Voluntary Disclosure of Environmental Reporting and Disclosure

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Voluntary disclosure of environmental reports has been widely researched with its impacts explicitly stated in research papers. Studies used theories to try to establish the reasons why companies would make such voluntary disclosures and this has led to the understanding of the underlying relationships between environmental reports, environmental performance and economic performance. This paper goes further in expounding the new institutionalism framework and applying it to the explanation of these relationships.


The essence of reporting on the part of corporate entities is to inform stakeholders of the results of the activities of the firm and the impact of these activities on its operating environment. In recent decades, there has been an increase in the number of stakeholders interested in the impact of the firm's activities not just on wealth maximization but also on the environment in which they operate. This interest led to the birth of corporate social responsibility. Corporate social responsibility is an umbrella term that covers the firm's relationship with ethical standards, international or national values and the law. Gray et al (1995) note that corporate social responsibility may, in its broadest sense, encompasses self reporting by corporate entities and reporting about the entities by third parties. It includes information in the annual reports as well as other forms of communication (public domain, private information, financial, non-financial, quantitative and non-quantitative information). A key objective of corporate social responsibility is global sustainability as identified by the World Committee of Environment and Development in Our Common Future when it stated that corporate social responsibility is "the ability to meet the needs of the present without comprising the needs of the future generations to meet their needs." (WCED in Zhang et al, 2008).

In order not to limit the ability of the future generations to meet their needs, corporate entities attempt to strike a balance between economic growth and environmental protection alongside taking into consideration the complexities traditionally associated with corporate development. (Zhang et al, 2008; Brundtland report, 1983). This points to the fact that the central issue in corporate social responsibility is environmental protection; managerial stewardship dictates that all activities of the firm is reported including those related to the firm's commitment to environmental protection. As part of managerial stewardship, corporate entities account for, produce and disclose environmental reports detailing their commitment to the environment in which they operate.

This paper attempts to review the literature on environmental reporting and disclosure. It discusses a brief overview of environmental reporting and the common theories that underpin environmental reporting as well as disclosure. It further discusses the relationship between environmental reporting and disclosure within the context of the new institutionalism; proceeds from the common theories to the functional relationships that exist in empirical literatures and the issues involved in financial reporting.

The growing interest of stakeholders in environmental reporting has resulted to the extension of the boundaries of environmental reporting such that area is overflowing with relevant studies and the omission of some of them is inescapable but unintentional. Nevertheless, the aim is to produce an exposé on environmental reports and disclosure.

Overview of Environmental Reporting

In the years preceding the 1950's, the negative impacts of corporate entities activities on the environment were perceived as "necessary evils of the industrial economic activity". (Schaltegger and Burritt, 2007) but in the years that followed, constant awareness of the impacts of these activities led to an increased demand by stakeholders for corporate entities to take responsibility for their activities and to report on their commitment to sustaining their operational environment. The release of toxic gases by Union Carbide in 1984 and 1985 as well as the Exxon Valdez oil spill also increased the pressure on corporations to disclose their environmental reports especially those corporations deemed to be environmentally unfriendly. This led to the issuance of a mandatory reporting of quantitative emission data for toxic release inventory (TRI) system in the United States. Following the issuance of the TRI, corporations in the United States and Europe began to disclose reports giving details of their environmental programs (Davis-Walling and Batterman, 1997). Moreover, the increasing regulation and scrutiny of corporations necessitates that they produce detailed reports to meet the demands of stakeholders. However, it should be noted that corporations disclose these environmental reports voluntarily where this voluntary action on the part of corporations has constantly fuelled the interests of researchers on the theoretical reasons why corporations would voluntarily disclose these reports. Foremost among these theories are the voluntary disclosure theory, legitimacy theory, stakeholder theory and political economy theory.

Voluntary Disclosure Theory

This theory is centred on the investor(s), the key to maintaining the investors' interest in the corporation and the reputation of the corporation. A single connective thread runs through all three components of this theory; investors supply the finance needed for the corporation to function and the growing positive reputation of the corporation maintains the interest of the investors such that they would not mark down the corporation. One way to avoid being marked down by investors is to publish reports, especially reports that echo their responsibility to the environment. Fekrat et al (1995) paint a picture on the essence of the voluntary disclosure theory by noting that corporations only "disclose relevant information … If potential investors know the type but not the content of information withheld by a firm, then, in the absences of full disclosure, investors rationally discount the value of the firm to the worst case. This costs the firm and gives incentive to disclose information that is better than the worst case". Similarly, Darrough (2003) argues that the voluntary disclosure hypothesis is contingent up on three assumptions; "there should be common knowledge that the firms have private information, when firms disclose, they do so truthfully, and firms are concerned with financial market valuation."

Verrecchia (1983) and Li et al (1997) both note that the voluntary disclosure theory also enhances predictability, in that, firms with superior environmental performance will have more incentive to disclose more reports in order to differentiate themselves from other firms in the same industry. In addition to this, Clarkson et al (2011) argue that better environmental performers would communicate environmental reports with stakeholders using hard or verifiable disclosures which will be difficult for poor performers to imitate. In other words, there exists a positive relationship between performance and voluntary environmental disclosure.

Though the voluntary disclosure theory appeals to logic, it also can be used to explain corporate entities willingness to disclose environmental reports even when they are not required by law to do so as well as the identification of a link between environmental performance and voluntary environmental disclosure but previous studies of this theory are inconclusive. Gray et al (2001) discusses three reasons why the findings of studies are inconclusive, he notes that most studies have failed to separate voluntary disclosures from mandatory disclosures, they do not take into cognisance the differences of social and environmental disclosures across countries and finally, theories are insufficiently specified. In line with this reasoning, Patten (2002) points to further possible reasons why the findings are inconclusive. He notes that

Inadequate sample selection.

Inadequate environmental performance measures.

Failure to control for confounding factors.

To begin with, Ingram and Frazier (1980) found no link between disclosure and environmental performance. Their data was obtained from the Council on Economic Priorities (herein referred to as CEP). Wiseman (1982) whose data is from the CEP with emphasis on quantitative disclosures found no link between disclosure and performance. Her findings were corroborated by Freedman and Wasley (1990). The sample selection for these studies was from the CEP, an organisation that measured the environmental performance of 50 environmentally sensitive firms in the United States. The results of these studies are in line with Patten's observation of inadequate sample size. However, when Clarkson et al (2011), take the observations of Patten (2002) into consideration, they find no support for the voluntary disclosure theory. They find that the "companies in their sample rely on disclosures that the Global Reporting Initiative (herein after referred to as GRI) views as inherently more verifiable". Though the GRI views enhance comparability across performance, it lies outside the concept of voluntary disclosure. The fact that companies view the GRI as verifiable might mean that they are not disclosing such information voluntarily but are disclosing the reports because of mounting pressures. On an international scale, Fekrat et al (1996) find no support for the voluntary disclosure theory. They note that what companies "disclose does not seem to correlate with their environmental performance", they also observe that the disclosure of environmental reports vary across countries with Canada disclosing the most and Japan disclosing the least information.

On the other hand, Clarkson et al (2008, 2011) find support for the voluntary disclosure theory. They focus only on voluntary disclosure, examine a large sample of 191 firms and they proxy for environmental performance using two TRI (Toxic Release Inventory but herein after referred to as TRI) measures to ensure their results are not confounded by limitations of the previous studies. They find that "firms with superior environmental performance tend to be more forthcoming in truly discretionary disclosure channels".

Legitimacy Theory

This theory is built on the notion of a corporate entity's attempt to change its social perception resulting from poor environmental performance. It posits that companies attempt to manage probable adverse shifts in social perspectives and in order to retain its positive social relationship with the community, corporations may conform with or in a number of different ways attempt to alter social perceptions, expectations or values as part of the legitimacy process. Patten (1992) notes that social legitimacy is controlled by the public policy process where the legitimacy is threatened when actual or perceived discord exists between the corporate entity and societal value. One way of dealing with the threat, actual or perceived is through disclosure. Clarkson et al (2011) note that disclosure is one method available to corporate entity(s) to enhance their legitimacy, as it is often easier to manage their reputation than to make actual changes to their performance, operations or values. This translates into an entity facing threatened legitimacy if it does not meet the expectations of its stakeholders. In support of this, Gray et al argue (1995) that such entities have more incentives to make increased disclosures in order to reduce the threat to their legitimacy. Hughes et al (2001) refer to the use of disclosures as the process of legitimization while Brown and Deegan (1998) consider legitimacy as a condition or status. This shows that there is a negative link between environmental performance and voluntary environmental disclosure. In other words, the corporate entity with a poor environmental performance will disclose a lot of voluntary environmental reports to improve its reputation.

Still on this line of thought, Wilmshurst and Frost (2000) argue that corporate entities will take measures to ensure that their activities and performances are acceptable to the community. They also point to the role disclosure by means of the annual report plays in achieving this aim of making the entity and its activities acceptable to the community. The annual report might be used to reinforce societal perception of management's responsiveness to specific environmental issues. Viewed from this perspective, an entity would only disclose environmental reports when it is at odds with the society as regards its environmental issues and in order to regain its place, it discloses more to show that it is either making an effort or it has changed its attitude towards the societal desire that its operations be environmentally friendly. It can be deduced from the above that entities in environmentally sensitive industries who disclose might have lost its face because of poor environmental commitment or indifference to environmental issues. It can also be deduced that ethical investors who work with this theory might mark down such entities that disclose more as environmentally unfriendly, on the other hand, there exists a possibility that the entity discloses more not because it has poor environmental performance but because it wants to maintain its reputation as an environmentally friendly entity. This would have a knock on effect on present as well as potential investors. In line with this, Tilt (2001) argues that a lack of integrated approach to environmental performance and disclosure will influence the view of many stakeholders that corporate entities are not interested in being environmentally responsible.

The inconsistency of this theory means that the willingness of management to disclose environmental reports is affected by a number of factors, not just the poor environmental performance of the entity. Besides, it has also been argued that the operations of an entity and its reports are influenced by the social values of the community in which they operate. (Gray et al, 1995). Therefore, entities will continuously seek legitimacy as a result of changing societal values. Deegan and Rankin (1996) note that "this 'state' of legitimacy will change overtime thereby requiring ongoing modifications to the entity's operating and/or reporting policies." This implies that an entity would only produce positive reports in order to maintain or improve on the state of legitimacy. In addition to this, Wilmshurst and Frost (2000) identify a number of external factors that influence management willingness to disclose environmental information, prominent among the factors identified are shareholders/investors right to information, due diligence, community concerns and legal obligations.

Empirical support for legitimacy theory from previous studies is mixed and indeterminate. There are limitations with the sample size, the level of voluntary information and the separation of voluntary information from mandatory information. Deegan and Rankin (1996) findings indicate that entity's whose social performance and trustworthiness is under scrutiny disclose more information to 'legitimize' its continued operation within the society. Their study is limited to prosecuted firms and while this might give a clear picture of the relationship between poor environmental performers and increased disclosure, Ilinitch et al (1998) note that this limitation places a restriction on the variance of the sample and the level/ frequency of environmental penalties might indicate an entity's willingness to wage legal battles rather than their disregard for environmental regulations. Still in support of the legitimacy theory but considered alongside media attention, Brown and Deegan (1998) find that corporate entities react to negative media attention by increasing the level of environmental disclosures. Bewley and Li (2000) conclude that the likelihood of disclosing general environmental information is increased when there is greater media coverage however; their proxy for pollution propensity (they used industry membership to proxy for pollution propensity) reflects one of the problems that causes inconsistency in the findings associated with research in environmental reporting disclosure as identified by Patten (2002).

It has been argued that the process of legitimization for corporate entities involves the disclosure of positive environmental reports. Findings of previous studies support the disclosure of positive environmental reports. (Patten, 2000; Al-Tawaijri et al, 2004, Mitchell et al, 2006, Cowan and Gadenne, 2005 and Clarkson et al, 2011). The limitations for some of these findings border around the variables used to proxy for environmental performance, Patten (2002) and Al-Tawaijri et al (2004) use the TRI database, this covers firms in the US only, and consequently, the applicability of the findings is limited to the US only. In addition, the use of content analysis involves a measure of subjectivity and this limits the findings of Cowan and Gadenne (2005) and Mitchell et al (2006).

In Contrast, Clarkson et al (2011) findings do not support the disclosure of positive environmental reports nor relate it to poor environmental performers. As noted above, their sample companies rely on the GRI views.

Stakeholder Theory

This theory is built around the needs of the stakeholders. It posits that corporate entities need to manage their stakeholders, especially the most relevant ones, if they want to survive. Viewed this way, environmental reporting plays an important role and it can be used by corporate entities to negotiate or improve their stakeholder relationship (Roberts, 1992). Deegan (2002) note that the stakeholder theory accepts that different groups with differing views on how the corporation should conduct its activities have different abilities to affect the organization. In other words, in order for management to effectively manage relevant stakeholder groups, they have to identify the specific groups of stakeholder with strong power abilities to influence the activities of the corporate entity. Consistent with this underlying notion of stakeholder theory is what Deegan (2002) goes further in pointing out, he notes that the insights provided by the theory might help in identifying whose expectations the entity has to pay more attention to. Managing the relevant stakeholders on the part of the entity would require presenting to the stakeholders some evidence that their prescribed standards have been met. (Deegan, 2002)

In contrast to the other theories discussed, previous studies on stakeholder theory have been consistent with their findings, Cornell and Shapiro (1987) and Baron et al (1989) in Roberts (1992) both find support for the stakeholder theory, noting that the needs of stakeholders influence managerial decision. Roberts (1992) observes that their studies provide evidence of the ability of the stakeholder theory in predicting and explaining management behaviour. Ullman (1985) tests the theory using two levels of stakeholder power, organisational response, past and current economic performance and she finds that when stakeholder power is high, there is a high level of disclosure but her findings relate only to mandatory legal environmental issues. Consistent with all of these findings is that of Roberts (1992), he concludes that the stakeholder theory is a fitting basis for empirical analysis of corporate social disclosure (environmental reporting is a subset of corporate social disclosure).

Though these studies tested the power levels of stakeholders and their ability to influence corporate entities, it should be noted that the term stakeholders covers a large number of persons or group of persons who can directly or indirectly influence the direction of the corporate entity, hence the measurability of their power levels might not be exact. In addition, some findings test the theory in particular countries making it difficult to generalize their findings, for example, Roberts (1992) empirically tests US based corporations. Other factors might influence the finding, for example, state of development and make the theory inapplicable in other countries.

Political Economy Theory

This theory is centred on the social, political and economic framework in which the human life takes place. Within this framework lie different influential forces with varying degree of power and with the social environment acting as the moderator. Solomon and Lewis (2002) note that the theory places emphasis on the power and conflict in the society; the specific environment in which the entity operates and the recognition that environmental disclosure can reflect a number of different views and concerns. Conflict results from the mix of the influential forces trying to exist within their rights. Williams (1999) refer to the influential forces as actors. She notes that the theory 'concentrates on the interactions of actors within a pluralistic world' [Clark (1991) in Williams (1999)]. She further notes that the actors have a right to pursue their own goals and self-interests where these rights are controlled by the social environment where they exist. It has been argued that the government plays a part in protecting individuals seeking to achieve their objectives and where the activities of the corporate entities hinder or affect the society in general; the government intervenes through regulatory actions but the intervention by the government may limit the operations and the interests of the corporate entity [Gray et al in William (1999)].

In addition to this, Williams (1999) discusses two reasons why corporate entities disclose environmental information in relation to the political economy theory.

The disclosure of environmental information is used to protect the self-interests of the corporate entities.

Environmental information is disclosed in order to avoid possible regulatory intervention.

This implies that there are corporate entities have motives for disclosing environmental information; it also implies that environmental disclosure can be influenced by the social environment, political environment and the economic environment. To protect their self-interest, the corporate entities may engage in constant disclosure of information but on the other hand, the threat of government intervention might act as a deterrent to disclosing environmental information.

Williams (1999) and Solomon & Lewis (2002) both find support for the use political economy theory in explaining environmental disclosure. Williams (1999) bases her study on five factors that can influence the social, political and economic environment and finds that high levels of uncertainty (risk of government intervention) makes corporate entities reluctant to disclose environmental information 'due to the fear that disclosures could jeopardize the financial security of the firm'. Solomon and Lewis (2002) use incentives and disincentives, along with three groups (normative, interested party and company groups) to test the validity of the political economy theory. Their findings suggest that companies' fear of misrepresentation might make some companies' unwilling to disclose 'potentially environmental information'. This fear of misrepresentation can be seen as the risk of government intervention and a way of protecting the self- interest of the corporate entity.

However, the general applicability of Williams (1999) finding is limited to the Asia-Pacific region and may not apply to other places. The same thing goes for Solomon and Lewis (2002) whose findings might be applicable only to the United Kingdom.

Versatility of the Theories

Although the above theories have been argued to be quite useful frameworks in explaining voluntary environmental disclosures, (Clark 2008, 2001; Deegan & Rankin 1996, Brown & Deegan 1998; Ullman 1985, Roberts 1992; Williams 1999, Solomon & Lewis, 2002) Gray et al (1995) argue that using the theories to interpret events that warrant environmental disclosures is a 'moot question'. They note that legitimacy and stakeholder theory are treated as competing theories whereas they are set within the framework of the political economy theory. They therefore refer to both theories as explaining 'differences in the level of perception rather than two separate theories.

With regard to political economy theory, they note that there is a bit of confusion in accounting literature. This is because when applied in its Marxian form, clear distinction would be needed to separate between the classical political economy and the bourgeois political economy. The classical political economy is of the view that free markets regulate themselves while the notion of the bourgeois political economy is that regulation is done by a number of interest groups including the government. Gray et al (1995) go further in stating why this distinction is important; they note that while classical political economists analyse the sections that exist within the system, the negotiation that occurs in the system and the processes by which this negotiation occurs, the bourgeois political economists only sees the negotiations and ignores the processes that bring about this negotiation. This means that what the classical political economists view as important, the bourgeois political economists view as trivial. On this note, Arnold (1990) in Gray et al (1995) states that application of political economy theory in accounting is done within the boundaries of the bourgeois political economy. Utilizing these concepts to explain environmental disclosures might be a bit problematic and as Gray et al (1995) puts it, the Marxian perspective fails to recognize the structural inequities that exists in the definitive relationships that border around environmental disclosures.

This distinction has implications for the stakeholder and legitimacy theory. This implication is best in the words of Gray et al (1995) that this 'permits the possibility that power and structure in the society are ultimately, not empirical issues but matters of faith and belief which are informed by argument and other forms of evidence'. In support of this, Matthews (1997) argues that most of the models developed on the basis of the above discussed theories have been supplanted by methods based on regulations, standards, audits, taxes, permits and licences as well as improved disclosure often employing non-financial quantification. Spence et al (2010) note that the stakeholder, legitimacy and political economy theory 'appear to be manifestations of the same micro perspective', this is because it offers no real discussion on how accountability can be satisfied with regards to environmental reports. This limits the specificity of all theories discussed in that there are no clear boundaries between the theories and this has led to a different trend in recent literature. Nevertheless, in light of cultural change, the relationship between environmental reports/ disclosure and performance can be explained within the framework of the new institutionalism.

New Trends in Empirical Environmental Disclosure Research

Empirical studies have redirected the focus to the relationships that underlie environmental reports. In recent times, studies have tended to move away from using theories to explain why corporate entities disclose environmental reports rather they test the relationship between environmental reports and performance as well as differing levels of disclosure especially in the face of mandatory regulations and guidelines. In line with this, Spence et al (2010) note that

'Many studies have focused on the internal dynamics and generally try to conclude that environmental reporting is a complex phenomenon worthy of an in-depth analysis…Many questions are left unanswered such as whether these internal dynamics can be harnessed in order to produce more emancipated accounting'.

They conclude that while there is complexity in the internal dynamics that bring about environmental reporting, environmental reporting in itself serves few objectives that go beyond supporting the organization. It should be noted that previous studies tested these relationships but their focus was on using theoretical frameworks to explain the relationships, however, new studies just focus on explaining these relationship without any theoretical framework.

The relationships that have been studied seem to centre on performance. Salomone and Galluccio (2001) state one of the testable relationships when they note that environmental performance is increasingly having an effect on financial performance and financial risk assessment, hence the importance attached to environmental reports and disclosures. In summarizing her review, Ullman (1985) identified three relationships frequently studied in empirical studies; social disclosure - social performance, social performance - economic performance and social disclosure - economic performance. In view of the fact that this paper focuses on environmental reporting which is a subset of social reporting, the relationships can be rewritten as environmental disclosure - economic performance, environmental performance - economic performance and environmental disclosure and economic performance.

Environmental Disclosure- Economic Performance

It is believed that the economic benefits to an entity that discloses more environmental reports outweigh the costs. Going by the agency theory, the disclosure of such reports in addition to the mandatory financial reports can have a positive effect in that it would reduce agency costs; however, the application of the efficient market hypothesis invalidates these claims. The efficient market hypothesis states that the market reflects all publicly available information and where this information is perceived as bad, the bad effect would be reflected in the share prices of the corporate entity that makes such environmental disclosure. Though the Bhopal Chemical Leak and Exxon Valdez spill had nothing to do with disclosure, the effect of their mistakes on the environment was reflected in the share prices and it had an industry wide effect (Cram et al, 2000). Interestingly, empirical findings on the relationship between environmental disclosure and economic performance have been inconclusive. In relation to the efficient market hypothesis, Konar and Cohen (1995) used TRI data and event study methodology; they note a negative stock price impact on corporate entities that reported their average reduction in toxic releases. This finding is supported by Hamilton (1995) even though he tests the reaction of journalists and investors to the public release of the first TRI report. Khanna et al (1998) also find that investors reacted negatively to toxic data releases. This would mean the not only does the market react to the disclosure of environmental reports and possibly rewards the environmentally responsible corporate entities, investors, especially the ethical ones, react the same way as the market. Contrasting these findings, Cram et al (2000) conclude that the news release of the TRI data has no effect on average stock returns. They contend that the choice of methodology affects the results of previous studies, specifically noting the effects of clustering and error terms correlation as is common in the use of event study methodology.

Fry and Hock (1976) analyzed the annual reports of 135 firms and find no relationship between environmental disclosure and economic performance. They note that there is little or no relationship between ROI, their proxy for economic performance and claimed responsiveness. In contrast, Freedman and Patten (2004) find a relationship between disclosure and economic performance in their sample of 112 companies. They find that companies with high levels of toxic air releases tended to suffer more negative market reactions and that the market rewards higher levels of financial environmental reports.

Environmental Disclosure- Environmental Performance

On a logical note, it can be expected that the disclosure of environmental reports should lead to a perceived improvement in environmental performance. The essence is to show to the stakeholders at large that they are constantly working on 'being' environmentally responsible. Using variables such as pollution propensity, the CEP and TRI indices, researchers have been able to examine if there exist a relationship between environmental disclosure and environmental performance, however, the results are indeterminate. Bowman and Haire (1976) find that there is a relationship between environmental disclosure and environmental performance in a 100 companies in the food-processing industry; they stated that annual reports do give a broad picture of social responsibility (environmental performance). However, Wiseman (1982) finds no relationship between disclosure and environmental performance.

Environmental Performance- Economic Performance

It is often said that the key responsibility of management is to maximise profits. All other obligations pale in comparison to this key responsibility but in the light of recent awareness of the impact of management activities on the environment, the key responsibility becomes questionable. However, if management succeed in becoming environmentally responsible, can they still maximize shareholders' profit at the same time? Does improved environmental performance lead to economic performance? Going by the efficient market hypothesis, there is a possibility of a positive relationship in that it is expected that the markets will reward environmentally responsible entities but as noted in the previous relationships, empirical findings remain inconclusive.

Arlow and Gannon (1982) find no direct link between economic performance and social responsibility (environmental performance), on the other hand, Russo and Fouts (1997), using a resource-based view, find a positive relationship and noted that 'it pays to be green'. Still along the lines of 'being green', King and Lenox (2008) note a relationship but cautiously state that they cannot show that corporate entities that move to cleaner industries improve their financial performance.

It can be seen from the above that some studies find a relationship between the stated functions but others do not. Al-Tuwaijri et al (2004) attribute this to the fact that researchers have not considered that the functions may be 'jointly determined'. Using a different proxy for environmental performance, they propose that the three functions are significantly interrelated and show that 'good' environmental performance is significantly associated with 'good' economic performance and more extensive quantifiable environmental disclosures. Along this line of thought, Ho and Taylor (2007) find that these three functions are affected by corporate size, low profitability, low liquidity and industry membership. Notably, a relationship exists between all three functions and these can be explained and tested within the new institutionalism framework.

New Institutionalism

This theory recognizes that institutions operate within an institutional environment that consists of other institutions. DiMaggio and Powell (1983) developed this notion stating that a firm exists in fields of other organizations that influence their behaviour. The influence of the organizations makes the firm adopt uniform, institutionalized structures and practices to conform to the demands of the organizational (institutional) environment. In other words, firms conform to institutions in the institutional context; where this context consists of regulations, values, norms, codes, beliefs and standards that prescribe the expected appropriate and legitimate of the firm. Applying this to the relationships discussed above, firms conform to institutional context by reporting environmental activities, and the institutions will in turn legitimize their activities such that it is reflected in their environmental performance which the market will respond to in a positive way such that their economic performance is improved. This explained link can only be tested empirically and where this relationship holds, the new institutionalism framework would better at expounding on the relationships and why they exist.


Studies have looked into the reasons for voluntary environmental reports and disclosures, some have used theories to explain environmental disclosures, and others have attempted to explain it through relationships with economic and environmental performance. Nevertheless, these studies have been largely indeterminate.

In view of the inconclusiveness of the findings of empirical studies, Ullman (1985) suggested a framework to assist in achieving consistent results; the framework encompasses a broader view of social disclosure (of which environmental disclosure is a subset) and the inclusion of additional variables to accommodate the complexities surrounding environmental disclosures. In addition to this, the issue of standardization still lurks in the background.

Conclusively, environmental reporting and disclosure has improved over the years and this has been said to induce corporate entities to be more environmentally responsive. Given that there are mixed findings on the relationship between environmental disclosures and environmental/ economic performance, will this achieve the overall result of reducing the environmental impacts of corporate entities such that the future generation's capacity to meet their needs would not be compromised?