11.isea vol 0004www.iiste.org call for paper no 2 pp. 115-135
Issues in Social and Environmental AccountingVol. 4, No. 2 December 2010Pp 115-135 The Quantity and Quality of Environmental Reporting in Annual Report of Public Listed Companies in Malaysia Sharifah Buniamin College of Business Management & Accounting Universiti Tenaga NasionalAbstractBusiness organisations are facing the challenge of disseminating environmental information asthe public concerns regarding these issues have increased. This study examines the environ-mental reporting practices in the annual reports of 243 companies listed on the Main Board ofBursa Malaysia for the year 2005. Content analysis approach was utilized to determine thequantity and quality of the environmental information disclosure in annual reports. The resultsindicated that only 28% of the companies reported this information in their annual reports andmerely five sentences were dedicated for these reports. It was also revealed that the averagequality of environmental reporting per company is 3.24%. In addition, it was discovered thatlarger companies and companies in environmentally sensitive areas published more informationas well as provided higher quality disclosure. Additionally, it was also revealed that companieswith high level of quantity environmental reporting are also having high level of quality envi-ronmental reporting.Keywords: environmental reporting, annual report, Public Listed Companies, Malaysia1. Introduction ize that they had to play a role in theIn the recent years, environmental issues area as the public’s interest in the issueshave captured the public’s interest as has proliferated tremendously over thewell as business organisations. The years. Thus, business organisation usesgrowing concern has increased business the environmental reporting as a vehicleorganisations’ awareness about the im- to enforce the values of environmentalportance of disseminating environmental concern to their stakeholders.information. This is because they real-Sharifah Buniamin is Faculty member at Department of Accounting & Finance College of Business ManagementUniversity Tenaga Nasional (UNITEN), email: firstname.lastname@example.org. Acknowledgement: The author would like toacknowledge the generous support of her research team member, Bakhtiar Alrazi, Nor Hasimah Johari and Nor RaidaAbd Rahman. Thank you for the invaluable assistance and the constructive comments. All errors, of course remain theresponsibility of the author.
116 S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135It was found that prior studies tend to Within this broad area, the study has twofocus on examining the extent and type specific objectives. First, the study aimsof disclosures (Guthrie et al, 2008). to investigate if there is any relationshipHowever, there has been lack of that between the quantity and quality of envi-specifically assessed the quality of envi- ronmental reporting and size of compa-ronmental disclosure practices. Further- nies. Second, the study attempts to iden-more, research on this matter has largely tify if there is any relationship betweenfocused on developments in industrial- the quantity and quality of environ-ised countries and very few studies have mental reporting and environmental sen-been done in developing country. Ac- sitivity.cording to (Tsang, 1998) the stage of acountry’s economic development may This paper is organised as follows. Thebe an important influential factor that next section, 2.0 presents a literatureforms corporate social and environ- review on environmental reporting.mental reporting practices. As such, it Next, section 3.0 is a description of con-may not be suitable to generalize the ceptual framework and hypotheses de-findings of studies conducted in the in- velopment followed by Section 4.0, thedustrialised countries with less devel- methodology used for the study. Theoped countries. Thus, this study extends following section is 5.0, the discussionthe current literature by assessing the on findings and lastly, Section 6.0 is thequality of environmental reporting prac- overall conclusion.tices by the companies in Malaysia usingsystematic disclosure index. 2. Literature ReviewThis study may offer several significant 2.1 Environmental Reporting Devel-contributions. First, this study will pro- opmentvide some descriptive data on the extentof environmental information disclose in Environmental reporting is a voluntaryannual report of Malaysian companies. initiative in Malaysia and has onlySecond, the methodology used in this emerged in the last decade or so. How-study is content analysis approach which ever, there are several reporting recom-can be defined as a systematic, objec- mendations and guidelines, with directtive, quantitative analysis of message and indirect reference to environmentalcharacteristics (Neuendorf, 2002). Third, information have been issued. Theseexamination of the environmental infor- include the financial reporting standardsmation quality index will provide the (FRSs) by the Malaysian Accountingassessment of the quality reporting Standards Board (MASB), the Malay-among public listed companies in Ma- sian Code on Corporate Governancelaysia. (MCCG), and the Association of Char- tered Certified Accountant’s (ACCA)The main objective of this study is to Environmental Reporting Guidelines.examine the environmental reporting Paragraph 10 of FRS 101 – Presentationpractices among public listed companies of Financial Statements encouragesin Malaysia based on quantity and qual- business entities to prepare environ-ity of environmental information disclo- mental reports to supplement the finan-sure in the corporate annual report. cial statements. Meanwhile, FRS 137 –
S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 117Provisions, Contingent Liabilities and (Gray et al. 1995). Environmental re-Contingent Assets which was issued in porting provided by the companies will2001 provides explicit examples on en- benefit the companies itself (O’Dwyer,vironmental contingent liabilities in the 2001) in order to justify social values ofAppendix 4 of such standard. the companies, decrease the pressure from pressure group, build companies’Additionally, the Finance Committee on image and show the companies’ socialCorporate Governance (FCCG) of the responsibility (O’Donovan, 2002). ASecurities Commission introduced the study by Romlah and Sharifah (2004)MCCG in 2000. Part 2 of the Code iden- found that image building is the maintifies a set of guidelines or practices in- factor that influence company to dis-tended to assist companies in designing close environmental informationtheir approach to corporate governance (Deegan and Gordon 1996; O’Dwyer,(FCCG, 2000). Paragraph XVII of this 2001).part suggests that the board of directorsseek and assess information that goes Sumiani et al. (2007) found that the ISObeyond financial performance of the 14001 certification has put some pres-company, including environmental per- sure upon the companies to includeformance. Moreover, the ACCA with some form of environmental reporting,the collaboration of the Malaysian De- specifically under the categories of pol-partment of Environment (DOE) pub- lution abatement and other environmen-lished the “Environmental Reporting tally related information.Guidelines for Malaysian Companies”in March, 2003. This explains what en- 2.3 Environmental Reporting Mediumvironmental reporting is and provides anoverview of its evolution over the last 12 Most of the previous studies reviewedyears. and assessed environmental disclosures from corporate annual report. There are2.2 Factors That Influence the Envi- several reasons for using annual reportronmental Information Disclosure as the main source of data for analysis. First, annual report is the main docu-Environmental information is necessary ment prepared by companies (Gray andand important in decision making proc- Bebbington, 2000). Second, companiesess in order to value any effects and risk used annual report as the main commu-from the environmental issues. Epstein nication tool to disseminate informationand Freedman (1994) found that the in- which includes environmental informa-vestors requested for several social in- tion (Gray et al. 1995). Third, in Malay-formation that need to be disclosed in- sia, annual reports of listed companiescluding environmental information. Ad- are the most accessible source of infor-ditionally, researchers found that social mation (Haslinda et al., 2004).and environmental information are im-portant to the users in making invest- There are several other media that canment decision (Tilt, 1994). be used to disclose environmental infor- mation such as corporate environmentalCompanies are responsible to dissemi- reports, projects report, bulletin, news-nate information to the stakeholders paper and electronic media (ACCA,
118 S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-1352003). Montabon et al. (2007) gathered justified that certain locations are moreenvironmental information from corpo- likely to be read, audited or indicate therate environmental report from the web important fact attached to the issue beingsite. The researchers believed that corpo- reported.rate environmental report is a logicalchoice of data source as it contains the A study by Sumiani et al. (2007) meas-information needed and are relatively ures environmental information accord-easy to obtain. While a study by Clark- ing to 24 items which was grouped intoson (2007) focus on purely voluntary six categories, namely, financial factors,disclosure media only such as corporate litigation, pollution abatement, environ-Internet web sites and stand alone envi- mental preservation, other related infor-ronmental reports. mation and environmental initiatives. Levels of extensiveness for each of the2.4 Environmental Information Meas- information’s parameters are measuredurement according to five categories namely, non -disclosure, general, qualitative/There are several measurements that narrative, quantitative and combinationhave been used in previous studies. They of types of information.are measurement by number of words(Zeghal and Ahmed, 1990; Deegan and While a study by Clarkson (2007) con-Gordon, 1996), sentences (Tsang, 1998; sidered seven broad categories of disclo-Milne and Adler,1999; Nik Nazli and sure index which represent hard and softMaliah, 2004) and pages (Gray et al., environmental disclosures. The hard dis-1995; Romlah et al., 2002). These meas- closure items are Governance structureurements merely consider the quantita- and management system, credibility,tive of the environmental information environmental performance indicators,disclosed. environmental spending.The literature revealed that there are dif- Another identification of the environ-ferent methods used to measure and as- mental information is according to sixsess quality of environmental informa- items which is categorised using the fivetion disclosure. However, most prior point Likert scale with 1 representing astudies used specific environmental low intensity and 5 representing a highthemes or categories to measure and intensity of involvement. The items areasses the quality of environmental re- recycling, proactive waste reduction,porting. Gray et al. (1995) used four remanufacturing, environmental design,broad themes, statements of environ- specific design targets and surveillancemental policy, product and service, sus- of the market for environmental issuestainability activities and audit. Study by (Montabon et al., 2007)Romlah et al. (2002) assign 1 to 3 scoresfor three types of reporting; 1 for generalreporting, 2 for quantitative-non- 3. Conceptual Framework and Hy-monetary and 3 for quantitative- potheses Developmentmonetary reporting. The measurement is 3.1 Legitimacy Theoryalso based on different scores from 1 to5 for 9 different locations. This can be Legitimacy theory justifies the concept
S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 119and practice of environmental reporting macy theory suggests that the organisa-by companies. This theory suggests that tion will act to ensure that their activitiescompanies can operate when the value are recognized by society. Therefore, thepractice by company is congruent with company will provide information re-the value of the society (Milne and garding its operation to society includingPatten, 2002). Consequently, the com- environmental information (Deegan andpany’s focus has to comply with the cul- Gordon, 1996) using environmental re-ture, legal, cost and risk value of society. porting in order to gain support andRecent scenario revealed that there is an maintain a good image (O’Donovan,increased of societal concern and aware- 2002) so that they will be acknowledgedness of the environmental impacts of by the society.business organization on society. Legiti- Company Charac- Environmental teristic Reporting Company size Quantity Environmental sensi- Quality tivity Figure 1: Research Model3.2 Research Model produce an adverse effect to the firm’s value. Previous study found a positiveFigure 1 depicts the conceptual frame- association between size and voluntarywork of the study which is completed social responsibility disclosureswith the quantity and quality of environ- (Trotman and Bradley, 1981). Consistentmental reporting as the dependent vari- with legitimacy theory, a company thatable. The independent variables are is visible in public is more likely to dis-company size and environmental sensi- close information in order to enhancetivity. their corporate image. Fulfilling the proposition of legitimacy theory and3.3 Hypotheses Development previous study, we hypothesise that:Total assets are frequently used as an H1a: There is a significant relationshipindicator to measure company size between company’s size and the quantity(Romlah et al., 2002; Zauwiyah et al., of environmental reporting.2003; Cormier and Magnan, 2003; Mah-mud et al., 1994) suggested that big and H1b: There is a significant relationshiplisted companies tend to disclose more between company’s size and the qualityinformation than required by standards of environmental reporting.in order to maintain their shares demand.Additionally, non-disclosure may be Environmental sensitivity is based oninterpreted as ‘bad news’ which could the industry of the companies in which
120 S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135they operate. The different way each nies randomly selected using the randomcompany operates is one of the factors number generator available in Excel.that influence corporate social reporting This represents 41 percent of the remain-(Gray et al. 1995). Companies that op- ing population and thus consistent witherate in the industries with higher impact the minimum sample size as suggestedon environment tend to disclose the en- by Field (2000). Data is extracted usingvironmental information. Chemical, the content analysis method from themining, gas and petroleum, transporta- annual reports of these companies fortion, tourism, manufacturing, construc- the year 2005.tion and food industries are among in-dustries which are very sensitive to the 4.2 Content Analysisenvironment (Halme and Huse, 1996;Wilmhurst and Frost, 2000; Romlah et Neuendorf (2002) defined content analy-al., 2002; Haslinda et al., 2004). There- sis as the systematic, objective, quantita-fore, it is reasonable to come out with tive analysis of message characteristics.the following hypotheses: This method is chosen as the most suit- able method to explore the environ-H2a: There is a significant relationship mental information in the annual report.between environmental sensitivity and The procedures involve three steps.the quantity of environmental reporting. First, the document was scrutinised to check if any environmental informationH2b: There is a significant relationship exist. (Appendix 1). Second, identifiesbetween environmental sensitivity and and count the number of sentences ofthe quality of environmental reporting. environmental information. Third, as- sign disclosure score (Appendix 2) based on the sentences identified earlier.4. Methodology4.1 Sample and Data Collection 4.3 Dependent VariablesThe population of this study is all the Quantity is measured based on numberpublic companies listed on the Main of sentences. Environmental informationBoard of the Bursa Malaysia as of 31 is describe as “the impact company ac-December 2005 except financial compa- tivities have on the physical or naturalnies. All financial firms are excluded as environment in which they oper-these sectors are additionally governed ate” (Wilmshurst and Frost, 2000). Fur-by certain rules and procedures from ther definition of environmental infor-regulatory bodies such as BNM and mation is presented in Appendix 1. Sub-Ministry of Finance. Furthermore, the sequently, we utilise the number of sen-operation of these companies is deemed tences since it can be used to conveyto have less impact to the environment meaning and thus, are likely to provide(Wilmshurst and Frost, 2000) and as more reliable measures (Hackston andsuch increase the likelihood of non- Milne, 1996). It also reduces the degreereporting incidence (ACCA, 2004; Zau- of subjectivity in interpreting the envi-wiyah et al., 2003). ronmental information disclosed (Milne and Adler, 1999). Additionally, Hack-The final sample consists of 243 compa- ston and Milne (1996) found a high cor-
S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 121relation between sentences, words and (Wilmshurst and Frost, 2000) and also apages. Hence, the results should not be report issued by the Department of Envi-greatly influenced by the choice of sen- ronment, Malaysia (DOE, 2002). Thus,tences, instead of words, or proportion companies involved in the followingof pages. operations which are regarded as high environmentally sensitive encompassQuality is based on the disclosure index mining, chemicals, transportation, oildeveloped by Bakhtiar (2005). This in- and gas, wood and timber, utilities, agri-dex was developed based on a review of cultural, construction and properties, andvarious scoring systems including the manufacturing. For diversified compa-adjudication criteria used in the Associa- nies, they are classified as high environ-tion of Chartered Certified Accountants’ mentally sensitive if 51 percent of theirMalaysian Environmental and Social revenue is derived from these nine op-Reporting Awards (ACCA’s MESRA) erations (Lemon and Cahan, 1997).and the National Annual Corporate Re-port Awards on Environmental Report- 4.5 Data Analysising (NACRA-ER). The index has 100disclosure items which are categorised Linear regression is used to test the rela-into 14 categories. Due to some per- tionship between the quantity and qual-ceived redundancies in the items, 6 of ity of environmental reporting as well asthe items were removed, leaving only 94 company size and environmental sensi-items that was utilised in this study (see tivity. The assumptions underlying re-Appendix 2 for the disclosure index). gression model are tested for multicol-Each item is awarded “1” if it is dis- linearity based on the correlation matrix.closed (or meet the requirements), while Multicollinearity problem exists whennon-disclosure is assigned “0”. the coefficient correlation between two variables is greater than 0.80 (Field,4.4 Independent Variables 2000). Normality tests based on Kol- mogrov-Smirnov (K-S) test is also con-Company size and industrial classifica- ducted with significance level of lesstion are proxies for the amount of public than 0.05 indicates that the distributionpressure, while at the same time, these of the data is not normal (De Vaus,two variables are consistently found to 2002). All these analyses are performedbe related to the level and extent of dis- using SPSS 15.0 for Windows software.closure (Cormier and Magnan, 2003).Size is measured by total assets. Previ-ous studies that used total assets as a 5. Findingsproxy for size include Romlah et al., 5.1 Reporting Companies2002; Zauwiyah et al., 2003; Cormierand Magnan, 2003. Table 1 depicts the distribution of com- panies according to Bursa Malaysia’sMeanwhile, as for industry, the compa- industrial classification. These compa-nies are divided into two: high environ- nies are the representatives of variousmentally sensitive and low environmen- sectors, with considerable numbers aretally sensitive. This involves reviewing from industrial products sector (30%),the works of previous researchers followed by trading/services sector
122 S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135(22%) and properties sector (19%). the Board as of the cut-off date. SinceNone of the companies is from the min- the sample selection method is based oning sector and in fact, there is only one the random-sampling, such exclusion iscompany from that sector was listed on considered as insignificant. Table 1. Distribution of companies according to industrial sector No Industry Number % 1 Industrial Products 73 30 2 Trading/Services 53 22 3 Properties 47 19 4 Consumer Products 28 12 5 Construction 17 7 6 Plantation 14 6 7 Technology 7 3 8 Infrastructure Project Companies 2 1 9 Hotel 1 0 10 Trust 1 0 Total 243 100Table 2 presents the findings on the mental information reported by the sam-number of reporting companies. Overall, ple companies according to the industry.there are only 68 companies (28%) re- Overall, total environmental sentencesported some form of environmental in- disclosed is 1,142 with the highest num-formation in the annual report year ber of sentences reported by a company2005. Sectors with high number of re- is 246. Thus, on average, each companyporting incidences include industrial disclosed 4.70 sentences on environ-products (28%), trading/services (28%), mental information. Meanwhile, theproperties (15%) and plantation (12%). highest disclosure score is reported to beHowever, if the reporting practice is 54.26% and the average for each com-analyzed on a per industry basis, it is pany is 3.24%. These findings suggestfound that the plantation sector has the that the environmental reporting in Ma-highest number of reporting incidence laysia is still at infancy stage.(57%) as compared to other industrialsectors. Based on the industry analysis, three industries with the highest average envi-5.2 Analysis of Quantity and Quality ronmental sentences are infrastructureof Environmental Reporting project companies (55.50 sentences), plantation (25.86 sentences) and indus-Table 3 presents the findings on the trial products (4.19 sentences). The re-quantity and quality of the environ- sult for quality is consistent with the re-
S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 123 Table 2. Reporting companies according to industry No Industry Number Per sample (%)* 1 Industrial Products 19 28 2 Trading/Services 19 28 3 Properties 10 15 4 Consumer Products 6 9 5 Construction 4 6 6 Plantation 8 12 7 Technology 1 1 8 Infrastructure Project 1 1 9 Hotel 0 0 10 Trusts 0 0 Total 68 100 Table 3. Quantity and Quality Score of environmental reporting Sentences Disclosure Index Industry Sum Ave./Ind.* Sum Ave./ Ind.* 1 Industrial Products 306 4.19 232.96 3.19 2 Trading/Services 176 3.32 184.26 3.48 3 Properties 110 2.34 107.43 2.29 4 Consumer Products 33 1.18 30.85 1.10 5 Construction 43 2.53 45.75 2.69 6 Plantation 362 25.86 141.46 10.10 7 Technology 1 0.14 6.38 0.91 8 Infrastructure Project 111 55.50 37.23 18.62 9 Hotel 0 0.00 0 0.00 10 Trusts 0 0.00 0 0.00 Total 1142 4.70** 786.32 3.24***Total sentences (disclosure score) reported (obtained) by each industry divided by total number of companies in each industry**Total sentences (disclosure score) divided by sample
124 S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135sult for quantity, with the exception of ity is from the industrial products indus-the third highest scoring industry that is try.trading/services. However, this shouldbe interpreted with caution since the in- 5.3 Descriptive analysisfrastructure project companies industryis represented by only 2 companies in 59 companies (24%) are classified asthe sample. Moreover, a closer look on high environmentally sensitive. The de-the result suggests that the company scriptive statistics of the quantity andwith highest quantity is from the planta- quality of environmental information aretion industry while the highest for qual- depicted in the following table, Table 4. Table 4: Descriptive statistics for the dependent and continuous variables Quantity Quality Total Assets Mean 4.700 3.236 1608611363 Std. Dev. 19.766 7.863 5258385837 Min. 0.000 0.000 1697524 Max. 246.000 54.260 63438200000 Skewness 8.844 3.380 8.776 Kurtosis 96.735 13.412 90.889 K-S test 6.329* 5.921* 5.923* * Significance at 0.01; K-S with significance <.05, hence data not normally distributedTotal assets variable is not normally dis- is transformed using natural log. Thetributed as indicated by the non- result is presented in Table 5 and 6. Ta-parametric Komolgrov-Smirnov normal- ble 5 depicts results base on number ofity test. Generally, significance level of sentences (Quantity) as the dependentless than 0.05 indicates non-normality variable. While in Table 6 results based(De Vaus, 2002). Therefore, the vari- on quality of disclosure as the dependentables are transformed to normal scores variable. In Table 5, the value of R2 isbefore conducting the regression analy- 0.098 which indicates that the variablessis since one of the requirements of lin- used in the study account for 9.8% of theear regression is for the data to be nor- variability in the extent of environmentalmally distributed (Field, 2000). reporting. More importantly, the model is significant at 0.01 level with F-ratio of5.4 Regression analysis 14.163. In Table 6, the value of R2 is 0.103 which indicates that the variablesPrior to performing the regression analy- used in the study account for 10.3% ofsis, sensitivity analysis is conducted to the variability in the quality of environ-assess the stability of the results. The mental information disclosure and thelinear regression is run using dependent model is significant at 0.01 level with F-variable and continuous variables which ratio of 14.946.
S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 125Table 5. Regression results using quantity of disclosure as the dependent variable Variables Coefficient value t-statistic Sig t Intercept -3.288 -5.085 .000 ΣAssets .160 2.076 .000 EnvSen .221 5.046 .039 R2 = .098, F-statistic = 14.163, p = .000 Table 6. Regression results using quality of disclosure as the dependent variable Variables Coefficient value t-statistic Sig t Intercept -3.364 -5.218 .000 ΣAssets .230 2.173 .000 EnvSen .163 5.170 .031 R2 = .103, F-statistic = 14.946, p = .000As expected, there is a positive and sig- Legitimacy theory suggests that compa-nificant relationship between the quan- nies with higher environmental sensitivetity and quality of environmental report- report the information in order to mini-ing and company size and environmental mise the potential political cost that maysensitivity. The result revealed that big- be imposed to the companies in the fu-ger companies have higher volume and ture.quality of environmental informationdisclosed in the annual report. This is Correlation tests are performed usingconsistent with the findings of Halme both Pearson (for normalized data) andand Huse (1997); Cormier and Gordon Spearman’s rank correlation analyses(2001); Romlah et al. (2002); and (for non-normalized data). Both testsCormier and Magnan (2003). According showed high correlation between theto Cormier and Gordon (2001), larger two dependent variables (Pearsoncompany is more visible and account- = .988; Spearman = .996) and the corre-able to the public. Therefore, they are lation is significant at 0.01 level. Thismore accountable with respect to envi- indicates that companies with greaterronmental issues. In that case, larger amount of environmental informationcompany will disclose more environ- disclosed higher quality information.mental issue to decrease public pressure. 5.3 Quality Assessment by item of En-Furthermore, the results of the study is vironmental Informationalso consistent with the findings of studyby Romlah et al. (2002) and Zauwiyah Appendix 2 summarises the analysis ofet al. (2003) which indicate that compa- the quality score for each environmentalnies that are environmentally sensitive disclosure items. The most reported itemhave to provide higher volume of envi- (32 cases) is under the environmentalronmental information in annual reports. policy. Based on the sub item of envi-
126 S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135ronmental policy, it can be concluded as and Maliah, 2004). The findings alsogeneral information because the sub support the study by Sumiani et al.item only consider any statement about (2007) which discovered that financialthe policy adoption, set of environmental factors and litigations were not reportedgoals and objectives which only at mini- at all by any ISO certified companies.mum statement. The study found that the least environ- mental information element reportedThe result is consistent with the previous were land rehabilitation and remedia-studies (Romlah et al., 2002; Nik Nazli tion, environmental memberships/and Maliah, 2004) which indicates that relationships and environmental stake-the majority of the companies reported holder engagement.environmental information in form ofgeneral statements. Sumiani et al. (2007)found that only four out of 24 environ- 6. Conclusionsmental information items; namely con-trol, installation and process, environ- This study examines the quantity andmental regulations, environmental poli- quality of environmental reportingcies and environmental management among Malaysian companies. Overall,system were reported by more than 50% this study concludes that environmentalof ISO companies in the sample that was reporting practice in Malaysia is stillstudied. low. The average of environmental sen- tences disclosed in the annual report forWhile, items that are reported at above the year 2005 is 4.70 sentences, whileaverage (>8 cases) are Environmental the average quality of the reported infor-Management System (EMS), Chairman mation by a company is as low asor CEO statement, Targets and Achieve- 3.24%. Additionally, the study foundments, Compliance/Non-compliance and that there is a positive and significantEnvironmental Impacts, Corporate Con- relationship between the quantity andtext, Corporate Commitment, Research quality of environmental reporting andand development, Stakeholder Engage- company size and environmental sensi-ment and other initiatives, Awards and tivity. The result indicated that largerReport Design. The result also revealed companies have higher quantity andthat there are 16 companies which use a quality of environmental informationseparate environmental section in the disclosed in the annual report. Mean-annual report. while, in term of disclosure item, the study revealed that the most reportedThere is only one company that reported item (32 cases) is under the environ-about third party verification. However, mental policy. Based on the sub item ofthe statement is not clearly stated. Other environmental policy, it can be con-items which were reported at below the cluded as general information becauseaverage (< 8 cases) are financial data the sub item only consider any statementand performance data. This is consistent about the policy adoption, set of envi-with the previous findings which re- ronmental goals and objectives.vealed that monetary/financial quantifi-cation of environmental information is The findings of the study should be in-minimal (Romlah et al., 2002; Nik Nazli terpreted in light of several limitations.
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130 S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 Appendix 1 Definition of environmental reportingNo Areas Items1 General environmental Statement of the corporation’s business opera- considerations tions on environmental pollution pertaining to (environmental pollu- noise, air, water and visual quality tion)ψ Statements indicating that the company’s op- erations are non-polluting or that they are in compliance with pollution laws and regula- tions§ Recognition of the need to comply with soci- ety standards and regulationsψ Statement of the capital, operating, and re- search and development expenditures and ac- tivities of the environmental pollution pro- duced by the firm with respect to noise, air, water and visual quality2 Environmental policy Actual statement of policy Statement of formal intentions Statements indicating that company will un- dertake certain measures to curb environ- mental pollution and other such damage or what the company does3 Environmental audit Reference to environmental review, scoping, audit, assessment including independent at- testation4 Environmental – prod- Waste(s)–including preventing waste; effi- uct and process related ciently using material resources in the manu- facturing processes§ Packaging Recycling–including using (or researching)ψ recycled materials§; conservation of natural resources e.g. recycling glass, metals, oil, wa- ter and paper§ Products and product development Land contamination and mediation – including prevention or repair damage to the environ- ment resulting from processing of natural re- sources e.g. land reclamation or reforestation§5 Environmental finan- Reference to financial/economic impact cially related data Investment and investment appraisal Discussion of areas with financial/economic impact Discussion of environmental-economic inter- action
S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 131 Appendix 1 (continued)6 Sustainability Any mention of sustainability Any mention of sustainable development7 Environmental Aesthet- Designing facilities harmonious with the envi- ics ronment Contributions in terms of cash or plants/ flowers to beautify the environment Natural landscaping8 Environmental – Other Involvement in schemes Undertaking environmental impact studies to monitor the company’s impact on the environ- ment–including conducting review of perform- ance; employing specialist consultantsψ Receiving awards related to programs or poli- cies of company Protection of the environment Environmental education–including training employees in environmental issues§ Wildlife conservation§ Supporting environmental campaigns§9 Energy Conservation of energy in the conduct of busi- ness operations Using energy more efficiently during the manufacturing process Utilising waste materials for energy production Disclosing energy savings resulting from prod- uct recycling Discussing the company’s efforts to reduce energy consumption Disclosing increased energy efficiency of products Research aimed at improving energy effi- ciency of products Receiving an award for an energy conservation program Voicing the company’s concern about the en- ergy shortage Disclosing the company’s energy policiesSources: Hackston and Milne (1996)
132 S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 Appendix 2 Total Cases/ DISCLOSURE ITEM Reporting companies (68) Scoring Sheet 1 Corporate context a. Graphical description of products and/or services 12 b. Identification of the boundary of the report Environmental information is provided for each major business operations 16 Environmental performance of other related parties is in- cluded 2 2 Corporate commitment a. Vision and mission Vision statement of the organization mentions anything on environment 4 Mission statement of the organization mentions anything on environment 12 b. Chairman/CEO Statement Environmental issues are mentioned in the statement 21 Highlights the commitment by the organizations leadership to environmental issues and objectives 25 Highlights the achievement in the current period -include both success and failure 9 Identifies issues and challenges facing the organization 4 Future environmental strategy 6 3 Environmental policy a. The company adopts internally developed environmental policy or indication that any publicly established charter is being subscribed by the company 32 b. There is a set of environmental goals and objectives 21 c. The environmental goals and objectives should, at a minimum, state a commitment to: Materials, water and energy conservation 23 Waste, emissions and discharges management 23 Continuous process improvement and monitoring 30 Supplier chain and/or product stewardship 16 Compliance with environmental laws and regulations 29 Biodiversity maintenance and conservation 20 Stakeholders relation management 13 Environmental performance reporting 10 Recognition of the improved performance 3 4 Targets and achievements a. There are specific environmental targets to be achieved 23 b. The target have covered major environmental issues 14
S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 133 Appendix 2 (continued) c. Achievement (or progress) against targets are indicated 18 d. Reasons for any non-achievement of those targets 0 e. Associated remedial or preventive actions 15 Environmental management systems a. The organization has an environmental management sys- tem, or planning (and status) of implementation 27 b. There are members of the board, division or department responsible for environmental management 12 c. The division/department is responsible on the whole envi- ronmental issues in the company 5 d. Identification of the key managerial responsibilities for various aspects of the system which includes: 1 Contingency planning and risk management 6 Internal audit and review 10 Environmental impact assessment 8 d. The environmental management system is externally cer- tified or planned (and expected date) to be certified 10 e. Clear identification on the process/facilities involved in the certification 8 f. Training program and related educational activities for staff and other related parties i.e. contractors, suppliers etc 86 Environmental impacts a. Identification of the significant environmental impacts of the organizations activities, products and services 20 b. The implication should the impacts are not mitigated 8 c. The hiring of enviromental specialists or external auditors to facilitate the identification of environmental impacts 87 Performance data a. Energy - absolute (joules); normalized; trends over time; comparative data within sector 6 b. Materials - absolute (tones, volume or kilograms); nor- malized; trends over time; comparative data within sector 3 c. Water - absolute (liters or cubic meters); normalized; trends over time; comparative data within sector 2 d. Emissions, effluents and waste - absolute (tones or kilo- grams); normalized; trends over time; comparative data within sector 68 Research and development a. There are research and development initiatives under- taken on environmental improvements 10 b. Environmental objectives for the improvements are clearly set out 6 c. Actual and forecasted capital expenditures, liabilities 4 d. Financial qualification benefits 1
134 S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 Appendix 2 (continued) 9 Third party verification a. There is a statement by an external party to verify the information 1 b. The statement clearly states: Remit and scope 0 Indication of site visits and site-specific testing 0 Interpretation of data/performance reported 0 Indication of any data /information omitted that could/should have been included 0 Independent comment on corporate targets set and impacts identified 0 Shortcomings and recommendations 0 10 Compliance/non-compliance a. Statement indicates that the organization is in compliance with such laws and regulations 25 b. List of number of sites or departments that have received complaints or have been prosecuted 1 c. Total number of fines paid or volume of fines/complaints 2 d. Statements to indicate whether any environmental acci- dents have occured 3 e. Procedures that have been put in place to prevent such incidents/non-compliance to recur 4 f. Comparison of the data over time 1 g. Comparison of the data within sector 0 11 Financial data a. There is an environmental financial statement 0 b. The environmental information is integrated within the conventional financial statement 5 c. The company practices environmental full cost account- ing 0 d. Conventional financial data 0 Environmental investment /liabilities 1 Environmental savings/ expenses 4 Any specific accounting policies adopted 1 e. Investment appraisal consideration 1 12 Stakeholder engagement and other initiatives a. Stakeholder engagement Indication of the stakeholder engagement in practice 18 Approaches to stakeholder consultation 8 Discussion on the outcome of the engagement 3 b. Community outreach program Indication that an organization has conducted a community outreach program 14 Details such as date, place and participation 8
S. Buniamin / Issues in Social and Environmental Accounting 2 (2010) 115-135 135 Appendix 2 (continued) c. Supporting any environmental campaigns/ initiatives by other parties 8 d. Charitable contributions to or partnership with environ- mental organizations 713 Awards a. Any environmental reporting awards received by an or- ganization 11 b. Other awards 1714 Report design a. Indication of any relevant reporting guidelines followed 0 b. Innovative approach in reporting 0 c. Appropriate graphics 18 d. Communication and feedback mechanism 1 Name of the person or department responsible with prepar- ing the reports 2 Telephone number or email address 1 e. Separate environmental section is devoted in the annual report 16 Total Disclosure 737 Total Disclosure Item 94 LOWEST CASES 0 AVERAGE CASES PER ITEM 8 HIGHEST CASES 32
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