Impact of Environmental Reporting on Financial Performance: Study of Global Fortune 500 Companies

G. M. Shahariar Zamil(1), Zubair Hassan(2),


(1) Anglia Ruskin University, Lord Ashcroft International Business School, Cambridge, United Kingdom
(2) International University of Malaya-Wales, IUMW Business School, Kuala Lumpur, Malaysia

Abstract

This study examines the impact of environmental reporting on the financial performance of Fortune 500 firms from 2013 to 2017. It appraises financial performance by measuring three independent variables: reduction in greenhouse gas emissions, reduction in waste, and reduction in water consumption. While the target population comprised the top 100 CSR-reputed companies listed on Fortune 500, the sample size was determined to be 50 based on observations of 250 companies. The collected data were analyzed using descriptive statistics, correlation, and regression analysis. Findings indicated that reduction in nominated variables such as greenhouse gas emissions and water consumption had a positive and significant impact on financial performance, whereas that in another variable, i.e., waste, had a negative and significant impact on financial performance. Thereby, this study recommends that firms should adopt environment-friendly resources to attract stakeholders as well as save the planet. It also suggests that firms need to accord dedicated focus to environmental reporting to improve profitability.

Keywords

environmental reporting; financial performance; Fortune 500 companies

Full Text:

PDF

References

Ahmad, A. (2012). Environmental Accounting and Reporting Practices: Significance and Issues: A Case from Bangladeshi Companies. Global Journal of Management and Business Research, 12(14), 119–127.

Alvarez, I. G. (2012). Impact of CO 2 Emission Variation on Firm Performance. Business Strategy and the Environment, 21(7), 435–454. https://doi.org/10.1002/bse.1729

Al-Zubari, W. K., El-Sadek, A. A., Al-Aradi, M. J., & Al-Mahal, H. A. (2018). Impacts of Climate Change on the Municipal Water Management System in the Kingdom of Bahrain: Vulnerability Assessment and Adaptation Options. Climate Risk Management, 20, 95–110. https://doi.org/10.1016/j.crm.2018.02.002

Appiah, K., Du, J., & Boamah, K. B. (2017). The Effect of Environmental Performance on Firm’s Performance – Evidence from Ghana. British Journal of Interdisciplinary Research, 8(1), 340–348.

Bachev, H. (2018). Efficiency of Environmental and Sustainability Management in Bulgarian Agriculture. Indonesian Journal of Corporate Social Responsibility and Environmental Management, 1(1), 29–42.

Bassey, B. E., Effiok, S. O., & Eton, O. E. (2013). The Impact of Environmental Accounting and Reporting on Organizational Performance of Selected Oil and Gas Companies in Niger Delta Region of Nigeria. Research Journal of Finance and Accounting, 4(3), 57–73.

Bhattacharyya, A. (2014). Factors Associated with the Social and Environmental Reporting of Australian Companies. Australasian Accounting, Business and Finance Journal, 8(1), 25–50. https://doi.org/10.14453/aabfj.v8i1.3

Cortez, M. A. A., & Cudia, C. P. (2010). The Impact of Environmental Innovations on Financial Performance: The Case of Japanese Automotive and Electronics Companies. Journal of International Business Research, Volume 9, Special Issue 1 2010, 9(Special Issue 1), 33–46.

Darnall, N., Henriques, I., & Sadorsky, P. (2008). Do Environmental Management Systems Improve Business Performance in an International Setting? Journal of International Management, 14(4), 364–376. https://doi.org/10.1016/j.intman.2007.09.006

Deegan, C., & Rankin, M. (1996). Do Australian Companies Report Environmental News Objectively? An Analysis of Environmental Disclosures by Firms Prosecuted Successfully by the Environmental Protection Authority. Accounting, Auditing and Accountability Journal, 9(2), 50–67. https://doi.org/10.1108/09513579610116358

Egbunike, F. C., & Emudainohwo, O. B. (2017). The Role of Carbon Accountant in Corporate Carbon Management Systems: A Holistic Approach. Indonesian Journal of Sustainability Accounting and Management, 1(2), 90–104. https://doi.org/10.28992/ijsam.v1i2.34

Elijido-Ten, E. (2004). Determinants of Environmental Disclosures in a Developing Country: An Application of the Stakeholder Theory. 4th Asia Pacific Interdisciplinary Research in Accounting Conference. Singapore.

Elsayed, K., & Paton, D. (2005). The Impact of Environmental Performance on Firm Performance: Static and Dynamic Panel Data Evidence. Structural Change and Economic Dynamics, 16(3), 395–412. https://doi.org/10.1016/j.strueco.2004.04.004

Fekrat, M. A., Inclan, C., & Petroni, D. (1996). Corporate Environmental Disclosures: Competitive Disclosure Hypothesis Using 1991 Annual Report Data. The International Journal of Accounting, 31(2), 175–195. https://doi.org/10.1016/S0020-7063(96)90003-5

Ganda, F., & Milondzo, K. (2018). The Impact of Carbon Emissions on Corporate Financial Performance: Evidence from the South African Firms. Sustainability, 10(7). https://doi.org/10.3390/su10072398

Gray, R. (2010). Is Accounting for Sustainability Actually Accounting for Sustainability…And How Would We Know? An Exploration of Narratives of Organisations and the Planet. Accounting, Organizations and Society, 35(1), 47–62. https://doi.org/10.1016/j.aos.2009.04.006

Halimah, S. N., & Rahmawati, R. (2019). The Role of Company Size on CSR Commitment, the Existence of Female’s Board, Managerial Ownership, Board Size to Disclosure of Corporate Social Responsibility in Islamic Banking. Indonesian Journal of Contemporary Accounting Research, 1(1), 1–8. https://doi.org/10.33455/ijcar.v1i1.87

Hart, S. L., & Ahuja, G. (1996). Does It Pay to Be Green? An Empirical Examination of the Relationship between Emission Reduction and Firm Performance. Business Strategy and the Environment, 5(1), 30–37. https://doi.org/10.1002/(SICI)1099-0836(199603)5:1<30::AID-BSE38>3.0.CO;2-Q

Khanna, M., Quimio, W. R. H., & Bojilova, D. (1998). Toxics Release Information: A Policy Tool for Environmental Protection. Journal of Environmental Economics and Management, 36(3), 243–266. https://doi.org/10.1006/jeem.1998.1048

Kijewska, A., & Bluszcz, A. (2016). Research of Varying Levels of Greenhouse Gas Emissions in European Countries Using the K-Means Method. Atmospheric Pollution Research, 7(5), 935–944. https://doi.org/10.1016/j.apr.2016.05.010

King, A. A., & Lenox, M. J. (2001). Does It Really Pay to Be Green? An Empirical Study of Firm Environmental and Financial Performance: An Empirical Study of Firm Environmental and Financial Performance. Journal of Industrial Ecology, 5(1), 105–116. https://doi.org/10.1162/108819801753358526

Konar, S., & Cohen, M. A. (1997). Information As Regulation: The Effect of Community Right to Know Laws on Toxic Emissions. Journal of Environmental Economics and Management, 32(1), 109–124. https://doi.org/10.1006/jeem.1996.0955

Kordana, S., Pochwat, K., Słyś, D., & Starzec, M. (2019). Opportunities and Threats of Implementing Drain Water Heat Recovery Units in Poland. Resources, 8(2). https://doi.org/10.3390/resources8020088

Kozul-Wright, R., & Fortunato, P. (2012). International Trade and Carbon Emissions. The European Journal of Development Research, 24(4), 509–529. https://doi.org/10.1057/ejdr.2012.15

KPMG. (2005). KPMG International Survey of Corporate Sustainability Reporting 2005. Leeds: KPMG.

KPMG. (2008). KPMG International Survey of Corporate Responsibility Reporting 2008. Amstelveen: KPMG International.

Lestari, I. B., Hamzah, N., & Maelah, R. (2019). Corporate Social and Environmental Strategy and Reporting in Indonesian Plantation Industry. Indonesian Journal of Sustainability Accounting and Management, 3(1), 84–94. https://doi.org/10.28992/ijsam.v3i1.80

Neeveditah, P.-M., Karishma, A., & Devi, R. N. (2017). Environmental Management Systems and Financial Performance: The Case of Listed Companies in Mauritius. Theoretical Economics Letters, 7, 2054–2069. https://doi.org/10.4236/tel.2017.77139

Ochiri, G., Wario, G., Odhiambo, R., & Arasa, R. (2015). Effects of Waste Reduction Strategy on Firm Performance: A Survey of Publishing Firms in Kenya. International Journal of Economics, Commerce and Management, 3(5), 1228–1241.

Odoemelam, N., & Okafor, R. (2018). The Influence of Corporate Governance on Environmental Disclosure of Listed Non-Financial Firms in Nigeria. Indonesian Journal of Sustainability Accounting and Management, 2(1), 25–49. https://doi.org/10.28992/ijsam.v2i1.47

Prado-Lorenzo, J. M., García-Sánchez, I. M., & Gallego-Álvarez, I. (2012). Effects of Activist Shareholding on Corporate Social Responsibility Reporting Practices: An Empirical Study in Spain. Journal of Economics, Finance and Administrative Science, 17(32), 7–16.

Prado-Lorenzo, J.-M., & Garcia-Sanchez, I.-M. (2010). The Role of the Board of Directors in Disseminating Relevant Information on Greenhouse Gases. Journal of Business Ethics, 97(3), 391–424. https://doi.org/10.1007/s10551-010-0515-0

Reddy, K., & Gordon, L. W. (2010). The Effect of Sustainability Reporting on Financial Performance: An Empirical Study using Listed Companies. Journal of Asia Entrepreneurship and Sustainability, 6(2), 19–42.

Rokhmawati, A., & Gunardi, A. (2017). Is Going Green Good for Profit? Empirical Evidence from Listed Manufacturing Firms in Indonesia. International Journal of Energy Economics and Policy, 7(4), 181–192.

Rokhmawati, A., Gunardi, A., & Rossi, M. (2017). How Powerful is Your Customers’ Reaction to Carbon Performance? Linking Carbon and Firm Financial Performance. International Journal of Energy Economics and Policy, 7(6), 85–95.

Sarkis, J. (2006). The Adoption of Environmental and Risk Management Practices: Relationships to Environmental Performance. Annals of Operations Research, 145(1), 367–381. https://doi.org/10.1007/s10479-006-0040-9

Stanny, E., & Ely, K. (2008). Corporate Environmental Disclosures about the Effects of Climate Change. Corporate Social Responsibility and Environmental Management, 15(6), 338–348. https://doi.org/10.1002/csr.175

Tasneem, F., Muhammad, S., & Basit, A. (2016). The Impact of Environmental Reporting on Firms’ Performance. International Journal of Accounting and Business Management, 4(2), 275–300.

Valentinovna, N. O. (2018). Corporate Social Responsibility Practices and their Application. Indonesian Journal of Corporate Social Responsibility and Environmental Management, 1(1), 51–58.

Wang, L., Li, S., & Gao, S. (2014). Do Greenhouse Gas Emissions Affect Financial Performance? - an Empirical Examination of Australian Public Firms. Business Strategy and the Environment, 23(8), 505–519. https://doi.org/10.1002/bse.1790

Yusoff, H., Kamaruddin, S. H., & Ghani, E. K. (2018). Environmental Reporting Practices of Top Public Listed Companies: Analyzing Pre-Post Corporate Social Responsibility Framework. Indonesian Journal of Sustainability Accounting and Management, 2(1), 50–64. https://doi.org/10.28992/ijsam.v2i1.48

Dimension

Altmetric

PlumX


DOI: https://doi.org/10.28992/ijsam.v3i2.78

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.