Environmental Impact Cannot Be Measured By The Financial Report Accounting Essay



Environmental impact cannot be measured by the financial report and was regarded as an irrelevant issue to represent the performance of a company in the past. With the rise of environmental protection awareness, the environment disclosure (sustainability reporting) has become voluntary. These sustainable reporting should correspond to the information that released in the financial report as well as providing extra information to the investors.

In July 2010, however, British Petroleum (BP) oil spill raise the concerns of what environment voluntary disclosure done for the past two decade. British Petroleum should responsible for this disaster and how does it disclosure in the sustainable report in the future will be discussed in the following research.

While there is still so much debate on the degree to which environmental issues lay a serious threat to our present way of life, a consensus has been formed to handle environmental problems in an increasingly sophisticated way. Such efforts must work both to assure human sustainability and to earn environmental benefits without degrading other aspects that are vital to a just and free society. The purpose of the study is to provide theoretical evidence that will contribute to strategic priorities in connection with better regulation and increasing environmental healthiness. We explore the role of disclosure quality, we acknowledge the difficulty in theoretically separating disclosure quality from the content of the disclosures, particularly using British Petroleum as our case study.

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Unfortunately, the deeper one dig into possible solutions to such criteria, the more the limitations of any one approach is exposed to the complexity inherent to environmental problems. The most familiar problem faced at this level is that human beliefs are essentially different, on the bases of the relationship that human beings ought to have with their environment. Take for instance, some people believe that ingenuity of humans can or must be used to preserve the environment while increasing the material wealth of humanity, others think that such views are improper and places human beings apart and superior to the natural world, this view has been the source of many present problems. An example includes British Petroleum among many, it serves as an example of the complexity in analysing such positions; one would need to understand economic mechanisms of planning an environment, the philosophical justification of humans as superior to nature and the historical role of economic development on environmental degradation.

The Environmental Voluntary Disclosure analysis environmental problems from the perspective that our language (i.e choice of words) affects how we pursue solutions, problem solving can be conducted in a way that is morally sensitive. Furthermore, focusing on the framing of our environmental voluntary disclosure we critically analyse the significant notions that inform our attitudes towards the natural world.

To adequately address the problems of environmental sustainability in the 21st century, it is essential that a wide variety of concepts are studied. In this research, secondary data is widely used to provide a comprehensive understanding the whole topic. These secondary data mainly focus on two kinds of resources. First resource would be the annual and environmental reports released by BP. There would be a basic understanding through reviewing the historical information of BP. it will be helpful for us to develop the mythology and finding out several key problems of voluntary disclosure. Second one is the information presence in media and new over the increased of the Gulf of Mexico oil spill. There are rich of relevance information focus on the environmental issues after the oil spill. This issue provided both quantitative and qualitative consequence measures of both environmental impact and companies situations. These secondary data also allow us to develop the whole picture between financial report and sustainable report.

We explore the role of disclosure quality, we acknowledge the difficulty in theoretically separating disclosure quality from the content of the disclosures, particularly using British Petroleum as our case study to provide a comprehensive rationale/significance for a variety of firms to provide high quality voluntary disclosures not just the British Petroleum alone. In addition, we document that, the venue for the voluntary environmental disclosures (within a stand-alone report or as part of the annual report) significantly affect the relationship.

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There exist conflictions between pursuing of profit and disclosure of financial report. There are two conclusions we would achieved. First one is that environmental report discloses non-financial section issues and it is really a question that whether it can afford investors or public with useful information to understand the whole physical environmental impact. On the other hand, it might be window dressing under the pressures of government or for other purpose to achieve the company's benefits. Obviously, most of the environmental reports did not supply sufficient or useful information to the public and fail in its function.

Literature Review

At the beginning, environmental disclosures were confined to financial statements of business enterprises as additional financial information. Environmental disclosures are now widely viewed as a strategic tool that embraces all aspects of business performance. Empirical findings suggest that environmental disclosures do provide benefits to a business. Such benefits include lower cost of capital (Lev, 1992; Skinner, 1994; Blacconiere and Patten, 1994; Botosan, 1997; Botosan and Harris, 2000).

Earlier literature also indicates that environmental disclosures exceeding normal financial performance measures are highly regarded by investors as it assist investors in narrowing the growing gap between conventional financial statements and market valuation needs (Leuz, 2003; Botosan and Harris, 2000; Healy and Palepu, 2001).

With respect to environmental disclosure determination, prior researches suggest there are three main types of concerns that drive managers to include environmental disclosures in their financial statements. These concerns are: industry and product concerns (competitors and industry regulators), public pressures (media), and stock markets' concerns (financial analysts) (Bowen et al., 1995; Henriques and Sadorski, 1999; Healy et al., 1999).

The evidence from the environmental disclosure literature of Anglo-American countries indicates that voluntary environmental disclosure of firm is highly related to the firm size and membership in environmental-sensitive industries such as oil and gas, chemicals and paper products (Cowen et al., 1987; Alnajjar, 2000; Barth et al., 1997; Bewley and Li, 2000; Cormier and Gordon, 2001; Neu et al., 1998; Patten, 1991, 1992, 2002b; Elijido-Ten, 2004). Also, environmental disclosure as a tool will allow flow of information from a firm's environmental activities to others (competitors, investors and analysts). On the one hand, the managers make environmental disclosures and attempt to legitimise and to minimise the potential negative consequences of their environmental activities. On the other hand, with respect to firm's environmental disclosures, its competitors may be able to gain advantages over its environmental activities (Healy and Palepu, 2001). More specifically, the environmental disclosure may provide particular information on production process inefficiencies, costing structures and other production information.

A number of studies point out that higher level of information exposure relative to environmental issues increase the public concerns and that public pressure force firms to react and issue higher level of environmental disclosures. Managers also have an incentive to enhance their environmental disclosures as to induce a favourable response to perceived claims that are put forward by government or public societal agents (Neu et al., 1998; Brown and Deegan, 1998; Deegan et al., 2002).

With respect to the relationship between environmental disclosures and stock markets, many environmental information items have a direct impact on a firm's future earnings: environmental capital expenditures, environmental fines and penalties (Clarkson et al., 2004). Empirical studies show that enhanced corporate financial disclosure does reduce the uncertainty surrounding analyst forecasts and translate into more precise earnings forecasts (Hope, 2003). Therefore, managers have an incentive to provide high quality environmental disclosures.


Longitudinal case study design

According to Humphrey & Lee (2008) the researcher must investigate a subject that interests him enough to keep him at it, in that sense the topic about environmental disclosure has been chosen for this research purpose thanks to the interest of this field of study. The investigation proposed will not follow the hypothesis-and-test approach, rather qualitative method and analysis will take place in order to access rich secondary data. A longitudinal study of this kind provides insights on the inter linkages between the disclosures and the developing social context.

The presence of voluntary environmental disclosure studies is relatively more abundant in countries like the USA, Australia and within continental Europe according to Campbell (2004) and Gray et al (1996), whereas in the UK there is a lesser discussion focusing on it. Environmental disclosure has been an ascending concern when studies on corporate governance are carried out. In order to provide the insights and outcomes demanded by this study's questions an exploratory research would be developed, mainly due to the fact that there are few previous research works aimed to critically review the environmental information released by a solely company coupling with some media press analysis. The results are limited to an exploratory and longitudinal single-case study of a company established in the UK's oil and gas industry. According to Humphrey & Lee (2008) the case study design represents a preliminary investigation which is aimed to provide ideas and insights for a latter rigorous empirical project. Yin (2003:6) defends that "... in this kind of case study, fieldwork and data collection are undertaken prior to the final definition of study questions and hypotheses. Research may follow intuitive paths, often perceived by others as sloppy."

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The case study proposed in this work would be carried out through the application of a disclosure grid (Appendix A). Aerts et al (2008) and Cormier & Magnan (2003) developed studies about environmental disclosure accross European countries. Both papers used an environmental grid containing 39 items related to important environmental issues like `Emission of Pollutants`, the grid was structured in a way that allows the researcher to analysis and score some groups of likely environmental issues, within each group there are several items focusing more precisely on some action taken or in progress. In this sense the annual reports as well as the environmental stand-alone reports were analysed and scored as follows: 3 for qualitative and quantitative information, 2 for specif information found regarding the item, 1 for generally explanation and 0 for no mention at all. Although these papers have been positively accepted by the journals, the decision basis for either scoring 2 or 1 has seemed substantially subjective due to the matter of the researchers' opinion to establish the boundary between the specific description and the general one. Thus it has been decided to employ an adapted scoring method where 2 would be given to a item described both in quantitative and qualitative terms; 1 to a item described qualitatively and 0 for no mention about it. Other methods of analysing data has been largely used, i.e. counting words, sentences and phrases extracted from the annual reports. Nevertheless, this study's main method is the content analysis which may be more suitable to satisfy the questions developed, this technique can allow the researcher to assess more in depth what has been stated in these reports and, consequently, to provide a more fruitful analysis.

Annual report disclosures have frequently been used for social disclosure studies (Wiseman, 1982; Freedman and Jaggi, 1986; Patten, 1991) thanks mainly to the data access and also to the common perception that it represents an important communication vehicle for the firms. In this longitudinal case study, focus would be given based upon the annual and environmental reports released to the market by BP for ten years time, starting with the 2000 report which was available to the market in 2001 and ending with the 2010 report which will be released in 2011. This period was defined to capture the evolution of the environmental contents, considering the intense pressure from environmental debates has been done by a wide range of stakeholders like environmentalists, national leaders, and renowned academic researchers and also by the media. The company has been chosen due to the fact that its presence in the media has steadily increased since the Gulf of Mexico oil spill occurred in April 2010 and also backwards, subsequent environmentalist pressure as well as from the international media as a whole. Another important factor of this choice has been the notorious position of BP as an important global player within the Oil & Gas industry. In that sense, secondary data sources can offer rich qualitative data to underpin the critical review proposed.

Relating to the limits of this paper, the subjective nature of the interpretive approach and the use of a single case limit the generalisability of the results. However, the longitudinal approach is indicated to generate worthwhile insights on how corporate disclosures are used as a communication tool to portray the firm in a certain light. Also, following this same view, Sanjaya & Milne (2010) argue that "there are some inherent limitations with this design research, and caution is needed to not overstate the findings. The results are limited to a single experiment, and more robust findings need to come from further studies to help build confidence in such results (Lindsay, 1995; Lindsay & Ehrenberg, 1993; Liyanarachchi & Milne, 2005)."

Exploratory research and using secondary data

One of the main aspects of exploratory research is the use of secondary data. So it is very important to look into the main advantages of using secondary data analysis in our research.

In our research, we are going to use Secondary data as our research strategy. Since our research topic is, "Environmental disclosure by BP" we find secondary data to be the most relevant strategy to deal with it. Our research question is mainly based on finding out some reasons as to why companies like BPs environmental disclosure.

There are many advantages of using secondary data as our research strategy. The reasons why we chose secondary data or some of the advantages of secondary data can be as follows:

Have fewer resource requirements: The main advantage is the enormous saving in the resources, in particular time and money (Ghauri and Gronhang 2005). This means that if we use secondary data, it will save us a lot of time and money since we are mainly depending on other materials which are already available to us. So there is no reason to work on getting data from the sources or getting primary data.

Can result in unforeseen discoveries: Re-analyzing secondary data can also lead to unforeseen or unexpected discoveries. Dale et al.(1988) cite establishing the link between smoking and lung cancer is an example of such a serendipitous discovery. Therefore one of the main advantages can be the use of the existing information published by BP or related sources, and to re-analyze the data to arrive at new or different conclusion based on that.

The use of secondary data would give the researcher more time to analyze the data since the time to collect the data is minimized immensely as mentioned in the first point. This means that instead of trying to get the information from BP, we can spend more time on analyzing the data published by them or other related sources

Unobtrusive: If we need data quickly, then secondary data is the most ideal of all. Secondary data are more likely to be higher-quality than could be obtained by collecting your own (stewart and Kamins 1993). So the use of this high quality secondary data will be directly reflected on our research.

Secondary data also helps us to compare the data in different ways giving the researcher the opportunity to explore things in different dimensions. This means that we can place our own findings within a more general context or alternatively triangulate your findings. Research methods for business, M.Saunders, P.Lewis, A.Thornhill, 5th Edition(2009).

Permanence of data: Secondary data can generally provide a source of data that is both permanent and available in forms that may be checked relatively easily by others (Denscombe 2007). This means that this data can be available for more public scrutiny.

Evaluation of the research strategy

The research strategy that has been proposed above has covered some important papers dedicated to the environmental disclosure released by several companies as well as the wide range of strategies and approaches employed in those studies. The research strategy proposed has been elaborated according to main important points: the researchers' expertise and capabilities, the access to data and availability of literature, the research questions proposed and the deadline proposed. Taking these factors into account, the main strengths can be considered as the properly choice has made considering all these core factors in order to study environmental disclosure issues. The researchers' expertise was considered thorough a simple question: "Which kind of research we could successfully develop ourselves" and according to Humphrey & Lee (2008) which field seems the most interesting for the members as a whole. Then a qualitative research seemed more appropriate and feasible. Secondly, the access to data in order to develop the research has proved been rich and easily reachable thanks to the internet and related engine search tools. The annual reports, for example, can serve as a high quality data source to carry out the longitudinal case study of BP, some authors defends the use of annual reports for disclosure analysis due to the fact that they are under constant scrutiny not only from the financial community but also from the other stakeholders. When considered how suitable the research methods have been designed, the disclosure grid presented in Appendix A has been chosen taking strongly into consideration the research questions and the outcomes/insights would be required by these questions, also the scoring method that focuses not only on the qualitative aspects but also on the quantitative descriptions was defined in order to avoid scoring rhetoric and dubious contents which sometimes can be simply replicated by the company year after year.

Relating to the main weaknesses of this study, the subjective analysis and the use of a single case limit the generalisability of the results. Also, according to Sanjaya & Milne (2010) "there are some inherent limitations with this design research, and caution is needed to not overstate the findings. The results are limited to a single experiment, and more robust findings need to come from further studies to help build confidence in such results (Lindsay, 1995; Lindsay & Ehrenberg, 1993; Liyanarachchi & Milne, 2005)." This means that the findings of this kind of research may provide a specific corporate analysis; therefore, they could not be automatically replicated to another one firm. Even considering a double review from the disclosure analysis, the score would be subjective to the research's matter of opinion; hence another research may provide different interpretations.

In addition, the analysis that is intended to be carried out in this research is secondary data analysis. The sensitive nature of the research area means that the access to primary data is highly restrictive and even when audience is granted; the information provided could be biased. This consequently affects credibility. The adoption of secondary data analysis could also result in restrictions as regards the area of study of the research, as well as the time horizon. According to D. S. Corday (2001), the existence of secondary data can short-circuit one facet of the scientific process, tempting the researcher to rather than conduct analyses based on theories and hypothesis, 'mine' the data.


While acknowledging the fact that secondary data analysis has its flaws, proper analysis of the relevance, usefulness and credibility of each data sourced and used would go a long way in helping to stem this unpleasant tide. It should also be borne in mind that attempts to generalise the findings of this research shouldn't be over-elaborated.

As earlier stated, empirically, the primary aim of this research is to provide an in-depth analysis of the environmental reporting pattern of the British Petroleum (BP), United Kingdom. The evolution of the disclosure patterns and trends will be analysed, paying attention to significant changes that occur over this time period and consequently evaluate their impacts on the company's corporate behaviour. In addition, the question as to whether the reports disclose non-financial information would also be investigated, consequently giving evidence whether the environmental information contained in the annual reports are inserted for some form of creative accounting.

=>Final evaluation remaining topics:



Appendix A: Environmental disclosure grid

Source: Cormier et al (2003).