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Environmentally sensitive disclosures and financial performance in a European setting

Environmentally sensitive disclosures and financial performance in a European setting Purpose – Is the natural environment a stakeholder of the firm? And is there a business case for achieving sustainability? The purpose of this paper is to trace a tripartite relationship, involving environmental disclosure, environmental performance, and financial performance of environmentally sensitive activities of companies in a European setting. Design/methodology/approach – A sample of 60 of the largest European Union industrial business groups, extracted from the FTSEuroFirst 300, and an environmental disclosure index inspired by the Global Reporting Initiative Guidelines, form the basis for the content analysis of the most recent sustainability reports published before the end of 2008. Findings – A significant association is found between contemporaneous environmental performance and disclosure, in that bigger polluters tend to disclose more on their activities, but only to a moderate statistical effect. However, no association is found between environmental performance and financial performance, as well as between environmental disclosure and contemporaneous firm performance. Practical implications – This result suggests that even though big polluters tend to report more, the transparency level of their activities may not be sufficient for a viable assessment of sustainability. For such “environmentally challenged” companies, their reputation‐building strategy is mainly focused on preserving or repairing legitimacy. Originality/value – The paper considers two complementary aspects: first, that the relationship between sustainability commitment and financial performance may be so weak that it is barely detectable; and second, that cross‐sectional studies may fail in capturing a relationship that is normally shaped over longer periods of time. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting & Organizational Change Emerald Publishing

Environmentally sensitive disclosures and financial performance in a European setting

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Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
1832-5912
DOI
10.1108/18325911011075222
Publisher site
See Article on Publisher Site

Abstract

Purpose – Is the natural environment a stakeholder of the firm? And is there a business case for achieving sustainability? The purpose of this paper is to trace a tripartite relationship, involving environmental disclosure, environmental performance, and financial performance of environmentally sensitive activities of companies in a European setting. Design/methodology/approach – A sample of 60 of the largest European Union industrial business groups, extracted from the FTSEuroFirst 300, and an environmental disclosure index inspired by the Global Reporting Initiative Guidelines, form the basis for the content analysis of the most recent sustainability reports published before the end of 2008. Findings – A significant association is found between contemporaneous environmental performance and disclosure, in that bigger polluters tend to disclose more on their activities, but only to a moderate statistical effect. However, no association is found between environmental performance and financial performance, as well as between environmental disclosure and contemporaneous firm performance. Practical implications – This result suggests that even though big polluters tend to report more, the transparency level of their activities may not be sufficient for a viable assessment of sustainability. For such “environmentally challenged” companies, their reputation‐building strategy is mainly focused on preserving or repairing legitimacy. Originality/value – The paper considers two complementary aspects: first, that the relationship between sustainability commitment and financial performance may be so weak that it is barely detectable; and second, that cross‐sectional studies may fail in capturing a relationship that is normally shaped over longer periods of time.

Journal

Journal of Accounting & Organizational ChangeEmerald Publishing

Published: Sep 21, 2010

Keywords: Environmental management; Disclosure; Sustainable development; Financial performance; Stakeholder analysis; Europe

References