The materiality of environmental information to users of annual reports

Abstract

IntroductionThere have been numerous studies, both within Australia and elsewhere, that have reviewed the environmental disclosure policies of corporations and other forms of reporting entities. A number of these studies have been critical of the reporting practices adopted (for example Deegan and Gordon, 1996;Deegan and Rankin, 1996;Guthrie and Parker, 1990). The overwhelming criticisms, particularly within Australia, have been that annual report disclosures relating to the environmental performance of particular reporting entities tend, on average, to be biased and self-laudatory with minimal disclosure of negative environmental information.Such criticisms have, as their foundation, an assumption that those parties who use published annual reports actually take environmental performance into account. That is, there is an assumption that environmental information is material to the users of the annual reports. This would seem to be a reasonable assumption. Across time, environmental laws have increased dramatically (see Bates (1995) for Australian evidence) and, hence, many annual report users, such as investors, would be wary of the potential financial risks associated with companies that are unable to indicate environmental accountability. Membership of environmental groups within Australia has burgeoned over the last decade (see Deegan and Gordon, 1996), which is also consistent with increased community concern about environmental information. Related to this, evidence shows (Tilt, 1994) that environmental groups rely on annual reports to assess, at least in part, the environmental performance of reporting entities. It is also argued that employees, a key user group of annual reports (Accounting Standards Steering Committee, 1975), are increasingly considering organizational environmental performance when determining to which organizations they will supply their labour (

The Attitudes of Managers and Stakeholders towards Corporate Social and Environmental Disclosure

“…In regard to environmental disclosure, Campbell and Slack (2011) mentioned the result of the study of business in the environment (published in 1994) which demonstrated unimportance of environmental information to the assessment of financial analysts, which is rather based mainly on financial standards. The study of Deegan and Rankin (1997) confirmed such result. They surveyed different groups of annual report users and found that analysts do not believe in the materiality of environmental information to their decisions.…”

The consideration of environmental matters in the audit of financial reports

“…Hence there is significant pressure for corporate disclosures of social, environmental and economic issues (Schacter, 2005). This pressure on companies appears to be expanding the accountability obligation (Fiedler & Lehman, 1995) and some authors have advocated the reporting of environmental matters in corporate annual reports and financial statements (Blokdijk & Drieenhuizen, 1992;Browning, 1994;Cornell & Apostolou, 1991;Deegan & Rankin, 1997;Russell, 1992;Salome & Galluccio, 2001). …”

“…Deegan and Gordon (1996) observed increasing community appeal for environmental information; Tilt (1994) found that environmental groups relied on annual reports to assess the environmental performance of reporting entities. Deegan and Rankin (1997) reasoned that managers of reporting entities must convey environmental information material to report users, because a number of them provide voluntary environmental disclosures. Their survey study also provided evidence that "some groups within society do perceive environmental issues as material to their decision-making processes, and they seek information on environmental matters in the annual report" (Deegan & Rankin, 1997, p. 567).…”

Social and Environmental Disclosure Rating in the Libyan Oil and Gas Sector

“…Disclosure is all the more important in light of the fierce competition between companies, particularly those trading shares on the stock market. As investors have started to press for the disclosure of environmental information in published annual reports or in the notes accompanying these reports 2 , companies have begun to respond by including some ED and CSR information.…”