variables of this disclosure by studying the demographic characteristics of the Chief Executive Officer (CEO) and of the company. This synthetic index was based on data for 93 companies located in the four countries of the Pacific Alliance (Chile, Colombia, Mexico, and Peru), using categories based on the 2016 Global Reporting Initave (GRI) Standards. The tweets were compiled during a period of two months in 2017, immediately before and after the publication of each CSR report. The synthetic index was taken as the dependent variable and used as the basis for multivariate regression analysis to identify the relationship between the level of CSR disclosure on Twitter and the characteristics of the firm and its CEO. The results obtained show that firms operating in environmentally-sensitive industries present higher levels of CSR disclosure on Twitter than those in other sectors. By country of origin, the Colombian and Chilean companies offered higher levels of disclosure than those in Mexico and Peru. The regression analysis revealed a positive relationship between the firm operating in a sensitive industry and its level of CSR disclosure on Twitter, and an inverse relationship between the latter variable and the tenure of the CEO.

The relationship between CSR disclosure and competitive advantage

PurposeThis study aims to apply signaling theory to examine whether corporate social responsibility (CSR) disclosure can deliver effective signals to stakeholders to increase a firm’s competitive advantage in China. Whether ownership patterns or environmental sensitivity causes a significant difference in the relationship between a firm’s CSR disclosure and competitive advantage is also examined.Design/methodology/approachData analysis is based on a regression model. Content analysis is performed to convert qualitative CSR information of Chinese firms into quantitative data, while intellectual capital (IC) is used as a proxy variable for competitive advantage.FindingsThe difference in competitive advantage impairment between environmentally sensitive industries (ESIs) and non-environmentally sensitive industries (NESIs) is significant. Further comparisons on the relationship between overall CSR disclosure and competitive advantage among state-owned enterprises, privately owned enterprises, ESIs and NESIs suggest that the relationship is negative.Research limitations/implicationsThe study extends research of strategic CSR to signaling theory and competitive advantage. In particular, a research using IC as a proxy for competitive advantage is rare. It also contributes to the literature on competitive advantage and strategic CSR by examining the effects of both CSR disclosure and IC.Originality/valueThis paper provides evidence related to stakeholders’ reaction to managers’ various CSR strategies in China. The contribution of this study is that it confirms that different CSR initiatives have different effects on the competitiveness of enterprises in China.

Quality of Corporate Social Responsibility Disclosure and Cost of Equity Capital

This article explores the relationship between the quality of corporate social responsibility (CSR) disclosure and the cost of equity capital by analyzing the financial data and CSR reports of A-share listed firms in China from 2008 to 2014. It is shown that the quality of CSR disclosure is negatively related to cost of equity capital of the listed firms. This negative correlation proves to be more prominent among firms of environmentally-sensitive industries. Taking the ownership of the listed firms into consideration, it is further confirmed that the negative relationship between the CSR disclosure and the cost of equity capital is of higher significance for state-owned enterprises (SOEs). Our findings also empirically demonstrate that the quality of CSR disclosure is more negatively related to the cost of equity capital among large listed firms than smaller ones.

Corporate political activity and environmental sustainability disclosure

PurposeTaking on a corporate political activity (CPA) perspective, the purpose of this paper is to investigate how CPA affects environmental sustainability disclosure among firms in China and whether the disclosure level varies across ownership structures and environmental sensitivity statuses.Design/methodology/approachThe sample comprises 652 corporate social responsibility reports released by firms in China during 2008-2010. Data are coded through a content analysis procedure before being analyzed using regression analysis.FindingsThe authors find a significant and positive association between CPA and environmental sustainability disclosure. However, the effect of CPA on environmental sustainability disclosure is significantly negative among firms in the environmentally sensitive industries (ESIs) and privately owned enterprises (POEs). More specifically, a firm’s environmental disclosure level is lower when the proportion of board members with a significant status, such as party chief of the Communist Party, is higher among firms in ESIs and POEs. This implies that firms with guanxi (i.e. Chinese-specific CPA) are more likely to be free from trouble.Originality/valueThis empirical study offers important evidence on the fulfillment of environmental sustainability policies and the effectiveness of regulatory controls that China has used in the development toward a low-carbon economy.

Critical Success Factors of Sustainability Risk Management (SRM) Practices in Malaysian Environmentally Sensitive Industries

This study aims to examine the Critical Success Factors (CSFs) of Sustainability Risk Management (SRM) practices and its impact on corporate survival in the Malaysian environmentally sensitive industries. Risk culture, leadership, emerging risk governance, and compliance were found to be critical factors in successful SRM practices. From a survey of 53 companies, compliance was found to be the most crucial factor in successful SRM practices and has an impact on corporate survival. Significantly, this paper contributes to better understanding of the critical factors in successful SRM practices for managing the emerging risks and other non-quantifiable risks, which affected corporate survival.

Environmental disclosure quality: examining the impact of the stock exchange of Malaysia’s listing requirements

Purpose – The purpose of this study is to investigate the environmental disclosure (ED) quality of public-listed companies (PLCs) in environmentally sensitive industries (ESI) in Malaysia in 2005 and 2009 (two years before and two years after the mandatory corporate social responsibility (CSR) requirement of Bursa Malaysia (BM)). BM (The Stock Exchange of Malaysia) has made CSR, including ED in annual reports mandatory since 2007. This study compares environmental reporting (ER) before and after the 2007 mandatory reporting requirement to determine if this command and control mechanism has had any effect on the quality of ED. Design/methodology/approach – The quality of ED was measured using a disclosure quality index adapted from various prior studies. The index consists of a total of 46 disclosure items grouped into 9 categories. Content analysis was utilized to extract data from the annual reports of 164 PLCs in ESI. Findings – Overall, the quality of ED improved in 2009 from that of 2005. More importantly, companies disclosed more quantitative environmental information in 2009 than in 2005. However, the average quality of ED was still low in 2009 compared to the overall potential score. Results provide some support for legitimacy as well as institutional theories. Research limitations/implications – The sample of the study consisted of listed companies in ESI only; the results cannot be generalized to other companies in non-environmentally sensitive sectors. Practical implications – Prior studies that used data before the mandatory CSR requirement by BM found ED in annual reports mainly declarative in nature, generally low on quality and with little quantifiable data. The results of the present study provide evidence of the positive impact of mandatory environmental reporting on ED quality. Originality/value – The use of a multi-theoretical perspective may offer a more meaningful explanation of ER behavior in Malaysia. The results of the study would provide the impetus for regulatory agencies in developing countries to perhaps consider legislating ER. The findings provide some evidence to support the influence of legitimacy and institutional factors behind improved ED of Malaysian PLCs. This outcome exhibits a positive influence on the government efforts in promoting sustainability. Finally, the study contributes to present a more up-to-date account of environmental commitment undertaken by Malaysian corporations through their environmental reporting, after the CSR mandatory listing requirement took effect in 2007.

The signals of green governance on mitigation of climate change – evidence from Chinese firms

Purpose– This paper aims to examines whether Chinese firms’ signals of green governance, including environmental management, green innovation, and greenhouse gas (GHG) and pollution emission, vary significantly with their ownership structure and aim of being environmentally sensitive.Design/methodology/approach– From corporate social responsibility (CSR)-China website and CNINFO, a total of 781 CSR reports released during 2008-2010 were collected. The collected data were coded and analyzed using content analysis.Findings– In overall disclosure of environmental protection information (TotalEP), no significant difference existed between state-owned enterprises (SOEs) and privately owned enterprises (POEs). Chinese environmentally sensitive industries (ESIs) have a tendency to disclose significantly more information about their actions of environmental protection than their counterparts. Moreover, SOEs and ESIs scored higher than their counterparts on energy saving and carbon reduction and development of circular economy. A steady increase was also observed in the disclosure ratio for CO2emission. During 2008-2010, SOEs and ESIs were relatively more committed to the disclosure of SO2emission as compared to other emission items.Practical implications– Managers should disclose signals of green governance actively to avoid adverse selection caused by information asymmetry which further lower their financing cost.Originality/value– There is still a lack of evidence as to whether Chinese firms are implementing actions to slow down climate change. This paper endeavours to provide an insight into Chinese firms’ compliance with the green governance requirements of the Eleventh Five-Year Plan. The study hopes to fill the current gap in understanding the environmental behaviours of Chinese firms under pressure to alleviate climate change.

Corporate social responsibility disclosure and market valuation: evidence from Spanish listed firms

Using a sample of listed Spanish companies pertaining to the IBEX35 index for the period 2007–2011, this paper examines whether those firms with higher CSR disclosure ratings are more valued by market participants. This study also complements the literature addressing the value relevance of CSR disclosure by further analyzing not only the direct effects of CSR reporting on stock prices but also its indirect effects through its interaction with main accounting variables (i.e., earnings and book value of equity). CSR reports can also affect stock price indirectly because the sustainability report may be perceived by investors to be a source of further and complementary information regarding the nature, composition and trends of the traditional value-relevant accounting variables. Finally, this study also analyzes whether CSR disclosure by firms operating in environmentally-sensitive industries is assessed differently by market participants than CSR disclosure by companies operating in other industries. By using a modified Ohlson (Contemp Account Res 1:661–687, 1995) model, it is found that CSR disclosure do have both a direct and indirect effect on stock prices by modifying the value-relevance of earnings and book value of equity. Moreover, CSR disclosure by companies operating in environmentally-sensitive industries is associated with higher market valuations than CSR disclosure by companies operating in nonsensitive industries. This may be due to the fact that CSR disclosures provide information that allow investors to make better assessments of the increased risk related to potential litigation and future environmental liabilities, thereby reducing information asymmetries and the risk of adverse selection.

Is environmental disclosure an effective strategy on establishment of environmental legitimacy for organization?

Purpose – The purpose of this paper is to investigate the relationship between level of environmental disclosure and establishment of a legitimacy image of operation among Japanese firms after implementation of the Kyoto Protocol. Design/methodology/approach – This study uses a sample consisting of 208 firms listed in the Japan Nikkei Stock Index 500 and adopts three-stage least-squares (3SLS) to explore the relationship between environmental news exposure, environmental disclosure in corporate social responsibility (CSR) reports, and environmental legitimacy. Findings – Results indicate that firms from environmentally-sensitive industries can significantly improve their perceived legitimacy by releasing CSR reports; firms with better prior environmental legitimacy will be more active in environmental disclosure and establish better environmental legitimacy in the next period; firms with better carbon reduction performance tend to have higher levels of environmental disclosure. In terms of carbon reduction performance, Japanese firms in the sample may reduce carbon dioxide emissions by 49.636 tons by allocating one million yens (approximately 9,670.3 euros or 12,328 US dollars) to environmental expenditure. Practical implications – The top three items of environmental disclosure in most Japanese firms ' CSR reports are environmental management, development of alternative energies, and ecological information. These results reveal environmental behavior of sample firms in Japan to mitigate global warming. The managers should understand that the impact of substantive actions for environmental management on legitimacy is greater. Originality/value – Environmental management has become an important component of business management beliefs for most firms, and Japanese firms that belong to environmentally-sensitive industries are even more active in using CSR reports as an effective tool to establish their legitimacy image.

Environmental management accounting: the significance of contingent variables for adoption

Environmental management accounting (EMA) has received increasing interest in recent years and has been promoted as a means by which the business community can more easily manage its environmental and associated economic performance. Yet despite increasing interest, theoretically informed projects concerning the current state of EMA development remain scarce. The research presented here aimed to extend current knowledge by investigating whether organisational context could be used to develop a greater understanding of EMA use by Australian organisations. Drawing on contingency theory, a research framework was developed that sought to identify the circumstances under which organisations were more likely to engage with EMA activities, both now and in the future. In order to test this framework a web-based survey of Australian accountants in business was conducted. The data suggested present and future EMA use was associated with environmental strategy, organisational size and environmentally-sensitive industries. Contrary to expectation organisational structure was not found to be associated with accountants' perceptions of EMA use in their organisations. These findings support the potential of contingency-based research to further current knowledge and understanding of the reasons behind EMA development.

Disclosure of Corporate Social Responsibility and Environmental Management: Evidence from China

ABSTRACTThis paper first evaluates the quality of corporate social responsibility (CSR) information disclosed in each report using content analysis. Results suggest that 41% of the sample firms fail to provide any information of the 42 CSR activities that allow outside stakeholders to understand their CSR actions; 42% offer text descriptions of their general CSR activities, but only 17% provide statistics about their achievements or other quantitative figures. Further, this paper also compares firms' environmental disclosure from the aspect of environmentally sensitive or ownership patterns. Results indicate that environmentally sensitive industries (ESIs) and state‐owned enterprises (SOEs) are significantly more committed to environmental information disclosure, particularly in ‘paying attention to energy saving/carbon reduction and development of circular economy’ and ‘promotion of research, new techniques, and methods of energy saving/carbon reduction’, both of which are under the energy saving/carbon reduction dimension. This paper attempts to provide some evidence related to Chinese firms coping with global warming. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.

Protecting investors and the environment through financial disclosure

Financial markets are increasingly concerned about financial risks resulting from companies environmental exposures and are demanding greater disclosure and transparency. Despite long-established securities law and regulations requiring such disclosures, companies have not fully complied nor has the Securities and Exchange Commission vigorously pressed enforcement actions. Studies of disclosure of material environmental information in electricity generation and other environmentally-sensitive industries show a pattern of inadequate disclosure.