The effect of Social and Environmental reporting on Corporate Performance



The need to disclose social and environmental impact of organisation has been an issue among scholars. Some believe in it, that, being accountable to the society will give organisation more goodwill and thus, perform better. Others are on the opinion that organisation is only responsible to its shareholders, that it exist only to make money for its shareholders and not to lavish it on the society (Gray, Owen and Maunders 1987).

The twentieth century brought a remarkable change in our world which makes environmental issues so significant. There was an increase in economic activity, technological advancement and growth in volume of business activities. Thus, these concurrently brought adverse effect on the environment. Among the noticeable effect is that caused by human and industrial activities which lead to destruction of ozone layer, social collapse, dearth, destruction of habitat, malnutrition, poverty, starvation etc (Gray and Bebbington 2001).

This is a serious problem that needs urgent attention. Most organisations, particularly the extractive industries dispose waste products unethical and this is harmful to our health (Gray and Bebbington 2001). The oil companies especially in the developing countries engaged in unhealthy disposal of waste products such as gas flaring among others. Their activities in the Niger Delta region of Nigeria actually informed my interest on the topic.

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The study intend to review the literature on Social and Environmental Reporting, its effect on organisations` performance, a critical analysis on the issue and some research questions or problems that may be useful for further studies.


Gray et al. (1987, p. ix) defined Corporate Social Reporting as "The process of communicating the social and environmental effects of organisations` economic actions to particular interest groups within society and to society at large. As such, it involves extending the accountability of organisations (particularly companies), beyond the traditional role of providing a financial account to the owners of capital, in particular, shareholders. Such an extension is predicated upon the assumption that companies do have wider responsibilities than simply to make money for their shareholders"

The above definition disputes the conservative view of financial accounting which according to Laughlin and Gray (1988, cited in last 1996, p.3) is divided and limited to four areas:

The financial description;

Specified (priced) economic events;

Defined organisations or accounting entities;

Provide information for specified users of that information.

Corporate social and environmental reporting provides a wider range by taking accounting to a step further, not only giving report on organisations` performance but also its impact on the society at large. Thus, it tends to disclose accounting for different things, media, groups and purposes (Gray, Owen and Adams 1996).

The Growth and Development of Social and Environmental Reporting

The growth of social and environmental reporting became remarkable in the mid-1990s as a result of writers exploring the area and the interest showed by Government, Professional bodies, industry bodies and corporations (Deegan 2002).

Many accounting top writers did not recognise research in social and environmental reporting especially in its infancy. Thus, scholars that wrote on environment were seen as `radical` or going against the trend (Deegan 2002).

The extent of the argument was seen in the words of Mathews (1997, quoted in last 2002, p.284) "Those who researched non-traditional disclosures or wrote in support of socially-related disclosures were regarded as both radical and critical, because they were explicitly or implicitly criticizing the current structure of the discipline: historical financial accounting reports for shareholders and creditors. It was later that some of these writers were themselves criticized for being prepared to modify rather than replace the system within which accounting was situated".

Response to Social and Environmental issues

Response to social and environmental issues has been so significant by government and other institutions, for example, the United Kingdom during the 1989 European election supported the green party as a result of its emphasis on the environment. Many companies responded quickly to the growing need of showing off their `green` programmes (Owen 1992).

The accounting profession also saw the need to be environmentally conscious as a result of the desire by companies to communicate their social and environmental compliance via their annual report (Owen 1992). This awakens the profession as a whole which can be seen in the words of Mike Lickiss (January 1991 issue of accountancy, quoted in last 1992, p. 4), the ex-president of the Institute of Chartered Accountants in England and Wales. "In responding to the challenges posed by the environment, which is our natural wealth, all aspects of accountancy including financial reporting, auditing, management accounting and taxation will have to change. In doing so, there will be an impact on all members of the institute whether in public practice or in commerce and industry and whether working at home or abroad". The Association of Certified Chartered Accountants (ACCA) and The Chartered Institute of Management Accountants (CIMA) also supported the development (Owen 1992).

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Many public policy has also been established as a response to solving social and environmental problems caused by organisation, among which include: The Pearce Report, The Environmental Protection Act 1990, The White Paper This Common inheritance and The European Community (Owen 1992). Thus, the need for good business environment is essential.

The Need for Social and Environmental Reporting

There is a lot of debate on the need to disclose social and environmental issues. While some authors believed that organisation have responsibility to its environment others do not. For example, Milton Friedman (1971, cited in last 1987, p. 9) is on the opinion that the only responsibility of organisation is to maximise shareholders wealth. While Kenneth Galbraith (1974, cited in last 1987, p. 10) believed contrarily. There is no consensus as to which of them is correct. Furthermore, Gray, Owen and Maunders (1987, p. 10) gave us more insight on extent of the argument:

The `pristine-capitalists`. This school of thought are on the opinion that organisation have responsibility only to its shareholders.

The `expedients` believed that it is good for organisation to consider their impact on the environment in their pursuit of economic benefit.

The `social contract ` believed that society makes up organisation. Thus, should respond to its yearnings.

The social `ecologists` are those that give widest regard to the environment. That there will be serious calamity if anything is not done to stop harm to the environment.

The `socialists` are the school of thought that sees environmental issues as both economic and political.

Motivation for Disclosure

Disclosing social and environmental issues by organisation is more or less voluntarily (Deegan 2002). Thus, what is the motivation for disclosure? Does it really matter? The following are some of the reasons why organisations report social and environmental information:

The aspiration to act in accordance with legal requirements. Though this is not so pronounced in many countries (Deegan 2000 cited in last 2002, p. 290).

"Economic rationality". That if doing `the right thing` bring economic benefit. Then, that may be the motivating factor (Friedman 1962, cited in last 2002, p. 290).

The yearning to abide by lending requirements may also be the motivation for disclosure (Deegan 2002).

The desire to meet up with society`s expectation is another motivation for disclosure (Deegan 2002).

Abiding by environmental requirements vary among firms, while others over conformed, some averagely conformed and others declined. According to Green Consumer theory, firms issue social and environmental report to gain goodwill of customers that value `green products`. The Strategic Behaviour Theory believed that firms obey environmental regulations to gain `competitive advantage` and government support (Arora and Gangopadhyay 1995, cited in last 2009). A survey carried out in 2004 on 411 Oregon facilities on environmental compliance shows that 55.2% obey more than one standard while 5.8% says they fail to obey one or more standard (Wu 2009, p. 3363).


This study reviewed the literature on corporate social and environmental reporting. The topic expanded the role of accounting by extending financial report to reflect impact of organisation on the community where it operates. We have seen a vast increase in awareness and response to environmental reporting issues, the need for disclosure and different arguments on why organisation issue corporate social and environmental reporting.

Though there is no consensus as to which of the opinion is right or wrong. My opinion is that, in pursuance of economic benefit which firms are established for, consideration should also be given to the impact of the organisation on the health of the environment and the nation. Firms should wear `human face` in its pursuit of corporate goals.

Some Research Questions

Can social and environmental disclosure improve corporate performance?

Do organisational stakeholders actually support social and environmental disclosure?

What is the real motive for social and environmental reporting?

To what extent is the corporate social and environmental reporting beneficial to the community?


Deegan, C. 2002. Social and environmental reporting and its role in maintaining or creating organizational legitimacy. Accounting, Auditing and Accountability Journal. 15(3): p. 160.

Gray, R. and Bebbington, J. 2001. Accounting for the environment. 2nd ed. London: Sage Publication.

Gray, R., Owen, D. and Adams, C. 1996. Accounting and accountability: changes and challenges in corporate social and environmental reporting. Hemel Hempstead: Prentice Hall.

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Gray, R., Owen, D. and Maunders, K. 1987. Corporate social reporting: accounting and accountability. Hemel Hempstead: Prentice Hall.

Owen, D. 1992. Green reporting: accounting and the challenge of the nineties. London: Chapman and Hall.

Wu, J. 2009. Environmental compliance: the good, the bad and the super green. Journal of Environmental Management. 90(11): pp. 3363-3381.