Corporate environmental non-reporting - a UK FTSE 350 perspective

Business Strategy and the Environment Bus. Strat. Env. 17, 245–259 (2008) Published online 25 January 2006 in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/bse.518

Corporate Environmental Non-Reporting – a UK FTSE 350 Perspective A. D. Martin1* and D. J. Hadley2 1 Centre for Environmental Strategy (CES), School of Engineering, University of Surrey, UK 2 Centre for Social and Economic Research on the Global Environment (CSERGE), School of Environmental Sciences, University of East Anglia, UK ABSTRACT Until relatively recently the majority of large publicly listed UK companies have not produced annual environmental reports. Of particular note is the slow take-up of environmental reporting amongst the UK’s top 350 companies, the FTSE 350. Using the results of a postal questionnaire, the reluctance of a majority of the FTSE 350 to voluntarily report is linked to 13 drawbacks. Results from non-reporting respondents to the questionnaire allowed the relative importance of these drawbacks to be placed in a ranked order. Senior management doubt over the advantages of reporting was shown to be the most important drawback, closely followed by the effort required for data collection. A comparison in the uptake of corporate environmental management practices (other than reporting) was also made amongst reporters and non-reporters. Reporters were shown to have a generally higher level of uptake, although company sector type and size was influential on environmental engagement overall. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment. Received 5 November 2004; revised 24 October 2005; accepted 30 November 2005 Keywords: corporate environmental reporting; FTSE 350; legitimacy theory

Introduction OMMUNICATING ON ENVIRONMENTAL ISSUES THROUGH PUBLIC REPORTING IS WIDELY CONSIDERED

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and endorsed as good practice in corporate environmental management (see, for example, Hutchinson and Hutchinson, 1997; Hibbitt and Kamp-Roelands, 2001; Schaltegger et al., 2003). Public reporting on corporate environmental performance is a varied activity, however, and can be said to include reporting through statutory financial statements, reporting through parts of the annual report or separate annual environmental reports, and reporting by bodies independent of the company (Gray and Bebbington, 2001).

* Correspondence to: Alex Martin, CES (EngD Programme), School of Engineering, University of Surrey, Guildford, Surrey GU2 7XH, UK. Email: [email protected] Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment

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Of these three types of reporting, annual environmental reporting has enjoyed particular attention. Often in support of this type of reporting, different empirical studies have explored the growth (which has been global), evolution in content, and reasons why companies choose to publish annual environmental reports over the last 10–15 years (Davis-Walling and Batterman, 1997; Lober et al., 1997; KPMG, 1999; Krut and Moretz, 2000; Kolk et al., 2001; Line et al., 2002). The latter has been a focus of much work, especially where companies are reporting voluntarily. However, empirical study into the reasons why companies choose not to publish, as well as how this choice relates to other corporate environmental management practices, is relatively underdeveloped. To help address this gap, this paper presents the results from a study into annual environmental reporting amongst the UK’s top 350 companies, which are currently under no legal obligation to report. These companies – the FTSE 350 – have come under governmental pressure to report by the naming and shaming of non-reporters and via a Prime Ministerial challenge (see ENDS, 2001a). Yet despite this pressure, and not withstanding the well documented reasons in favour of reporting, only a minority of the FTSE 350 voluntarily published annual environmental reports by the end of 2001. The study identifies the drawbacks that, in theory, account for this. Drawbacks are then rated by FTSE 350 non-reporters in a survey, the results of which allow for a rank ordering of drawback importance to be established. The study also compares the uptake of corporate environmental practices other than annual environmental reporting (e.g. use of an internal environmental management system) amongst reporters and non-reporters within the FTSE 350. The paper is structured as follows. First, the Introduction continues by considering the factors acting on corporate decision-making over whether or not to voluntarily publish annual environmental reports. The Introduction also provides an overview of the UK Government’s efforts to promote voluntary annual environmental reporting. The paper then introduces the research questions that led to the FTSE 350 survey, which is discussed in the Method and Results sections that follow. The article ends with a discussion of the results and some concluding comments. Factors Affecting the Uptake of Voluntary Annual Environmental Reporting A number of companies, but most notably large multinationals, now publish annual environmental reports. For certain companies in Denmark, Sweden, The Netherlands, Norway and France this is because such reports are required by law. However, all UK-based companies that choose to report currently do so voluntarily – why? Research that has explored the motivation behind the voluntarily publication of corporate environmental reports has generally used either legitimacy theory, decision-usefulness theory or communication theory as explanatory frameworks (Rikhardsson et al., 2002). Legitimacy theory is based upon the concept that companies are bound by a social contract, in which they agree to perform various socially desired options and in return for which they receive approval of their objectives as well as other rewards and ultimately their survival (Guthrie and Parker, 1989). Social and/or environmental information needs to be disclosed in order to allow society to evaluate whether the terms of the social contract are being complied with. It is possible that society could revoke the company’s ‘contract’ if it is not satisfied that a company is acting in a legitimate manner and hinder or prevent them from operating. For example, this could occur by consumers either boycotting purchases of a company’s products or lobbying government to introduce taxes or other financial and legislative sanctions on particular activities (Deegan, 2002). A number of studies have attempted to find evidence for legitimizing intentions in corporate social and environmental disclosure strategies. Several of these have established a link and, amongst others, include, Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment

Bus. Strat. Env. 17, 245–259 (2008) DOI: 10.1002/bse

Corporate Environmental Non-Reporting – a UK FTSE 350 Perspective

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• Patten (1992), who looked at the disclosures of oil companies in the wake of the Exxon Valdez oil spill in Alaska; • Walden and Schwartz (1997), in relation to the same incident; • the work by Brown and Deegan (1998) on nine Australian industrial sectors and the relationship between media coverage of the environmental impacts of those industries and their environmental disclosures; and • O’Donovan (2002), who gathers evidence using semi-structured interviews with senior personnel from three large Australian public companies. However, evidence of a conflicting nature has also been found. The study by Guthrie and Parker (1989) of disclosures by the Broken Hill Proprietary Company in Australia is a case in point, although, as Deegan (2002) points out, this may be due to data limitations. O’Dwyer (2002) reported that some Irish organizations had ceased to use environmental and social disclosures in annual reports as a legitimizing activity because of a perception that they were futile for achieving this purpose. Yet, as Deegan (2002) comments, this result may simply highlight the fact that legitimizing strategies may have specific national, historical and cultural contexts. A second strand of analysis employs decision-usefulness theory. As the name implies, this theoretical framework assumes that users of information value the information disclosed according to how useful it is to them: the more useful, the more valuable is that information. According to this framework disclosures of environmental information are made by companies because different stakeholders require environmental information that is not normally available in conventional financial company reports (Rikhardsson et al., 2002). Hence a strand of research has attempted to establish the information requirements of stakeholder groups, such as investors or environmental groups – see, for example, Azzone et al. (1997) and Earl and Clift (1999). Finally, Hooghiemstra (2000) suggests that corporate marketing and communication theory can provide important insights into explaining why companies choose to make environmental disclosures. Both this perspective and legitimacy theory view corporate environmental reporting as an attempt to influence society’s perceptions of those corporations. However, according to legitimacy theory environmental information is disclosed in order to legitimize a company’s actions; under corporate communication theory the object of disclosure is in order to enhance or protect corporate image or reputation (Hooghiemstra, 2000). Whilst these three theories provide useful frameworks within which to explore the motivations of companies that report social and environmental information, it is unlikely that one motivation drives the decision to report. As Deegan (2002) states, ‘there could be several motivations simultaneously driving organizations to report social and environmental information and expecting that one motivation might dominate all others would be unrealistic’ (p. 291). Corporate decision-making is also influenced by factors that deter companies from voluntarily publishing annual environmental reports. Thirteen drawbacks are evident in the literature (see Hutchinson and Hutchinson, 1997; Brophy and Starkey, 1998; SustainAbility/UNEP, 1998; Kolk, 2000; Gray and Bebbington, 2001) and are grouped by factor in Table 1. Of the drawbacks listed in Table 1, it has been argued that those relating to implementation are the most influential deterrents, and most especially the data collection effort (Kolk, 2000; Larsen, 2000). Data collection is especially influential because of the depth of planning it requires in advance of a report’s publication: planning that costs time and money. The choice of suitable performance indicators may also be a problem, particularly where product environmental information may be commercially sensitive or simply difficult to obtain within existing (financial) reporting frameworks (Larsen, 2000). Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment


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Competition • Customers (and general public) are not interested in annual environmental reports • Competitors are not publishing annual environmental reports • Publishing an annual environmental report will not increase sales

Implementation • Data collection effort too great • Choice of suitable (non-financial) performance indicators too difficult • Too expensive

Leadership • Chief executive officer and/or senior management doubt the advantages

Reputation/Communication • Company already has a good reputation for its environmental performance • There are other (better) ways of communicating on environmental issues

Commitment • No legal requirement

Repercussions • Damage to the company’s reputation • Threat of litigation • Adverse reaction from customers/public/campaign groups

Table 1. The 13 drawbacks to annual environmental reporting (grouped by factor)

The corporate decision to voluntarily publish annual environmental reports therefore appears to be made based on the weighing of perceived advantages against disadvantages (the same conclusion was earlier reached by Gray et al., 1990). Both relate to internal and external pressures acting on the company, so to some extent the decision reflects on the responsiveness of management to the different pressures, including the actors behind those pressures (this theory is further discussed by Banerjee, 2001). One important actor is government. In the UK, the government has been active in promoting the adoption of voluntary annual environmental reporting, particularly amongst its leading companies – the FTSE 100 and 250 companies (together the FTSE 350). However, many of these companies have responded with little more than indifference to this promotion. UK Government Promotion of Voluntary Annual Environmental Reporting In the UK, voluntary annual environmental reporting has been promoted from the top down by the present government as a way to further this practice amongst all UK-based companies. This is an approach the government has used in other instances, for example, the promotion of environmental management through the supply chain in ‘Project Acorn’ (see ENDS, 2001b). However, this approach does not appear to be working well in terms of furthering annual environmental reporting, since relatively few of the UK’s top companies appear to be ‘leading by example’. This is demonstrated in the generally poor response of the UK FTSE 350 companies to various government efforts promoting the voluntary publication of annual environmental reports beginning in 1998. These efforts were headed by the then Environment Minister, Michael Meacher, and included endorsing reporting awards, writing letters to chief executives and naming and shaming non-reporters. In October 2000, a further prompt was provided by Prime Minister Tony Blair in a keynote speech on environmental issues to the Confederation of British Industry and Green Alliance. In this, Tony Blair made an outright challenge to all the FTSE 350 to voluntarily publish annual environmental reports by the end of 2001 (Blair, 2000). His challenge was supported by the publication of general guidelines on environmental reporting by the Department for Environment, Food and Rural Affairs (DEFRA) during the course of 2001. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment



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This challenge was met with indifference. Government figures revealed that 79 of the FTSE 350 (or 23%) published annual environmental reports at the end of 2001 (ENDS, 2001a).1 In its assessment, ENDS considered this a poor turnout because 60 of the FTSE 350 were already reporting in 1998, the year the government’s efforts to increase voluntary reporting began. Research Questions The poor response to the Prime Minister’s challenge poses a question: which of the 13 drawbacks to voluntary annual environmental reporting is/are of most significance in the corporate decision not to report? Answering this question provides an insight into corporate decision-making on environmental issues and hence will be of potential value to UK policy-makers, particularly in the wake of the FTSE 350’s underwhelming response to the UK Government’s promotional efforts. This question also leads to an additional one: how do reporters and non-reporters compare in their uptake of other corporate environmental practices (here onwards referred to as ‘tools’), for example environmental management systems, environmental accounting and benchmarking? This is important when legislation is considered. In particular, would mandatory annual environmental reporting further the uptake of other corporate environmental management tools through enforcing environmental data collection and disclosure? In order to answer these questions, a study was devised to compare the use of corporate environmental management tools amongst reporters and non-reporters within the UK FTSE 350. The study also asked non-reporters to consider and rate the 13 drawbacks earlier identified as reasons for not reporting.

Method Choice of Research Strategy The research was based on surveying by postal self-completion questionnaire. Surveying was selected in preference to alternative strategies like the case study because it offered the potential for wide and inclusive coverage together with an empirical basis for answering the research questions. This selection coincided with the decision to undertake an essentially quantitative study, principally to rank order the 13 drawbacks to voluntary annual environmental reporting identified in Table 1 above. The survey consisted of all the UK FTSE 350 companies. These companies were targeted to reflect the research questions set, which were developed in recognition of the FTSE 350’s generally poor response to UK Government promotional efforts on reporting. The Questionnaire The questionnaire was addressed to company environmental managers and consisted of eight questions divided between those relating to company details and those relating to environmental reporting. It was posted with a covering letter that explained the purpose of the study and asked for assistance; a selfaddressed return envelope was additionally enclosed in the belief that this would promote responses.

1 The most recent figures for 2004 show that 140 of the top 250 FTSE listed companies reported on their environmental performance (SalterBaxter and Context, 2004).

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In structure, the questionnaire first asked recipients to give some basic details on their company for categorization. These details included the company name, annual turnover, number of employees and sector type (from a list of 23, matching those used in an earlier study by ENVIRON in 2001). Data obtained on turnover and employee number were used to gauge company size, whilst the data obtained for sector type were used to classify operations (e.g. automotive, consumer goods, transport or utility). Recipients were asked if their companies publish annual environmental reports, and to what extent they were based on a checklist that followed UK Government guidelines for environmental report contents (DEFRA, 2001). This was a screening question that, for example, classified companies that only publish environmental policy statements as non-reporters. Non-reporters were then asked to rate the 13 drawbacks to annual environmental reporting (listed in Table 1) in terms of how strongly they felt they were reasons not to report. A simple Likert-type scale was used to produce ratings as follows: 0 = unrated – either because it was not considered a reason or it was left unmarked 1 = limited drawback 2 = important drawback 3 = major drawback. The final question concerned the use of corporate environmental management tools other than annual environmental reporting. This was asked in order to compare reporters and non-reporters in their levels of uptake. The tools included: use of an internal environmental management system; use of a certified environmental management system; environmental accounting; management accounting for environmental issues; and environmental performance benchmarking. The inclusion of these tools was based on the work of Kolk (2000), who considers these (together with reporting) to be the main corporate environmental management tools currently in use.

Results A total of 151 returns were received from the FTSE 350 companies surveyed, representing a 43% response rate. The returns fell into one of three categories: reporters, non-reporters and unanswered. There were 35 unanswered returns, with the majority of respondents declining to participate because it was against company policy to respond to research questionnaires. The usable response rate was therefore 33%. This is of partial interest in itself; it reflects a corporate unwillingness to voluntarily disclose information when the disclosure involves staff time and the company benefits may either be unclear or lacking. Of further interest was the small proportion of unanswered returns received with the explanation that annual environmental reporting either ‘did not apply’ or ‘was not relevant’ to the company. These explanations were surprising and suggested that certain respondents were ignorant of annual environmental reporting, and of UK Government efforts to promote the practice. Disregarding the 35 unanswered returns left 116 questionnaires for analysis. Of these, 74 were environmental reporters and 42 were not. The 116 were therefore roughly split between a reporting majority of two-thirds and a non-reporting minority of one-third. Comparing the response from reporting companies (74) with the total number of FTSE 350 companies that produced environmental reports in 2001 given by ENDS (2001a) (79), the survey achieved a 97% response rate from reporting companies, but on the other hand only a 15% response rate from nonreporters. Viewing this differential in response rate from a legitimacy or communication theory perspective then this is perhaps unsurprising. According to these theoretical perspectives environmental Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment



ICT 8% (3%)

Other 2% (3%)

Financial services 21% (9%)

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Energy 5% (7%)

Trade & services 34% (30%)

Transportation 5% (9%)

Production 25% (39%)

Notes: Outer doughnut = FTSE 350 Inner doughnut = survey respondents (% of total sample in brackets) Figure 1. Breakdown of the FTSE 350 by sector compared to the sector breakdown for respondents to the survey

reports are produced in order to influence society’s perceptions of companies, hence they will be more likely to respond to surveys of this type in order to publicize this reporting activity. Further, given the pressure to report emanating from the UK Government and the consequent negative connotations associated with non-reporting, non-reporters are less likely to respond. Usable replies were classified into seven sector categories and the relative proportions of these sector groupings compared to the sector breakdown of the FTSE 350 at the end of 2001. This is shown in Figure 1. The relative sector proportions for the usable sample and the FTSE 350 show a reasonably close correspondence, although there is an overrepresentation of production sector companies and underrepresentation of financial services and information and communication technology (ICT in Figure 1) companies in proportion to the underlying population. With respect to company size (where this is crudely classified in terms of membership of the FTSE 100 or otherwise) there does seem to be some marked difference within the sample of usable replies when this is split into reporters and non-reporters. Of the 74 replies from reporting companies, 33 of these (45%) were from FTSE 100 companies, whilst Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment


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Corporate environmental management tool

Internal environmental management system Certified environmental management system Environmental accounting Management accounting (for environmental issues) Environmental performance benchmarking

Uptake (%) Reporters

Non-reporters

93 69 16 72 93

50 33 5 43 40

Table 2. Uptake of corporate environmental management tools amongst reporters and non-reporters in the FTSE 350

of the 42 replies from non-reporting companies only seven (17%) were from the FTSE 100.2 However, this difference is probably to be expected since levels of environmental reporting activity are much higher within the FTSE 100 than they are within the FTSE 250 (Salter Baxter/Context, 2004). Further to the research questions raised in the introduction, results were analysed to (a) compare the uptake of corporate environmental management tools amongst reporters and non-reporters and (b) identify which of the 13 drawbacks to environmental reporting is/are rated the most influential. Comparing the Uptake of Corporate Environmental Management Tools Amongst Reporters and Non-Reporters Both reporters and non-reporters made use of the five corporate environmental management tools assessed. Uptake is shown in Table 2. Table 2 shows that, for each of the tools assessed, uptake amongst reporters was approximately double that of non-reporters. A t-test for difference in proportions additionally showed that there was a statistically significant (at 97% or more) higher uptake of corporate environmental management tools amongst reporters than non-reporters. This is unsurprising: annual environmental reports are usually composed of data gathered from other corporate environmental management tools, in particular environmental management systems, so those companies publishing environmental reports are very likely to be using other corporate environmental management tools. Of the tools assessed, the most widely used was the internal environmental management system. Again, this is unsurprising: the environmental management system has been heavily promoted – and adopted – as a quality-based approach for achieving environmental compliance and furthering performance similar to other systems of management such as health and safety management. It is, however, noteworthy that the uptake of certified environmental management systems (e.g. ISO 14001 or EMAS) lags behind the uptake of management accounting or environmental performance benchmarking. The time and costs involved in gaining external certification provide one explanation for this – achieving certification requires planning and preparatory work by dedicated staff and, moreover, payment to an external certifier. It would appear that companies favour the addition of environmental criteria to existing tools in the first instance. Management accounting, for example, includes planning budgets. Budgeting for environmental activities could therefore be interpreted as an ‘environmental’ use to which the tool is put, increasing its uptake beyond that of the certified environmental management system. The tool with the lowest uptake was environmental accounting. Environmental accounting may be broadly defined as the integration of environmental considerations across all areas of accounting, includ2

These figures translate into a usable response rate of 40% for the FTSE 100 and 30% for the FTSE 250.




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ing financial, management, systems and project accounting as well as auditing (Gray and Bebbington, 2001). It therefore goes further than management accounting for environmental issues, which may help to explain why it experienced the lowest uptake: it is more demanding and may also not be so well understood. It is additionally possible that some respondents may have been confused between what was meant by the terms ‘environmental accounting’ and ‘management accounting (for environmental issues)’. For example, they may have answered no to undertaking environmental accounting in the belief that, say, results generated from financial or project accounting for environmental issues did not fall under the term or instead helped to contribute towards the management accounting of environmental issues. This was a weakness in the questionnaire. To further compare the uptake of corporate environmental management tools between reporters and non-reporters, the data gathered for categorization is of use. Categorization was based on respondents assigning a sector classification to their companies (one from a choice of 23); companies were then grouped by sector and their results combined. Company turnovers and employee numbers were totalled and averaged to give an indication of sector size, whilst the uptake of corporate environmental management tools other than reporting were summed to produce one figure – a percentage on total use (termed ‘environmental engagement’). To aid comparisons, the totals for each sector’s turnover and employee base were weighted and divided into quartiles: small, small–medium, medium–large and large. Engagement was also divided into quartiles, but with the different terms of low, low–medium, medium–high and high. Categorized sector results are shown in Tables 3 (for reporters) and 4 (for non-reporters). Table 3 shows that 15 sectors were represented amongst reporting companies. Of these, the general retail sector was largest in terms of both turnover and employee base whilst the property sector was smallest. Despite its size, the general retail sector was the least environmentally engaged of all the reporting sectors; the most engaged were the small to medium-sized utilities and industrial and electrical engineering and manufacturing sectors. Amongst non-reporters, 11 sectors were represented (see Table 4). In terms of turnover and employee base, the largest sectors were food production, transport and industrial and electrical engineering and manufacturing; the smallest were information and communication technology and property and real estate. In environmental engagement, the aerospace and defence and industrial and electrical engineering and manufacturing sectors were relatively more engaged than, for example, the general retail and information and communication technology sectors. Comparing the data contained in Tables 3 and 4 is of particular interest: this shows that the most environmentally engaged sectors were industrial and electrical engineering and manufacturing; utilities; aerospace and defence; transport; and banks, finance and investment. The least engaged sectors included general retail and information and communication technology, although it should be noted that several sectors (from the list of 23 used) were not represented in the responses received – the level of environmental engagement assessed is dependent upon the data collected and averaged. This said, one outcome is apparent: environmental engagement is strongly related to sector type, and certainly more so than size, where the relationship is less clear. This reinforces findings from earlier studies (e.g. Banerjee, 2001) that have related sector type to engagement on the basis of environmental regulation. In essence, the ‘dirtier’ sectors that pose greater risks to the environment – notably extractive or processing sectors such as utilities and industrial engineering – are more heavily regulated, and hence tend to be more engaged to both satisfy and pre-empt regulatory controls as well as to exploit greener marketing opportunities wherever possible. Size is important when the results in Tables 3 and 4 are compared in respect of the dichotomy in size differential between reporting and non-reporting companies. Table 3 clearly shows the importance of FTSE 100 companies within the responses from reporting companies (the second column of the table Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment


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Sector


Proportion of FTSE 100 companies (%)

Size of turnover

Size of employee base

Environmental engagement

General retail Food production

100 33

Large Medium–large

Large Small–medium

Low–medium

Civil engineering & construction Aerospace & defence Chemicals, chemical products & fibres Diverse services Beverages & tobacco Consumer goods Food retail Pharmaceuticals Property & real estate Transport Banks, finance & investment

12.5 100 50 0 80 50 100 100 33 28 75

Small Medium–large Small–medium Small Medium–large Small–medium Large Large Small Small–medium Small–medium

Small Medium–large Small–medium Small–medium Medium–large Small Large Medium–large Small Medium–large Medium–large

Medium–high

43 25

Small–medium Small

Small Small–medium

High

Utilities Industrial & electrical engineering & manufacturing

Table 3. Reporting sectors and sizes grouped by environmental engagement Key to quartiles used: Size of turnover (weighted data range) Size of employee base (weighted data range) Small = £0–2500 million per annum Small = 0–20 000 Small–medium = £2501–5000 million Small–medium = 20 001–30 000 per annum Medium–large = 30 001–60 000 Medium–large = £5001–10 000 million Large = 60 000+ per annum Large = £10 001 million per annum+

Environmental engagement (use made of total combined corporate environmental management tools) Low = 0–25% Low–medium = 26–50% Medium–high = 51–75% High = 76–100%

gives the proportion of FTSE 100 companies within each of the sector categorizations). In contrast, Table 4 demonstrates the lack of FTSE 100 companies amongst responses from non-reporting companies. Note also that the smallest turnover and employment quartiles of Table 3 would encompass many of the companies included in the largest quartiles of Table 4. Ranking of Non-Reporters’ Drawback Ratings Respondents from non-reporting companies rated the 13 drawbacks to environmental reporting on how important they felt each was in the corporate decision not to report. Individual ratings were obtained via a 0–3 scaling, which ranged from unconsidered or unmarked to major drawback (see the Method section above). Table 5 rank orders the sum of the individual ratings; the figure in brackets after each drawback is the sum total obtained from the scaling. The inclusion of total rating figures in Table 5 shows that the ranking is evenly ordered – there is a clear gradation from the highest rating, 34, to the lowest, 13. The inference is that all of the 13 drawbacks have some bearing on the corporate decision not to report, although the most important are managerial doubt, no legal requirement and data collection effort too great. This result goes some way to supporting the claim that data collection is a key drawback since it suggests that management would, Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment



Sector

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Proportion of FTSE 100 companies (%)

Size of turnover

Size of employee base

Environmental engagement

General retail Information & communication technology Property & real estate Entertainment, leisure, hotels & restaurants Pharmaceuticals

0 0 0 0 33

Small–medium Small Small Small Small–medium

Small Small–medium Small–medium Medium–large Medium–large

Low

Banks, finance & investment Metals, mining & quarrying Food production Transport

50 0 0 0

Medium–large Medium–large Large Large

Small Small–medium Medium–large Large

Low–medium

0 0

Small–medium Large

Small Large

Medium–high

Aerospace & defence Industrial & electrical engineering & manufacturing

Table 4. Non-reporting sectors and sizes grouped by environmental engagement Key to quartiles used: Size of turnover (weighted data range) Size of employee base (weighted data range) Small = £0–120 million per annum Small = 0–1 000 Small–medium = £121–500 million Small–medium = 1001–3500 per annum Medium–large = 3501–12 000 Medium–large = £501–1250 million Large = 12 001+ per annum Large = £1251 million per annum+

Environmental engagement (use made of total combined corporate environmental management tools) Low = 0–25% Low–medium = 26–50% Medium–high = 51–75% High = 76–100%

Rank order

Drawback to environmental reporting (figure in brackets is the total rating obtained from the 0–3 scale for all responses)

1

Chief executive officer and/or senior management doubt the advantages (34)

2

No legal requirement (33)

3

Data collection effort too great (32)

4

Publishing an annual environmental report will not increase sales (29)

5

Too expensive (25)

= 6.5

Choice of suitable (non-financial) performance indicators too difficult (24) Customers (and general public) are not interested in annual environmental reports (24)

= 8.5

Competitors are not publishing annual environmental reports (21) There are other (better) ways of communicating on environmental issues (21)

10

Adverse reaction from customers/public/campaign groups (18)

11

Threat of litigation (16)

12

Company already has a good reputation for its environmental performance (15)

13

Damage to the company’s reputation (13)

Table 5. Rank ordering of non-reporters’ drawback ratings Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment


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in the absence of a legal requirement, resist reporting on the basis of this being the drawback of next most importance. It is also of note that, in addition to the data collection effort, the other implementation drawbacks of expense and difficulty in choice of performance indicators are highly ranked. Overall this suggests that whilst managerial doubt is the foremost drawback to voluntarily publishing an annual environmental report this doubt is largely based upon lack of legal obligation followed by concerns over the cost and difficulty of implementation. A final point of interest is that reputational drawbacks are considered of least importance in the decision not to report. The inference is that damage to the company’s reputation is the least worrisome factor facing management; indeed, it is likely that management would instead see reporting as means to benefit and enhance the corporate reputation.

Discussion and Conclusions This section reflects on the answers to the research questions raised in the Introduction discussing points for regulatory and management consideration. It also reflects on research limitations and suggests how the research could be furthered. The principal research question concerned which of the 13 drawbacks to voluntary annual environmental reporting is/are of most significance in the corporate decision not to report. The rank-ordering of drawback importance amongst FTSE 350 non-reporters (see Table 5) addressed this by showing that the doubts of the chief executive and/or senior management were of foremost importance. This drawback was closely followed in order of importance by no legal requirement and the data collection effort, thus confirming the importance attached to these factors by other researchers (see Kolk, 2000; Larsen, 2000). What then are the implications of these results for legitimacy theory and other theoretical frameworks that attempt to explain why companies voluntarily report on their environmental performance? The most obvious point to be made refers to the question of company size. The survey highlights the fact that reporters are generally large companies. This implies that there is some trade-off between the costs associated with environmental reporting and the perceived benefits, where benefits are measured with regard to either legitimizing company activities or in respect of enhancing or protecting corporate image (as suggested by communication theory). These benefits only outweigh the costs when a company reaches some optimal size. Equally, the drawback ranking results reported in Table 5 could also be interpreted as indicating that legitimacy and communication theories are not very useful frameworks for explaining voluntary reporting activity since the ranking shows that managers doubt the advantages of reporting. There is also evidence in the results that managers do not think that there is an audience interested in such reports or, at the very least, an audience to which they feel they need to cater. The ranking of ‘Customers (and general public) not interested in annual environmental reports’ at 6.5 shows that nonreporting managers do not perceive that they need to legitimize their activities to society through environmental reporting, or that they may enhance their corporate image by doing so, or that this information is useful to certain stakeholders (as decision-usefulness theory maintains). This is surprising, particularly so in the light of the very low ranking of the drawback ‘Damage to the company’s reputation’, which suggests that managers see that reporting might improve their company’s reputation. Thus the evidence to be gleaned from these results for and against the various theoretical frameworks that have been used to explain voluntary environmental reporting is rather mixed. Whilst managers tend to the view that reporting might enhance their reputation (lending support to the legitimacy and comCopyright © 2006 John Wiley & Sons, Ltd and ERP Environment



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munication theory frameworks), they doubt the advantages, rank effort and financial cost drawbacks highly and do not perceive that there is an audience for such reports. A related research question was raised regarding the uptake of corporate environmental management tools, other than annual environmental reporting, amongst reporting and non-reporting companies within the FTSE 350. Unsurprisingly, the research results showed reporting companies to have a higher level of uptake – overall about double the level of non-reporting companies. This said, the data gathered for categorization served to substantiate this result by indicating that the sector type of companies – whether reporters or non-reporters – was a clear influence on environmental engagement. It is also very clear from the responses to the survey that company size is a consistently important variable in influencing whether a company reports or not. The reporting companies that responded to the survey are generally larger than responding non-reporting companies in terms of size of turnover, number of employees and membership of the FTSE 100. In considering the possible introduction of legislation mandating UK annual environmental reporting, the survey results showed that the current lack of a mandate was one of the foremost reasons why companies in the FTSE 350 are choosing not to report. Undoubtedly, the introduction of legislation would be a key driver in increasing annual environmental reporting and, on the basis that reporters show a demonstrably higher use of other corporate environmental management tools, the furtherance of corporate environmental management. There are, however, certain caveats that need to be addressed with regard to these issues. First, the fact that the absence of a mandate was on a par with other leading drawbacks. This suggests that there may be mileage in UK policy-makers tackling some of the other leading drawbacks before turning to legislation. Providing assistance with the data collection effort is an example. Although the UK Government has already provided some help with the publication of its environmental reporting guidelines (DEFRA, 2001), such guidance could be developed by identifying which environmental data have the widest application and use. For example, it has been argued that investor interest in environmental data is an important catalyst for the voluntary publication of annual environmental reports (see Wilmshurst and Frost, 2000), so identifying the main data sought by the investor community could be a spur for greater reporting. A point that follows from the above is that many companies may be deterred from annual environmental reporting because of uncertainty over readership. This presents a difficulty with content: how does a company cater for all potential readers? A mandate provides a solution to this – a mandate would make reporting an issue of legal compliance to companies, with companies then likely to see the main readership as the reporting regulator (i.e. government). The problem with this, though, is that it undermines the potential for wide-ranging internal environmental data collection exercises, since companies would invariably limit the data they collect to that required for compliance purposes. The potential is therefore lost for achieving perhaps unforeseen corporate and environmental benefits. Moreover, reporting would become synonymous with compliance. This is problematic because it could result in a loss of innovation; companies may disregard annual environmental reporting for strategic advantage. The industry sector to which companies belong is also of note. The survey results reiterated earlier findings (e.g. Banerjee, 2001) that certain companies are inherently more environmentally engaged because of tighter, industry-wide environmental regulation. This is important when legislation is debated for enforcement amongst companies of a particular size, rather than those belonging to a particular sector. It maybe that targeting the least environmentally engaged sectors is a less burdensome way to raise both annual environmental reporting and corporate environmental management at large. In relation to research limitations, basing the survey on closed questions resulted in a fairly narrowly defined set of results. This is an inherent limitation of the method, but opens up an opportunity for further research through qualitative study. Taking a sample of replies for interviewing from both the Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment


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reporter and non-reporter data sets, for instance, could be a good way to probe responses more deeply. Categorization was partly limited by the weightings applied to the results, although their application was considered important for moderating and ordering company results by sector classifications. Additional research openings are presented in terms of the selective qualitative study of responses (see above), but also the further study of sector-specific environmental engagement. Study of the least environmentally engaged sectors could prove insightful, particularly to gauge the relationship between corporate and sector environmental management.

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