Should companies be required to account for their environmental impacts

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

"Environmental matters are of relevance to all companies, as all companies' impact upon the environment in some way or other" (Adams, Hill and Roberts, 1995: p.1). This essay will establish what environmental reporting is and what the Global Reporting Initiative (GRI) sustainability guidelines and the Key Performance Indicators (KPI's) are used for within the business. Secondly, it will discuss the advantages and disadvantages of businesses reporting on their environmental issues as it informs what benefits they gain and problems they face. "The number of companies disclosing at least some information appears to be fairly high," (Adams, Hill and Roberts, 1995, p.2). Thirdly, this essay will look at the factors affecting the business decision to disclose their environmental information. In addition it will discuss voluntary and mandatory environmental reporting. Finally this essay will look at the quantity and quality of environmental reporting. To conclude environmental guidelines are already available for all businesses and I think that environmental reporting should be mandatory.

"Environmental reporting refers to the preparation and provision of information by management, for the use of multiple stakeholder groups (internal and external), on the environmental status and performance of their companies or organisations" (ACCA 2002: p.8). Companies follow environmental guidelines to report on their environmental performance (Jones, D. 2006). There are two sets of guidelines that businesses can follow in their environmental reporting. The Global Reporting Initiative (GRI) sustainability guidelines were developed for businesses to use as a way to help report their environmental, social and economic performance and to increase accountability (Moneva, J. M. Archel, P. & Correa, C. 2006). Reporting guidelines give guidance to companies on how to report their environmental issues using Key Performance Indicators (KPIs) (Jones, D. 2006). KPIs aim to identify a company's most significant environmental impacts (Jones, D. 2006). Jones, D. (2006, p.7), points out that twenty-two KPIs have been set that "describe which KPIs are most significant to which business sector" and the government strongly believes that these guidelines are useful and aimed at all businesses in the UK.

"65% of FTSE 350 companies report in some way on environmental issues" (Fun, A. 2002: p.11). Over the last fifteen years the number of companies that have taken up the production of stand-alone social, environmental or sustainable reporting has been rapidly increasing. (Spence, C. and Gray, R. 2007). This is because managing and reporting on environmental performances has lead to substantial business benefits as well as environmental benefits (Jones, D. 2006).The main motivation for companies to report on their corporate ethical performances is to enhance corporate image and credibility with stakeholders (Adam, C.A. 2002). Although "Disclosure of achievements and candid acknowledgements of negative information can further enhance a company's credibility" (ACCA, 2002, p.58), there is "also a view that beyond a few sentences there would be no further image benefits" (Adams, C.A. 2002, p.245). It can be said with confidence that these reports are mechanisms to enhance a firm's image and public relations such as their consumers and suppliers (Batterman, S. A. 1997). Moreover, there are cost saving benefits by managing resources and improving efficiency (Jones, D. 2006). Jones, D. (2006) stated that a business gains improved sales by reporting their environmental issues in a clear transparent way. He explains that this improves the image of an organisation and makes the business look ethical, attracting more potential customers. In addition, he states that businesses who report on their environmental information can make them a more attractive supplier than their competitors. Furthermore, a company benefits from increased attractiveness in the investment community because environmental reports attract investors as it provides a good indication on how an organisation handles its risks and develops new opportunities (Jones, D. 2006). Jones, D. (2006) also points out that good environmental reputation helps to attract 'high-calibre' employees and can reduce the companies' exposure to fines from minimising their harmful impacts on the environment. Additionally, companies report their environmental performances to gain understanding about their actions and implement ways using the environmental guidelines to reduce their harmful environmental and social impacts of their activities (Jones, D. 2006). However, Adams, Hill and Roberts (1995) points out that the real reason to reporting environmental issues is likely to be linked to financial and profit rather than ethical considerations.

To adopt environmental reporting there are a number of factors that affect companies decision, "each factor is not necessarily perceived or stated to be of same level of importance, nor ultimately influential on the level of environmental information disclosed" (Wilmshurst, T.D. and Frost, G.R. 2000, p.18). Wilmshurst, T.D. and Frost, G.R.( 2000) identified factors that were considered of high importance. These were shareholders or investors right to information, community concerns and legal obligations and due-diligence requirements. Another important reason in the public pressure (Adams, C. A. 2002). When trying to gain an ethical stance of a company that readers are interested in, they require important information on, investment policies, community involvement activities, ethical business practices and charitable activities (Adams, Hill and Roberts, 1995). Adams (2002, p.223) identified a number of "internal contextual variables" that impact on the decision of companies to disclose their environmental reports. These variables include "aspects of reporting, its impacts on legislation and audits" (Adams, C.A. 2002, p.245). However, other concerns about environmental disclosure are linked to public reaction to specific issues such as fines (Adams, C.A. 2002). On the other hand, many companies do not disclose their environmental performances as the provision is unclear, it does not apply to all legal structures and adds unnecessary costs (Frost, G.R. 2007).

Adams, Hill and Roberts (1995) discovered that German companies report considerably more information of their environmental performances than did companies from the other countries for example the UK companies reported significantly less information. However the UK "was not the poorest one in terms of the incidence of relevant disclosures with, in particular, less French, Dutch, Swiss companies disclosing information on environmental or ethical matters" (Adams, Hill and Roberts 1995, p.1). Adams, C.A. (2002, p.245) concludes that reporting and decision to disclose depends on the "country of origin, corporate size and corporate culture." This was concluded from a study that conducted interviews with seven large multinational companies in the chemical and pharmaceutical sectors in the UK and Germany (Adams, C.A. 2002).

Furthermore, companies operating in many developed economies that disclose their environmental performances on a voluntary basis are differentiating themselves from their competitors. (ACCA. 2002) "Malaysian companies operating internationally or companies that intend to penetrate new markets with greater environmental pressures/standards could use environmental reporting as a business and marketing strategy" (ACCA. 2002, p.56). Timber industries that undertake the reporting of their environmental performances serve as a good example in this respect. Timber companies that voluntary report their substantial forest management practises stand a significant chance at penetrating European and Japanese markets that have more stringent environmental regulations. (ACCA. 2002).

Environmental reporting "in the UK is (largely) nonmandatory" (Spence, C. and Gray, R. 2007, p.24). ACCA (2002) points out that as a result of privatisation, companies disclose their non-financial performances on a voluntary basis to demonstrate to their stakeholders that they are being transparent of their operations and public accountability. In addition, due to the increasing Environmental pressures throughout the supply chain with customers demanding higher environmental standards, companies have decided to voluntarily disclose their environmental information to provide information to customers about their management practises and performance (ACCA. 2002). As the public is particularly susceptible towards the industry sector (for example oil and gas extraction), companies are voluntarily disclosing their environmental information to enhance a positive image to the general public (ACCA, 2002). Furthermore, businesses have started to report their environmental performances "voluntarily, to demonstrate and assure regulators, investors, local communities and the general public that they operate in a socially and environmental responsible manner." (ACCA. 2002, p.57). However, Environmental Reporting is mandatory in Malaysia (Spence, C. and Gray, R. 2007) and ACCA (2002) stated that companies in Malaysia are still uncertain about the benefits of environmental reporting

"While the number of companies reporting information has increased significantly, the quality of environmental reporting is very low" (Adams, Hill and Roberts 1995, p.1). To improve environmental reporting, companies have increased the quantity of environmental reporting. "In 1999, more than 95% of reporting companies limited environmental information to a page within the annual report. By 2001 40% were devoting more than one page to environmental information" (ACCA. 2002, p.8). However, Adams, Hill and Roberts, (1995) discovered that companies provide mainly discursive information whilst readers are interested in quantitative and financial information (Adams, Hill and Roberts, 1995). They added that discursive information does not appear to inform the public about their environmental performances in an unbiased, clear and helpful way.

To conclude, businesses use the KPIs and the GRI guidelines to help report their environmental performance. As a result companies should follow these guidelines to address their significant environmental impacts. Companies that report their environmental issues achieve great benefits. However, it is time consuming for companies to undertake this often burdensome task. Nonetheless it is clear that the benefits outweigh the costs and for that reason companies should report their environmental performance. Decision to disclose environmental information voluntarily is of high importance as it is affected by many factors. Therefore companies should consider these factors before making their decision of disclosure. Environmental reporting is largely voluntary in the UK and mandatory in Malaysia. However, the benefits of environmental reporting are uncertain to Malaysian companies. Therefore environmental reporting should maintain a voluntary approach to all businesses. In conclusion, the quantity of reporting is increasing but the quality of environmental reporting is low. Thus, companies should improve the quality of their environmental reporting to meet their customer requirements. Overall, it is not impossible to produce a set of environmental guidelines as they are already available for businesses to follow and I think that environmental reporting should be mandatory to all businesses to improve its quality.

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.