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THE COMPREHENSIVENESS OF ENVIRONMENTAL REPORTING BY

GLOBAL ELECTRIC UTILITIES: THE TYPE OF INFORMATION AND

THE REPORTING MEDIA

BakhtiarAlrazi#

Charl de Villiers

Department of Accounting and Finance

The University of Auckland Business School, New Zealand

Chris van Staden

Department of Accounting and Information Systems

College of Business and Economics,

University of Canterbury, New Zealand

#Corresponding author:

Department of Accounting and Finance

The University of Auckland Business School

Owen G Glenn Building

12, Grafton Road

Auckland 1142

New Zealand

Telephone: +64 9 373 7599

Fax: +64 9 373 7406

Email: b.alrazi@auckland.ac.nz

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Abstract

Purpose – This study examines content analysis options before developing disclosure

indices to assess the comprehensiveness of the environmental reporting of electric

utilities. It also analyses the environmental reporting of 205 electric utilities from 35

countries across various reporting media.

Design/methodology/approach – Based on a careful consideration of the options

represented by established reporting guidelines and the extant literature, we develop

two disclosure indices, i.e. an overall environmental disclosure index and a CO2

emissions disclosure index. We conduct content analysis of environmental disclosure

made in annual reports, stand-alone reports, and on websites for the 2007 financial

year. We examine the disclosure both in aggregate and by reporting medium.

Findings – A high proportion of companies disclose environmental and CO2

information, however disclosure is generally not comprehensive. The annual report is

the most common medium for environmental disclosure. We also find that different

types of information are disclosed in different media. Based on the prior literature, we

deduct this is in order to cater for different intended audiences. Annual report

disclosures largely contain information targeted at shareholders, government and

other financial stakeholders; with stand-alone reports targeted at other stakeholders,

such as academics, environmental NGOs, and employees; and website disclosures

comprised general environmental disclosures targeted at the information needs of

local communities, the general public, and customers.

Research limitations/implications – First, the study represents a snapshot of one

year‟s environmental disclosures. Second, we focus on quality, largely ignoring

quantity/volume of disclosure. Finally, our website analysis represents disclosure at a

given point in time, disregarding the ability of websites to reflect regularly updated

information.

Practical implications, originality/value – The electric utility industry contributes as

much as 41% of CO2 emissions, an issue of high current social importance. Company

disclosure is an important source of information about CO2 emissions and other

environmental issues. This assessment of current practice thus provides information

of potential value to regulators and other interested parties. This study also advances

our understanding of the use of different information in different reporting media in a

company‟s overall communication strategy. This study uniquely focuses on: the

quality of environmental disclosure in a single important polluting industry;

companies across several countries; CO2 disclosures; different types of information;

and different reporting media.

Keywords – Climate change, content analysis, electric utilities, environmental

reporting

Paper type: Research paper

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1. INTRODUCTION

The electricity industry is among the industries with the greatest impacts on the

environment. According to the International Energy Agency (IEA, 2009), the industry

contributed 41% of the energy related carbon dioxide (CO2) emissions in 2007. The

CO2 emissions from the industry also increased by 60% since 1990, significantly

greater than the 38% increase in global emissions during the same period (IEA, 2009).

This is important because CO2 and other greenhouse gas (GHG) emissions have been

singled out as the main cause of climate change (or global warming) (IPCC, 2007).

Furthermore, the use of fossil fuels releases tonnes of sulphur dioxide (SO2) and

nitrogen oxide (NOx) emissions, causing acid rain (Freedman, Jaggi, & Stagliano,

2004). In addition, these emissions are implicated in health issues, in particular, the

increasing prevalence of respiratory problems (Mukhopadhyay & Forsell, 2005).

Many initiatives aim to mitigate the emission problems at different levels. The

adoption of the Kyoto Protocol in 1997 (became effective in 2005), the institution of

the Intergovernmental Panel on Climate Change (IPCC) in 1989, the annual United

Nation climate change conferences, and the establishment of emission trading

schemes (e.g. the EU Emissions Trading Scheme in 2005) are expected to change the

way electric utilities generate, or purchase, their electricity (see also Southworth,

2009). In the US, the Clean Air Act 1990, specifically targets and monitors coal-fired

electric utility plants with high SO2 and NOx emissions (Freedman & Jaggi, 2004;

Freedman et al., 2004; Freedman & Stagliano, 2008). Non-compliance has proven

costly to electric utilities. For example, American Electric Power Corporation failed

to install pollution controls required by the Act and was subsequently forced to settle

a lawsuit for USD4.6 billion, pay a $15 million penalty, and spend $60 million on

projects to mitigate adverse effects of past emissions (EPA, 2007).

Non-fossil fuel electricity generation also impacts the environment. The recent

Japanese earthquake and tsunami that damaged a nuclear power station caused

increased global awareness of the dangers of nuclear power generation to the extent

that Germany subsequently decided to move away from this power source. Nuclear

power generation increases the risk of radioactive leakages which could have

substantial long term health effects (Freedman & Jaggi, 2004). The explosion at the

Chernobyl nuclear power plant could eventually kill up to 4,000 people due to

radiation exposure while 350,000 residents experienced a “deeply traumatic

experience” (UN, 2005). Hydro generation involves the construction of a dam. Large

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dams typically displace native flora and fauna, adversely affect water quality, and

deny access to migratory aquatic life (Hooks, Kearins, & Blake, 2004). Renewable

energies such as wind, solar, tidal, and biomass also impact the environment

negatively (see Hooks et al., 2004; O'Riordan, 1989), although the degree of the

impacts is perceived to be smaller than those of fossil fuels, nuclear, and hydro.

Due to these significant impacts and increased scrutiny by regulators and the

media, electric utilities currently face immense pressure to demonstrate environmental

responsibility, not only to these stakeholders, but also to investors, creditors,

employees, suppliers, and the public (Deegan & Rankin, 1997; Freedman et al., 2004;

Freedman & Stagliano, 2008; Solomon, 2000; Van der Laan Smith, Adhikari, &

Tondkar, 2005). According to Patten (1991, 2002), companies use social disclosure as

a way to participate in the public policy process and reduce exposure to further

external scrutiny. Furthermore, communication between companies and society is

very important for any legitimising strategy to be effective (see De Villiers & Van

Staden, 2006; Deegan, 2002). Thus, we expect electric utilities to use environmental

disclosure to inform stakeholders and to manage their image and legitimacy.

Several prior studies examine the state of environmental reporting among electric

utilities. However, the studies are largely country specific (Cormier & Gordon, 2001;

Hooks et al., 2004) and/or focus on certain environmental information (Freedman &

Jaggi, 2004; Freedman et al., 2004; Freedman & Stagliano, 2008). Van der Laan

Smith et al. (2005) include samples from three countries and explore the quantity and

quality of the social disclosures. However, they use a crude quality assessment and

capture „what is being reported‟, but not „what is not being reported‟. The sample

sizes of prior studies are also typically small. Furthermore, these prior studies only

consider annual report disclosures or do not distinguish between reporting media. An

annual report focus “risk[s] underestimating the volume [and quality] of CSR

companies engage in” (Unerman, 2000, p. 674), while an analysis of different

reporting media recognises the different nature and roles of each medium (see e.g.

Clarkson, Li, Richardson, & Vasvari, 2008; De Villiers & Van Staden, 2011).

Given the scope of electric utility emissions and therefore the importance of their

environmental disclosures, combined with the weaknesses in the prior literature, this

study aims to: first, examine the content analysis options available to develop two

disclosure indices (an overall environmental disclosure index and a CO2 emissions

disclosure index), based on established reporting guidelines and the prior literature;

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second, use the indices to assess the comprehensiveness of electric utility

environmental reporting on a worldwide basis; and third, analyse disclosures by

reporting medium, i.e. annual report, stand-alone report, and website. The focus on

the electricity industry controls for differences in the regulation and social pressures

associated with each industry (see Van der Laan Smith et al., 2005), while responding

to Parker‟s (2005, p. 857) call to start to consider social and environmental

accountability “beyond the mining, chemical and manufacturing industries”.

We find that, according to our assessment tool, the overall comprehensiveness of

disclosure is relatively low. The mean disclosure score for overall environmental

disclosure is 27% and 26% for CO2 disclosure. The annual report is the most common

medium used for environmental disclosure, judging by both the number of reporting

companies and the mean disclosure scores. Website disclosure comes second, while

the use of a stand-alone report is very limited. We also find companies that are better

at disclosing in a reporting medium are also better at disclosing in any other medium.

We offer some evidence linking the type of information prevalent in each medium

and the targeted audience. Supported by the prior literature, we infer that annual

report disclosures contain information aimed at shareholders, government, and other

financial stakeholders (e.g. risks and regulations, compliance, and investments); the

publication of the stand-alone report and the disclosures therein are targeted to users

such as the academics, environmental NGOs, and the employees (e.g. the majority of

the performance indicators and training and awareness); and the website disclosures

comprise general disclosures of relevance to various stakeholder groups including

local communities, the general public and customers (e.g. environmental vision or

mission, environmental policy, and community outreach programs).

This study enhances the existing literature through the discussion of content

analysis methodology and the development of disclosure indices. It also documents

the current state of environmental reporting by electric utilities in an international

setting. This pragmatic analysis provides information of interest to regulators who

may consider mandatory disclosure to ensure more comprehensive, meaningful, and

credible environmental reports. Our results provide further insights into the types of

environmental information and the use of reporting media in disclosure and

legitimising strategies. Specifically, the nature and type of information reported in

each medium and the targeted audience for each medium.

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The rest of the paper is structured as follows. Section 2 provides a review of the

literature. The first part discusses main issues in content analysis and the second part

reviews previous studies on the environmental reporting of electric utilities. Section 3

describes the sample and research methods, including the development of disclosure

indices. Section 4 presents the findings and section 5 concludes.

2. LITERATURE REVIEW

2.1 Content analysis

Content analysis is the most widely used method in social and environmental

accounting research (see Eugénio, Lourenço, & Morais, 2010; Parker, 2005, 2011),

particularly, for measuring the extent and/or quality of reporting. Krippendorf (2004, p.

18) refers to content analysis as “a research technique for making replicable and valid

inferences from texts (or other meaningful matter) to the contexts of their use”. In this

regards, Gray, Kouhy, and Lavers (1995) identify four main issues in content analysis,

namely the definition of the content to be investigated, the location (or source) of the

information, the measurement of the information, and the reliability of the data.

2.1.1 Definition of environmental information

Environmental reporting (or information) can be defined in numerous possible

ways. For example, Wilmshurst and Frost (2000, p. 16) define environmental

reporting as “those disclosures that relate to the impact company activities have on the

physical or natural environment in which they operate”. Berthelot, Cormier, and

Magnan (2003, p. 2) consider all information “that relate to a firm‟s past, current and

future environmental management activities and performance. [It]...also comprises

information about the past, current and future financial implications resulting from a

firm‟s environmental management decisions or actions.” However, these definitions

are too generic, while for content analysis to be effective, the definition must be

“precise and unique” (Gray et al., 1995, p. 81). Few authors have established and used

a checklist instrument, usually accompanied by a set of decision rules, to help assist

with deciding what should or should not constitute (social and) environmental

information (e.g. Hackston & Milne, 1996; Williams, 1999; Williams & Ho, 1999).

Additionally, studies utilising a disclosure index also have a list of predetermined

items as criteria for coding the environmental information (e.g. Clarkson et al., 2008;

Van Staden & Hooks, 2007; Wiseman, 1982).

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Another issue pertinent to the definition of environmental information (or list of

environmental disclosure items) is its validity. As the process of defining the

information (or selecting the items) involves some degree of judgement and

subjectivity, few studies, in particular those utilising a disclosure index (either on the

environmental disclosure or other disclosure types) seek the views of certain

stakeholder groups (e.g. Buzby, 1974; Chow & Wong-Boren, 1986; Clarkson et al.,

2008; Cooke, 1989; Coy & Dixon, 2004; Hooks, Coy, & Davey, 2001; Owusu-Ansah,

1998) to ensure that the disclosure items are relevant and that no important items have

been left out. The definition can also be considered valid if it is supported by the

credibility and the diversity of the sources of reference (see Beattie, McInnes, &

Fearnley, 2004).

2.1.2 Location of environmental disclosure

Environmental information is made public via various communication channels.

These include annual reports, stand-alone reports, and the website (see Danastas &

Gadenne, 2006; Gray & Bebbington, 2001; Lodhia, 2004; Tilt, 2008; Unerman, 2000;

Zéghal & Ahmed, 1990). Traditionally, the annual report is the main source, and

possibly the most important source, of information for corporate environmental

performance and initiatives to both preparers and users (e.g. Deegan & Rankin, 1997;

Solomon, 2000; Tilt, 1994). Consequently, earlier content analysis studies in this area

have largely focused on disclosures made in annual reports (e.g. Deegan & Rankin,

1996; Gray et al., 1995; Hackston & Milne, 1996; Patten, 2002; Wiseman, 1982).

However, as Tilt (2008) points out, this does not mean that the annual report is the

most appropriate medium for the provision of such information. Furthermore, Gray

and Bebbington (2001) perceive that annual report disclosures would no longer be

sufficient, and foresee the growing use of other media, including the stand-alone

report, to supplement the reporting on the environment in the annual reports.

The increased awareness among the public of the negative impacts business

activities have on the environment has led to the expansion of the communication

media to include reporting in stand-alone reports (Lodhia, 2004). As reported by the

KPMG‟s (2005, 2008) triennial surveys, there is an increasing trend in the number of,

in particular large, companies producing stand-alone reports. This expansion could

also be due to the availability of various reporting guidelines (e.g., by GRI) and the

reporting award schemes (e.g., by ACCA) (Gray & Bebbington, 2001; Lodhia, 2004).

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Currently, stand-alone reports are being published under various labels including

environmental reports, health, safety and environment reports, social and community

reports and sustainability reports (Frost, Jones, Loftus, & Van der Laan, 2005). Due to

their nature, the reports are more comprehensive than the disclosure of environmental

information in the annual reports (Frost et al., 2005), and there is also limited

evidence to support that (certain groups of) users rely more on the former than the

latter in evaluating corporate environmental performance (see Danastas & Gadenne,

2006; O'Dwyer, Unerman, & Hession, 2005). However, the publication of the stand-

alone reports, beyond the KPMG‟s sample companies, is still not prevalent and this

could possibly be due to cost considerations (Gray & Bebbington, 2001).

More recently, the advent of World Wide Web (WWW) has seen an explosion in

Internet usage and the disclosure of environmental information on corporate websites,

in particular in the late 1990s (Gray & Bebbington, 2001; Patten & Crampton, 2004).

More importantly, this new development not only allows for greater access to

environmental information by the public, but also the information can be presented in

a timely and cost effective manner (see further Adams & Frost, 2004; Herzig &

Godemann, 2010; Lodhia, 2004, 2006). Prior studies comparing the disclosures made

in the annual reports and on the websites have suggested that, increasingly, companies

are replacing the role of annual reports as the main media for communicating

corporate environmental activities (e.g. Chatterjee & Mir, 2008; Danastas & Gadenne,

2006; Frost et al., 2005; Patten & Crampton, 2004; Williams & Ho, 1999).

Analysing the disclosure by reporting medium is of crucial importance. Many

studies demonstrate differences in the nature and type of information prevalent in

each medium (e.g. Aerts, Cormier, & Magnan, 2008; Belal et al., 2010; Cormier &

Magnan, 2004; De Villiers & Van Staden, 2011; Frost et al., 2005; Haque & Deegan,

2010; Patten & Crampton, 2004)[1]

. Furthermore, Unerman (2000) accentuates that

unless consideration is given to these abundant media, the analysis of corporate

environmental reporting will be rendered incomplete.

2.1.3 Measurement of environmental information

The decision as to how the information should be measured (and also coded) is the

issue which attracts the most debates in the literature. Diagram 1 depicts a summary

of data measurement units commonly used to measure disclosure levels. At its

simplest, the disclosure can be measured based on whether a company‟s report

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contains any environmental information at all (e.g. Ahmad, Hassan, & Mohammad,

2003; Brammer & Pavelin, 2006; Buniamin, Alrazi, Johari, & Abd. Rahman, 2008).

This measure however does not capture the extent and richness of the information and

thus is only appropriate for studies of an exploratory in nature.

Diagram 1

Data measurement levels

*We acknowledge that the list provided here is not exhaustive

Secondly, the extent, or quantity, of the disclosure can be measured using one of

the following: number of words, number of sentences, number or proportion of pages

(see Gray et al., 1995; Hackston & Milne, 1996; Hooks & Van Staden, 2011; Milne &

Adler, 1999; Unerman, 2000), line counts (Choi, 1999; Patten, 2002; Wiseman, 1982)

or number of theme occurrence (Walden & Stagliano, 2004). Additionally, the

disclosure index using a binary/dichotomous scoring system, where a score of one (1)

is awarded if an item is present in the report, otherwise zero (0), is also considered as

an acceptable measure for quantity (Guthrie & Abeysekara, 2006). Overall, quantity

deals with the issue of „how much is being disclosed‟ (Raar, 2007; Walden &

Schwartz, 1997) and signifies the importance of an issue to an organisation (Neu,

Warsame, & Pedwell, 1998; Unerman, 2000).

Quality, on the other hand, goes deeper by addressing issues of „what is being

reported‟ and „how the information is measured‟ (Beretta & Bozzolan, 2004; Raar,

2007; Walden & Schwartz, 1997; Walden & Stagliano, 2004). Generally, quality of

reporting can be broadly divided into qualitative and quantitative assessments.

Qualitative assessment of quality entails the examination of the type and nature of the

data communicated, including the evidence (i.e. monetary, quantitative, and

DISCLOSURE LEVEL

EXTENT/QUANTITY QUALITY

Qualitative Quantitative

REPORT/NOT REPORT

Words

Sentences

Pages (or proportion)

Line counts

Theme occurrence

Disclosure index

(binary scale)

Others*

News type

Evidence

Time frame

Others*

Disclosure index

(ordinal scale)

Others*

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declarative), the type of news (i.e. positive, negative, and neutral), and the time frame

(past, present, and future) (see Gray et al., 1995; Van der Laan Smith et al., 2005;

Walden & Stagliano, 2004), without any attempts to assign any scores/rankings to the

disclosed information. By contrast, quantitative assessment of the quality of reporting

often involves (but is not limited to) the use of ordinal scaled disclosure indices to

assess, compare and explain differences in the comprehensiveness of disclosure

(Guthrie & Abeysekara, 2006). An ordinal scaled (polychotomous) system, assigns

scores for a disclosure item along a scale e.g. a score of zero (0) for non-disclosure,

and three (3) for a comprehensive disclosure. Of these two measures, quantitative

assessment is argued to be more effective. Jones and Alabaster (1999) assert that a

disclosure index can be used to rate, rank, and benchmark corporate reports.

Furthermore, since a qualitative assessment can be very subjective, the use of a

disclosure index leads to a more objective measurement of the information contained

in the reports (Wiseman, 1982).

The use of (ordinal scaled) disclosure indices is increasingly prominent in the

social and environmental accounting research (e.g. Aerts & Cormier, 2009; Al-

Tuwaijri, Christensen, & Hughes, 2004; Dragomir, 2010; Milne, Tregidga, & Walton,

2003; Van Staden & Hooks, 2007; Wiseman, 1982). Using a disclosure index could

mitigate some issues inherent in quantity measures such as in the measurement of

pages (e.g. the treatment of blank pages, differences in font type and size, and the size

of page margin), sentences (e.g. measurement for graphs, charts, and visual images),

and words (i.e. it is meaningless without a sentence to put it into context). A

disclosure index could also enhance our understanding of what is currently being

reported as much as what remains unreported. Hence, any weaknesses in the existing

reporting practices could be uncovered for further improvement. When carefully

constructed, the index is capable of assessing other information quality attributes,

including understandability, relevance, comparability, and reliability, simultaneously

(Hooks & Van Staden, 2011). Finally, as is evidenced in Hasseldine, Salama, and

Toms (2005), the overall quality of environmental disclosure (as characterised by the

disclosure of environmental initiatives and monitoring, targets, and performance

data), has a greater impact on the community and environmental reputation of the UK

largest companies than the quantity of the disclosure (as measured by number of

environmental sentences). This seems to give an indication of the relative importance

of a quality measure over a quantity measure.

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2.1.4 Reliability of the coded and measured data

Milne and Adler (1999) emphasise the need to demonstrate the reliability of the

collected data and/or the reliability of the (content analysis) instruments as

prerequisites for replicability and any inferences to be valid. To test for the reliability

of the coded data, Krippendorf (2004) suggests three types of test, namely stability,

reproducibility, and accuracy. The stability test (or test-retest design) involves

repeating the content analysis procedure, usually after a certain period of time, to

detect any discrepancies in the results. The reproducibility test (test-test) is performed

to ensure an acceptable degree of agreement on the coding decision is reached across

coders. Finally, the accuracy test (test-standard) compares the results with certain

standards or specifications. The accuracy test is the strongest test of reliability, while

the stability test is the weakest.

The use of multi-coders in content analysis can be costly, and the standards or

specifications for comparison are often not readily available. Milne and Adler (1999)

suggest the development of well specified decision categories and decision rules to

guide the coder(s), while at the same time, this could enhance the reliability of the

instruments (see also Guthrie & Abeysekara, 2006). Moreover, there must be

evidence that an inexperienced coder, if any, has undergone a sufficient period of

training (Guthrie & Abeysekara, 2006; Milne & Adler, 1999).

2.2 Content analysis studies of electric utilities

Studies examining the environmental reporting practices of electric utilities can be

broadly grouped into two, namely studies assessing the overall environmental

information (Cormier & Gordon, 2001; Hooks et al., 2004; Van der Laan Smith et al.,

2005) and studies focusing on a specific type of environmental information

(Freedman & Jaggi, 2004; Freedman et al., 2004; Freedman & Stagliano, 2008). We

review these studies by focusing on the methodological issues for content analysis as

discussed earlier (see Table 1) and areas in which our study can improve on.

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Table 1

Summary of studies on the extent/quality of the electric utilities‟ (social and) environmental reports

Panel A: Overall environmental disclosures

No. Authors Sample Definition Reporting medium Data measurement

Reliability test Extent Quality

1 Cormier &

Gordon (2001)

3 Canadian electric

utilities

Disclosure index

adapted from

Wiseman (1982);

38 items (8 categories)

Annual reports

(1985-1996)

- 0-3 scoring scale for all

items

The reports were coded

independently by two

researchers

2 Hooks et al.

(2004)

6 major New

Zealand electric

utilities

Self-developed

disclosure index; GRI;

30 items (7 categories)

Annual reports and

stand-alone reports

(2001-2002)

- 0-3 scoring scale for all

items

The reports were coded

independently by two

researchers

3 Van der Laan Smith et al.

(2005)

58 electric utilities (32 Norwegian/

Danish; 26 US)

No checklist instrument/disclosure

index is used

Annual reports (1998-1999)

Words, sentences,

& pages

Qualitative-based: the presence of numeric data;

whether the information is

proactive, future-oriented,

and informational

Coded by a single researcher. Questionable

items were discussed

with another researcher

Panel B: Performance related disclosures

4 Freedman &

Jaggi (2004)

66 US electric

utilities

Self-developed

disclosure index (CO2

emissions disclosure);

5 items

Annual reports

(1998)

0-1 scoring

scale

- Not discussed

5 Freedman et al.

(2004)

38 US electric

utilities

Self-developed

disclosure index (SO2

emissions disclosure);

7 items

Annual reports

(1989, 1990, &

1995)

0-1 scoring

scale

Items are given weights

between 1 and 3

(Maximum score: 15)

Not discussed

6 Freedman &

Stagliano

(2008)

32 US electric

utilities

Self-developed

disclosure index (SO2

emissions disclosure);

8 items

Annual reports,

stand-alone reports,

and website

(1999 & 2001)

0-1 scoring

scale

Items are given weights

between 1 and 3

(Maximum score: 15)

Not discussed

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The majority of the studies use a disclosure index, either an adaptation from the

existing indices or a self constructed index, to define the environmental information.

However, in Van der Laan Smith et al. (2005), there is no clear description as to how

the authors define the environmental information, other than by listing some examples

of environmental related disclosures (i.e. seven items) in Appendix A of the paper.

This lack of clarification would make any comparison across studies rather difficult

(Beattie & Thompson, 2007). Hooks et al. (2004) use, among others, the GRI

sustainability reporting guidelines to develop their index. However, the index only

includes items that are applicable and relevant in the New Zealand context, in which

the generation of electricity is predominantly from hydro and other renewable

energies (e.g. wind and geothermal). They acknowledge the absence of many

indicators from the index and suggest that other researchers consider these omitted

indicators in developing an index. Furthermore, recently the GRI has issued the

Electric Utility Sector Supplement (GRI, 2009), a guideline which focuses on the

reporting of (social and) environmental issues most relevant to this industry, which is

the basis of the disclosure indices in our study[2]

.

Most of the previous analyses are restricted to disclosures made in the annual

reports. In light of the increasing use of stand-alone reports and the websites,

excluding these alternative media from the analysis, particularly in the present

situation, seems unjustifiable and would result in the under-representation of the

actual level of the disclosure. Freedman and Jaggi (2004) and Freedman et al. (2004)

contacted the sample companies for these additional reports, but to no avail. Hooks et

al. (2004) analyse stand-alone reports, while Freedman and Stagliano (2008) also

examine the disclosure on the websites, but there is no separate analysis conducted for

each reporting medium. This has certainly undermined the potential of the analysis in

improving the understanding of corporate environmental reporting strategy.

Prior literature measures the environmental reporting by extent and/or quality.

Van der Laan Smith et al. (2005) use the conventional approach of measuring the

extent of the reporting (i.e. counting words, sentences, and pages), and for quality

they opt for a qualitative assessment. Both methods have weaknesses as already

identified in the previous section. Other studies (Freedman & Jaggi, 2004; Freedman

et al., 2004; Freedman & Stagliano, 2008) utilise a dichotomous scoring system to

measure the extent of reporting. For the quality measure, they (Cormier & Gordon,

2001; 2008; Hooks et al., 2004) use an ordinal scoring scale to take into account the

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comprehensiveness of the disclosed items. However, an important aspect that is

missing from these studies with regards to devising a disclosure index, is the

discussion on the treatment of disclosure items (or disclosure criteria) that is not

applicable or relevant to the companies (see Al-Tuwaijri et al., 2004; Cooke, 1989;

Hooks et al., 2001; Marston & Shrives, 1991; Owusu-Ansah, 1998). This

consideration is essential so as to avoid companies from being penalised

unnecessarily for the non-disclosure of information that is not relevant (or significant)

to them.

Finally, half of the studies do not discuss any measures undertaken to ensure that

their (coded and measured) data are in fact reliable. For studies with such a

discussion, multiple-coders have been used to justify reliability, without objectively

demonstrating that the degree of agreement among the coders has actually reached an

acceptable level.

Other than issues with content analysis methods, most of these studies are country

specific and include a small number of electric utilities. A cross country study with a

larger sample size would enhance the external validity of the content analysis studies

of companies from the electricity industry. Furthermore, our study evaluates two

aspects of disclosure; the overall environmental information (to consider a wide range

of environmental issues associated with the electric utilities) and the CO2 emissions

information (in light of the significant contribution of the companies from the

electricity industry towards climate change/global warming).

3. SAMPLE SELECTION AND RESEARCH METHODS

3.1 Sample selection

The sample selected for this study is based on a wider study which examines the

influence of environmental performance and country of origin on the environmental

reporting of global electric utilities[3]

. The final sample comprises 205 electric utilities

from 35 countries, with about one-third of the companies being headquartered in the

US. Table 2 depicts the distribution of the sample companies by country.

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Table 2

Distribution of sample by country

No Country n % No Country n %

1 USA 78 38.0 19 Thailand 3 1.5

2 Canada 14 6.8 20 The Philippines 3 1.5

3 Japan 11 5.4 21 Greece 2 1.0

4 UK 11 5.4 22 Singapore 2 1.0

5 Russia 9 4.4 23 Cayman Islands 1 0.5 6 India 7 3.4 24 Colombia 1 0.5

7 Brazil 6 2.9 25 Czech Republic 1 0.5

8 Hong Kong 6 2.9 26 Denmark 1 0.5

9 Pakistan 6 2.9 27 Kenya 1 0.5

10 Italy 5 2.4 28 Korea 1 0.5

11 Australia 4 2.0 29 Norway 1 0.5

12 China 4 2.0 30 Oman 1 0.5

13 France 4 2.0 31 Portugal 1 0.5

14 Germany 4 2.0 32 Qatar 1 0.5

15 Malaysia 4 2.0 33 Saudi Arabia 1 0.5

16 Chile 3 1.5 34 Switzerland 1 0.5

17 New Zealand 3 1.5 35 Turkey 1 0.5 18 Spain 3 1.5

Total 205 100.0

3.2 Content analysis procedure

As discussed in the literature review section, there are several main issues in

content analysis. Since our study utilises a disclosure index method, to improve the

readability of this section, we use the following sequence in the discussion: (1)

medium of environmental reporting, (2) the development of disclosure indices, in

which we discuss two aspects of content analysis, i.e. the definition and the

measurement of the environmental information, (3) the reliability of the results.

3.2.1 Medium of environmental reporting

We analyse the environmental information as reported in the annual report, stand-

alone report, and on the website, individually and in aggregate. We use the fiscal year

2007 as the year of analysis. For companies with a fiscal year ended 30 June or later,

annual reports for 2007 are used as the document of analysis. Otherwise, annual

reports for the following year (i.e. 2008) are examined. This is consistent with the

way COMPUSTAT classifies companies‟ financial data. All annual reports are

downloaded from either the company website or the Mergent Online database.

The stand-alone reports are downloaded from the company websites. However,

due to a time lapse between the year of analysis (i.e. 2007) and the actual period of

content analysis (i.e. May – December 2010), some of the reports are no longer

16

available on the websites. We contacted these companies to request a stand-alone

report, in so far that their annual report mentions the publication of such a report.

We search through the company websites during the abovementioned period [4]

using the sitemap tool and/or homepage menus (including the drop-down menus) for

sections on the „environment‟ (e.g. environment, corporate responsibility, and

sustainability). We also check for the sections on „company profile‟ and „corporate

governance‟ as these sections may contain, among others, a message from the

CEO/Chairman, company vision, mission, and policies, organisational structure, the

breakdown of fuel types, and awards. However, as accessibility is an important aspect

of web disclosures (Adams & Frost, 2004) and the location where the information is

reported could signify the importance of an issue to the organisation (Gray et al.,

1995), we limit the analysis to up to two levels from the homepage/sitemap[5]

, unless

further links indicate the disclosure of environmental information beyond the second

level (Patten & Crampton, 2004). In fact, it is expected that stakeholders will not

spend much time going through various sections on the websites to evaluate the

companies‟ environmental policies and performance (De Villiers & Van Staden,

2011; Lodhia, 2006). Also, consistent with Patten and Crampton (2004), we exclude

links to external websites, including to subsidiaries‟ websites, as this is considered as

beyond the editorial control of the organisations (Tilt, 2008).

All general environmental information (e.g. policies, vision or mission, initiatives,

etc) available on the section(s) indicated above are considered. This is based on the

assumption that there would not be many changes in such information from one year

to another. The websites may also contain links to other publications, normally in a

portable document format (PDF). These publications (other than the annual reports

and the stand-alone reports), whenever available, are also considered. For

environmental news releases, company bulletins and any other periodic publications,

we include only those publications issued during, or for, the 2007 year. However,

reports that could be of a mandatory nature (e.g. energy efficiency reports,

environmental permit submissions, detailed environmental impact assessment and

other plant-specific technical reports) are excluded[6]

. Moreover, we exclude any

multimedia-based information such as audios and videos, as we expect that

differences in the physical appearance, facial expression, intonation, etc could

possibly influence the way the information is coded.

17

3.2.2 The development of disclosure indices

A disclosure index is “a qualitative based instrument designed to measure a series

of items which, when aggregated, gives a surrogate score indicative of the level of

disclosure in the specific context for which the index was devised” (Coy, Tower, &

Dixon, 1993, p. 122). The development of an index begins with the identification of

the objective of the index (Coy & Dixon, 2004). This is crucial to guide the selection

of items to be included (Marston & Shrives, 1991). Then, a scoring system is devised

to derive at the scores. A researcher has to decide on the use of (1) a weighted or

unweighted system, and (2) a dichotomous (binary scaled) or polychotomous (ordinal

scaled) system.

We use disclosure indices to assess the comprehensiveness of the environmental

reporting of a sample of electric utilities. Comprehensiveness is about the degree of

detail with which an item is disclosed rather than the number of items disclosed

(Wallace & Naser, 1995). This measure of quality has been used in many studies

including Coy and Dixon (2004), Hooks et al. (2001), Cormier and Magnan (2004),

and Aerts et al. (2008).

We examine two types of environmental disclosure, namely the overall

environmental information (including CO2 emissions) and CO2 emissions

information. Although Belal et al. (2010) also address the same issues, we believe that

our disclosure indices are more comprehensive in the selection of items and more

thorough in the application of the scoring system. In Belal et al. (2010), it is less clear

as to how the items in the indices are selected[7]

, whilst the scoring is on a

dichotomous basis which does not help to capture the richness of the disclosed

information.

3.2.2.1 Selection of items (definition)

We refer to the GRI‟s “Sustainability Reporting Guidelines” (GRI, 2006) and the

Greenhouse Gas Protocol‟s “A Corporate Accounting and Reporting Standard

(Revised Edition)” published by the World Business Council for Sustainable

Development and the World Resource Institute (WBCSD/WRI, 2004) to select items

to be included in our disclosure indices. GRI (2006) has been developed through a

thorough consensus seeking process involving various user groups of corporate

sustainability reports and is widely recognised as a reporting framework on

sustainability reporting (KPMG, 2008). Whenever appropriate, the more recent

18

publication, GRI (2009), is also considered. Moreover, according to the

CorporateRegister.com (2008), 63% of the sustainability reports produced by the

Global FT500 companies between September 2006 and December 2007 are found to

be aligned with WBCSD/WRI (2004). WBCSD/WRI (2004) has also become the

basis for other standards on GHG emissions including ISO 14064, the Carbon

Disclosure Project (CDP), and the California Climate Registry (WRI, n.d.).

To improve the validity of the indices, we also review other existing disclosure

indices and well established checklist instruments. For overall environmental

information, we refer to disclosure indices developed and/or used by Aerts and

Cormier (2009), Clarkson et al. (2008), Hooks et al. (2004), and Van Staden and

Hooks (2007), and the checklist instruments by Hackston and Milne (1996), Williams

(1999), and Williams and Ho (1999)[8]

. For CO2 emissions information, we review the

works of Belal et al. (2010), Freedman and Jaggi (2004, 2005, 2010), Haque and

Deegan (2010), and Prado-Lorenzo, Rodríguez-Dominguez, Gallego-Álvarez, and

Gárcia-Sánchez (2009). We did not seek the views of any stakeholder groups to verify

the items in our indices since it is difficult to obtain an internationally agreed

perception of disclosure items (see Cooke & Wallace, 1989). However, the credibility

of the reporting guidelines and the rigour in the literature that we review should be

adequate criteria for validity (Beattie et al., 2004). Furthermore, prior to conducting

the actual analysis, the disclosure indices were pilot tested on a sample of 20

randomly selected electric utilities and amended appropriately[9]

.

Another issue pertaining to the selection of items addressed in the prior literature

is the need to differentiate disclosures that are voluntary from disclosures that are

mandatory (Gray et al., 1995; Patten, 2002). Currently, environmental reporting is still

predominantly voluntary across the world (KPMG, 2005; UNEP, GRI, KPMG, &

USB, 2010). Mandatory reporting, if any, usually pertains to “a single issue with

limited disclosure requirements” (UNEP et al., 2010, p. 18). Coy and Dixon (2004)

argue that the inclusion of mandatory items is reasonable as the information can be

reported in varying degree of quality. In fact, several studies (e.g. Criado-Jiménez,

Fernández-Chulián, Husillos-Carqués, & Larrinaga-González, 2008; Da Silva

Monteiro & Guzmán, 2010) find that the disclosure of mandatory environmental

information, although increasing over time, is low in quality and far from meeting the

detailed requirements. Based on these reasons, we neither attempt to differentiate

between mandatory and voluntary disclosures nor do we remove these mandatory

19

items from the disclosure index, keeping in mind that we measure quality of

disclosure and not extent.

We come up with an overall environmental information disclosure index and a

CO2 emissions disclosure index with 43 items and 25 items, respectively. Consistent

with the disclosure categories used in GRI (2006, 2009), these items are divided into

six disclosure categories, namely strategy and analysis; organisational profile; report

parameters; governance, commitment, and engagement; environmental initiatives (or

disclosure on management approach as in GRI, 2006, 2009); and performance

indicators. However, we make some adjustments in the way these items are classified

in GRI (2006, 2009). Some of the changes include the following:

(a) Only items related to the environment are included. For example, most items

in the organisational profile (GRI, 2006, 2009) are not related to the

environment (e.g. the name of the organisation, primary brands, products,

and/or services, and location of organisation‟s headquarters), and thus are not

included in the indices. For the organisational profile category, we only

include awards received in the reporting period, and the installed capacity by

generation type as this information enables users of environmental reports to

understand the environmental impacts which are likely to arise from the power

generation activities (GRI, 2009). We also include in this category discussions

on environmental risks and regulations which is classified under the strategy

and analysis section (Item 1.2) in GRI (2006, 2009) so as to provide an

understanding of the regulatory context surrounding the organisation.

(b) Some items are combined into a single disclosure item due to their similarities.

For example, items 3.1, 3.2, 3.3, and 3.4 in GRI (2006, 2009) are combined

and defined as report profile. By contrast, some other items are split. For

example, we split the item on internally developed statements of mission or

values, codes of conduct, and principles [Item 4.8], with the mission being

included under the strategy and analysis category, and the codes of conduct

and principles being included under the governance, commitment, and

engagement category.

(c) Certain items under the performance indicators section but considered as

related to initiatives (e.g. initiatives to provide energy-efficient or renewable

energy based products and services [EN6] and initiatives to reduce indirect

20

energy consumption [EN7]) are included under the environmental initiatives

category in our indices.

(d) There are some items not made explicit in GRI (2006, 2009) but considered

important in the extant literature. So, we incorporate these items in the index.

These include a discussion on the environmental accounting system in place

and environmental contributions such as community outreach programs,

sponsorships, and education.

(e) We do not include an item on product and packaging reclamation (EN27) as it

is considered to be of less relevance to the nature of electric utilities‟

operations. This fact (the item being not relevant) is also acknowledged in

some of the reports analysed during the pilot study stage, in particular, reports

which follow the GRI guidelines.

Table 3 presents the overall environmental disclosure index.

Table 3

Overall environmental disclosure index (n=205)

No Disclosure categories and items Scores ENV_AR

(a)

ENV_SAR

(b)

ENV_WS

(c)

Friedman’s

ANOVA

ENV_ALL

(d)

1 Strategy and Analysis

1.1 CEO and/or chairman statement 0-3 0.98 0.34 0.17 172.75*** 1.06

1.2 Vision and/or mission statement 0-1 0.26 0.16 0.43 51.94*** 0.54

4 1.23 0.49 0.60 98.62*** 1.60

2 Organisational Profile

2.1 Installed capacity by primary energy source 0-3 1.71 0.38 0.73 148.60*** 1.90

2.2 Risk and regulations 0-3 1.82 0.48 0.79 167.84*** 1.97

2.3 Awards received 0-1 0.29 0.19 0.20 10.40*** 0.40

7 3.82 1.05 1.72 189.55*** 4.28

3 Report Parameters

3.1 Report profile 0-3 1.07 0.61 1.03 86.60*** 1.53

3.2 Report process 0-3 0.12 0.43 0.10 38.66*** 0.53

3.3 Methodology 0-3 0.14 0.40 0.19 19.69*** 0.55

3.4 GRI content index / a specific section 0-1 0.34 0.22 0.60 77.47*** 0.70

3.5 External assurance 0-3 0.08 0.30 0.05 16.11*** 0.38

13 1.74 1.97 1.98 61.15*** 3.69

4 Governance, Commitments, and Engagement

4.1 Organisation: structure & appointment 0-3 0.72 0.41 0.67 29.00*** 1.07

4.2 Organisation: duties & compensation 0-3 0.49 0.27 0.25 19.56*** 0.71

4.3 Internally developed policy 0-3 1.13 0.54 1.41 125.25*** 1.69

4.4 Commitment to external initiatives 0-3 0.46 0.41 0.65 13.24*** 0.94

4.5 Stakeholder engagement activities 0-3 0.72 0.47 0.78 23.22*** 1.20

15 3.51 2.10 3.76 94.56*** 5.61

5 Environmental Initiatives

5.1 Initiatives on materials & wastes 0-3 0.88 0.50 0.45 45.02*** 1.24

5.2 Initiatives on greenhouse gas emissions 0-3 1.10 0.49 0.97 83.93*** 1.40

5.3 Initiatives on water, discharges, & spills 0-3 0.33 0.37 0.39 3.17 0.76

21

No Disclosure categories and items Scores ENV_AR

(a)

ENV_SAR

(b)

ENV_WS

(c)

Friedman’s

ANOVA

ENV_ALL

(d)

5.4 Initiatives on biodiversity 0-3 0.42 0.40 0.74 23.94*** 1.08

5.5 Initiatives on other emissions 0-3 0.70 0.35 0.55 38.91*** 1.01

5.6 Initiatives on other environmental impacts 0-3 0.10 0.15 0.15 1.85 0.34

5.7 Training and awareness 0-3 0.22 0.37 0.16 7.29** 0.61

5.8 Environmental management system/audit 0-3 0.93 0.60 0.83 27.90*** 1.46

5.9 Environmental accounting system 0-3 1.00 0.06 0.02 240.10*** 1.03

5.10 Other contributions/involvements 0-3 0.85 0.70 1.20 25.76*** 1.61

30 6.53 3.98 5.45 71.33*** 10.54

6 Performance Indicators

6.1 Materials performance indicators

6.1.1 Materials use 0-5 0.51 0.46 0.16 17.45*** 0.90

6.1.2 Recycled materials 0-5 0.11 0.17 0.04 9.56*** 0.26

6.2 Energy performance indicators

6.2.1 Direct energy consumption 0-5 1.23 0.60 0.23 90.25*** 1.49

6.2.2 Indirect energy consumption 0-5 0.26 0.16 0.05 11.13*** 0.41

6.2.3 Energy saving 0-5 0.20 0.20 0.12 1.27 0.42

6.3 Water performance indicators

6.3.1 Total water withdrawal 0-5 0.18 0.48 0.11 16.97*** 0.69

6.3.2 Water recycling 0-5 0.02 0.09 0.00 12.38*** 0.10

6.4 Biodiversity 0-3 0.37 0.21 0.27 18.90*** 0.60

6.5 Emissions, effluents, and waste

6.5.1 Direct & indirect greenhouse gas emissions 0-5 0.80 0.93 0.57 7.01** 1.55

6.5.2 Other indirect greenhouse gas emissions 0-5 0.01 0.10 0.05 5.05* 0.15

6.5.3 Emissions of NOx, SO2, & others 0-5 0.50 0.79 0.49 3.94 1.30

6.5.4 Water discharges 0-5 0.12 0.31 0.10 22.37*** 0.45

6.5.5 Wastes 0-5 0.35 0.79 0.34 15.19*** 1.19

6.5.6 Spills 0-3 0.09 0.23 0.06 16.02*** 0.34

6.6 Noise, visual, odour, & radiation 0-3 0.07 0.17 0.09 5.15* 0.25

6.7 Compliance, complaints, & sanctions 0-3 1.27 0.48 0.20 110.42*** 1.53

6.8 Expenditures & investments 0-5 2.42 0.59 0.58 180.05*** 2.55

6.9 Dollar savings / monetary benefits 0-5 0.87 0.20 0.08 97.49*** 1.01

82 9.40 6.96 3.54 114.81*** 15.20

Total disclosures (TD) 151 26.23 16.55 17.05 108.34*** 40.92

Disclosure scores (DS) Mean 17.39 10.97 11.29 108.34*** 27.11

Mean_ADJ 17.64 45.91 12.12 27.38

ENV_AR is the disclosure scores for the overall environmental information reported in the annual report.

ENV_SAR is the disclosure scores for the overall environmental information reported in the stand-alone report.

ENV_WS is the disclosure scores for the overall environmental information reported on the website. ENV_ALL is

the aggregate disclosure scores for the overall environmental information. Friedman‟s ANOVA chi-square values

are presented. ***, **, and * represent significance levels (two-tailed) at 1%, 5%, and 10%, respectively.

Disclosure scores (DS) are expressed in percentage. Mean_ADJ is the mean scores after adjusting for the actual

number of reporting companies.

The disclosure categories in the CO2 emissions disclosure index follow the

categories in the overall environmental disclosure index. Nevertheless, since the scope

for CO2 emissions information is rather limited, some of the items in the overall

environmental disclosure index above are removed or combined, while others are

expanded or refined. For example, Haque and Deegan (2010) find that the discussion

22

on governance related items such as organisational responsibility on GHG emissions

matters (in our indices, referred to as environmental organisation) among the sample

companies in their study is very low. In fact, it is logical to assume that most

organisations are more likely to have a person, committee, or department with general

environmental responsibilities, instead of with specific responsibility on climate

change issues. So, we only have a single disclosure item on this (instead of two items

in the overall environmental disclosure index). Furthermore, we break down the

initiatives to reduce GHG emissions into renewable energy, energy efficiency, carbon

capture and sequestration, and emissions trading. Finally, we treat any discussion on

GHG emissions, global warming, and climate change as discussions on CO2

emissions, unless stated otherwise in the reports[10]

. Table 4 presents the CO2

emissions disclosure index.

Table 4

CO2 emissions disclosure index (n=205)

No Disclosure categories and items Scores CO2_AR

(a)

CO2_SAR

(b)

CO2_WS

(c)

Friedman’s

ANOVA

CO2_ALL

(d)

1 Strategy and Analysis

1.1 CEO and/or chairman statement 0-3 0.67 0.28 0.10 118.53*** 0.77

1.2 Vision and/or mission statement 0-1 0.06 0.05 0.08 1.310 0.16

4 0.73 0.33 0.18 94.23*** 0.93

2 Organisational Profile

2.1 Risks and regulations 0-3 1.50 0.38 0.65 128.54*** 1.71

2.2 Awards received 0-1 0.13 0.13 0.07 6.82** 0.22

4 1.63 0.50 0.73 120.25*** 1.93

3 Report Parameters

3.1 Report profile 0-3 0.87 0.60 0.81 39.22*** 1.36

3.2 Report process 0-3 0.12 0.43 0.08 42.62*** 0.52

3.3 Methodology 0-3 0.12 0.39 0.17 22.34*** 0.52

3.4 GRI content index / a specific section 0-1 0.06 0.18 0.20 23.26*** 0.32

3.5 External assurance 0-3 0.06 0.23 0.05 17.20*** 0.31

13 1.23 1.83 1.32 28.03*** 3.01

4 Governance, Commitments, & Engagement

4.1 Environmental organisation 0-3 0.56 0.29 0.49 30.49*** 0.78

4.2 Internally developed policy 0-3 0.87 0.42 0.86 83.19*** 1.17

4.3 Commitment to external initiatives 0-3 0.35 0.33 0.46 3.47 0.71

4.4 Stakeholders engagement activities 0-3 0.46 0.36 0.37 6.47** 0.76

12 2.24 1.40 2.18 72.50*** 3.42

5 CO2 Emissions Initiatives

5.1 Initiatives to reduce emissions

5.1.1 Renewable and non-CO2 emitting energy 0-3 1.33 0.65 1.18 46.74*** 1.74

5.1.2 Energy efficiency 0-3 1.34 0.65 1.16 38.07*** 1.79

5.1.3 Carbon capture & sequestration 0-3 0.42 0.38 0.55 4.90* 0.83

5.1.4 Emissions trading 0-3 0.73 0.40 0.40 29.85*** 0.90

5.2 Training and awareness 0-3 0.04 0.10 0.05 5.77* 0.16

5.3 Management and accounting systems 0-3 0.36 0.21 0.27 12.38*** 0.68

23

No Disclosure categories and items Scores CO2_AR

(a)

CO2_SAR

(b)

CO2_WS

(c)

Friedman’s

ANOVA

CO2_ALL

(d)

5.4 Other contributions/involvements 0-3 0.53 0.63 0.70 2.161 1.10

21 4.74 3.02 4.31 49.39*** 7.20

6 Performance Indicators

6.1 Direct & indirect emissions 0-5 0.80 0.93 0.54 8.90** 1.53

6.2 Other relevant indirect emissions 0-5 0.01 0.10 0.05 5.05* 0.15

6.3 Compliance, complaints, & sanctions 0-3 0.19 0.04 0.01 13.13*** 0.24

6.4 Expenditures & investments 0-5 0.70 0.36 0.29 22.69*** 1.02

6.5 Dollar savings / monetary benefits 0-5 0.24 0.10 0.05 21.04*** 0.35

23 1.94 1.53 0.95 40.18*** 3.28

Total disclosures (TD) 77 12.52 8.61 9.65 72.09*** 19.77

Disclosure scores (DS) Mean 16.29 11.21 12.55 72.09*** 25.73

Mean_ADJ 18.65 46.92 16.38 28.20

CO2_AR is the disclosure scores for the CO2 emissions information reported in the annual report. CO2_SAR is the

disclosure scores for the CO2 emissions information reported in the stand-alone report. CO2_WS is the disclosure

scores for the CO2 emissions information reported on the website. CO2_ALL is the aggregate disclosure scores for

the CO2 emissions information. Friedman‟s ANOVA chi-square values are presented. ***, **, and * represent

significance levels (two-tailed) at 1%, 5%, and 10%, respectively. Disclosure scores (DS) are expressed in percentage. Mean_ADJ is the mean scores after adjusting for the actual number of reporting companies.

3.2.2.2 Scoring the disclosure items (data measurement)

A weighting could be used to indicate the relative importance of a disclosure item

(or category) over another item (category) in the index (e.g. Buzby, 1974; Chow &

Wong-Boren, 1986; Coy & Dixon, 2004; Coy et al., 1993; Hooks et al., 2001; Naser

& Nuseibeh, 2003; Robbins & Austin, 1986; Schneider & Samkin, 2008). This is

mostly determined by conducting surveys among user group(s). We do not assign

weights for each disclosure item (category) for several reasons. First, the multiplicity

of stakeholders could cause differences in the perceptions among respondents within a

country and across countries (Cooke, 1989; Cooke & Wallace, 1989; Marston &

Shrives, 1991; Wallace & Naser, 1995) and the perceptions of the same respondents

over time (Coy & Dixon, 2004; Wallace & Naser, 1995). Second, Cooke (1989), in

justifying the use of an unweighted system, argues that the subjective weights of the

different user groups would average each other out. He further quotes Spero (1979)

who find that companies that are better at disclosing important information are also

better at disclosing less important information. Third, Chow and Wong-Boren (1986)

assert that the importance ratings do not actually represent the real economic

consequences on the respondents, and thus, do not mirror reality (see also Wallace &

Naser, 1995).

24

Finally, previous studies also provide evidence that both weighted and unweighted

scoring systems have produced relatively identical results (Chow & Wong-Boren,

1986; Hodgdon, Tondkar, Harless, & Adhikari, 2008; Robbins & Austin, 1986)[11]

.

Marston and Shrives (1993) further claim that this is more likely for a disclosure

index that consists of a large number of items. Since there is no theoretical

justification on the number of items to be included in an index, a total of 43 items for

overall environmental disclosure index and 25 items for CO2 emissions disclosure

index are regarded as sufficiently comprehensive to cover all the relevant issues.

Another issue pertaining to the scoring system is whether to score a disclosure

item on a dichotomous or polychotomous basis (Coy & Dixon, 2004). We use a

polychotomous scoring system as it enables a differentiation in the quality of the

items being disclosed (Coy & Dixon, 2004; Coy et al., 1993; Hooks et al., 2001;

Hooks et al., 2004; Schneider & Samkin, 2008; Webb, Cahan, & Sun, 2008). The

subjectivity inherent in such a system (Cooke, 1989) can be minimised by having

clear guidelines for scoring (Coy & Dixon, 2004; Guthrie & Abeysekara, 2006).

Since some disclosure items have more information content than the others

(Buzby, 1974; Freedman et al., 2004; Freedman & Stagliano, 2008), it is less

appropriate to apply a blanket score range for every item (Dragomir, 2010; Schneider

& Samkin, 2008; Van Staden & Hooks, 2007). We use three score ranges based on

the type and the nature of the information. First, „list‟ or „state‟ types of information,

considered in Buzby (1974) as „self-contained‟ items, are assigned scores on a

dichotomous basis, i.e. one (1) for disclosure and zero (0) for non-disclosure. Vision

and/or mission statement, awards received, and a GRI content index or a specific

section fall under this category.

Second, a score between 0 – 3 is awarded for items that require the companies to

describe their initiatives, processes, policies, and procedures. Buzby (1974) regards

this as categories of information which could be expressed in terms of sub-elements

of information. The use of this scale also includes certain performance indicators due

to the „descriptive‟ nature of the indicators (i.e. items on biodiversity and noise,

visual, odour, and radiation) as well as indicators that could be of „non-recurring‟ in

nature (i.e. items on spills and compliance, complaints, and sanctions). To facilitate

scoring of the disclosure items, a set of detailed guidelines/criteria for each item is

prepared, largely based on GRI (2006, 2009) including its Indicator Protocols Set and

Chapter 9 of WBCSD/WRI (2004). For example, the disclosure of spills requires the

25

provision of information on the total number and volume of spills, location, and

material of the spills, and the impacts on the biodiversity or trend analysis. A score of

three (3) is awarded if the disclosure meets all the criteria; a score of two (2) is

awarded if the disclosure meets at least half of the criteria; a score of one (1) is

awarded if the disclosure meets less than half of the criteria; and a score of zero (0) is

for non-disclosure (see also Guenther, Hoppe, & Poser, 2007)[12]

. In the absence of

specific guidelines in GRI (2006, 2009) and WBCSD/WRI (2004), we devise a set of

scoring criteria based on the review of the literature and the findings from the pilot

study.

The third category includes items which could be disclosed in varying degrees of

specificity (Buzby, 1974). A score between 0 – 5 is awarded for most of the

performance indicators (except for those mentioned earlier). Adapting the scoring

system used by Clarkson et al. (2008), a point is awarded for each of the following:

(1) performance data for the current period is presented; (2) performance data is

presented relative to previous years‟ data and/or industry averages; (3) performance

data is presented relative to target; (4) performance data is presented at disaggregate

level e.g. plant, business unit, geographic segment, activities (see also GRI, 2006,

2009; WBCSD/WRI, 2004). Another point is awarded if the report meets all other

recommendations in the GRI (2006, 2009) and WBCSD/WRI (2004), or provide

additional descriptive analysis, including reasons for over- or under- performance,

sources of environmental impacts, and so on (see also Beck, Campbell, & Shrives,

2010). This is essential to treat the reports which are not prepared according to GRI

(2006, 2009) and WBCSD/WRI (2004) fairly.

If the disclosure of the item is repeated in the same reporting medium or in a

different media, it is recorded only once (Guthrie, Petty, & Ricceri, 2006), except in

the case where the repeated disclosure contains extra information that enhances the

overall quality (or score) of the disclosed item. For example, if the item is worth a

score of one (1) the first time it being disclosed and the subsequent time the disclosed

item is worth a score of two (2) (or by combining both pieces of information, it is

worth 2), we then allocate the higher score (i.e. 2) for the item. This is consistent with

Schneider and Samkin (2008) in which the score for each item is allocated based on

the aggregate disclosure of the item. Overall, the disclosure indices in this study are

calculated on an unweighted, polychotomous basis. The total possible maximum score

for the overall environmental disclosure index is 151, while the total possible

26

maximum score for the CO2 emissions disclosure index is 77. The scores are

converted into percentages.

In order to consider whether an item is not applicable to an organisation, there

must be a brief statement indicating that the information is not applicable (or not

significant) to the organisation (GRI, 2006, 2009). Additionally, the whole report is

read thoroughly before it is scored (Cooke, 1989) and whenever necessary, the

immediate preceding year‟s reports are reviewed (Owusu-Ansah, 1998). Using the

disclosure of spills as an illustration, if the electric utility mentions nothing about this

fact, it is awarded zero (0). If the electricity utility states that there is no (significant)

spill, a score of one (1) is awarded. If the electric utility provides no further

information, we refer to the immediate preceding year‟s report (i.e. 2006). If the

previous report also mentions that no (significant) spill occurred during that year, the

total possible score for this item is one (1), instead of three (3) (see „Scores‟ column

in the Table 3). Otherwise, the total possible score for the item remains at three (3).

For CO2 emissions disclosure index, the electric utilities are not penalised if they are

not residing in countries with emission trading schemes and/or in Annex B countries

(which are covered by the Kyoto Protocol mechanisms). Hence, the disclosure

score(s) is calculated as “the ratio of the actual scores awarded to a company to the

scores which that company is expected to earn” (Cooke, 1989, p. 115).

In statistical terms, the total disclosure score for jth company (TDj) is additive:

where

Xij = 1 if ith item is disclosed; 0 if ith item is not disclosed;

Sij = score assigned for ith item; and

nj = 43 items (for overall environmental disclosure index); 25 items (for

CO2 emissions disclosure index)

If there is an irrelevant item, the maximum score for jth company (MSj) is

calculated as follows:

where nj = expected item of disclosure, n ≤ 43 or 25 items, respectively.

27

In the situation where all items are relevant to the company, MS j = 151 (for

overall environmental disclosure index) and 77 (for CO2 emissions disclosure index).

Thus, the disclosure score for jth company (DSj), expressed in a percentage, becomes

For each disclosure index, we calculate four measures of disclosure score

according to the reporting medium. Three measures for the individual medium,

namely annual reports (ENV_AR and CO2_AR), stand-alone reports, including both

printed and web based (ENV_SAR and CO2_SAR), and the websites (ENV_WS and

CO2_WS), and a measure for aggregate scores i.e. all the reporting media in

combination (ENV_ALL and CO2_ALL). Additionally, in calculating the disclosure

scores, we only include any disclosure that is made in relation to the environment. For

example, we score a discussion on the use of renewable energy if there is also

emphasis that the purpose is to reduce the negative impacts to the environment and/or

the discussion is made in a section dedicated (partly or wholly) to the environment

(and the like). Otherwise, it is treated as a part of the discussion on business

operations (see Haque & Deegan, 2010; Nik Ahmad et al., 2003; Williams, 1999).

Finally, since electric utilities may also be involved in related upstream (e.g. coal

mining and gas exploration) and downstream (e.g. electricity transmission and

distribution) activities, we also consider any disclosures related to these activities.

3.2.3 Reliability of the scores

Apart from the pilot study conducted prior to the actual content analysis and

having detailed scoring guidelines (Coy & Dixon, 2004; Guthrie & Abeysekara, 2006;

Milne & Adler, 1999), we also run two reliability tests as proposed by Krippendorf

(2004). For the stability test, a sample of 20 reports is randomly selected and coded

for the second time a few months after the first round (in April, 2011). Based on a

Spearman‟s rho correlation analysis[13]

, the disclosure scores for both types of

information in both rounds, on average, have correlation coefficients of greater than

.950 (p=.000, two-tailed). This result is consistent across the reporting media. Such

consistencies attest to the ability of the researcher to code the data the same way over

time (Milne & Adler, 1999).

28

For the accuracy test, we compare our results with the GRI application levels. We

choose GRI in the absence of other available benchmarks. Although GRI (2006,

2009) focus on all dimensions of sustainability (economic, environmental, and social),

the performance indicators for the environmental dimension constitute more than one-

third of the total performance indicators recommended in the guideline[14]

. Hence, we

assume that a report that follows the GRI guidelines has a superior quality and is more

comprehensive than a report which does not. There are 44 companies which indicate

in their reports that they have made the GRI as the basis for reporting (henceforth,

GRI companies).

First, we compare the result based on the decision to follow the guidelines i.e. we

assign one (1) for GRI companies, and zero (0) for non-GRI companies. Based on

ENV_ALL, we find that GRI companies have more comprehensive disclosure

(mean= 53.18) than their counterparts (mean= 19.99) (R=.663, p=.000, two-tailed).

Second, GRI companies have varying application levels. This ranges between C and

A+. We convert the application levels into scores in an ascending order. We assign a

score of zero (0) for companies that do not use the guidelines; one (1) for companies

using the guidelines but do not indicate the application level; two (2) for companies

with an application level of C; and the highest score of seven (7) for companies with

an application level of A+. We also find that ENV_ALL is positively correlated with

the GRI application level (R=.664, p=.000, two-tailed). Finally, we run the correlation

analysis among GRI companies (n=44), and both measures are positively correlated

(R=.388, p=.009, two-tailed)[15]

.

Due to resource constraints, we do not undertake the reproducibility test (i.e. inter-

coder correlation). However, we expect that all the precautionary measures that we

undertook are adequate to demonstrate that the scores derived from the content

analysis procedure have an acceptable degree of reliability.

4. FINDINGS AND ANALYSIS

4.1 Main findings

Table 5 presents the distribution of reporting companies, and the descriptive

statistics of the disclosure scores, by type of information and reporting medium. For

all sample companies (n=205), we provide descriptive statistics of maximum, mean,

median, and minimum. To provide a better representation of the disclosure levels, we

also include Mean_ADJ i.e. the mean disclosure scores when the actual number of

29

reporting companies is considered. For example, to calculate Mean_ADJ for

ENV_AR, we divide total ENV_AR by 202 (number of companies reporting on the

environment in the annual report), and to calculate the same for ENV_SAR, we divide

total ENV_SAR by 49 (number of companies publishing a stand-alone report) (See

column „Number‟ in Table 5).

Overall, the number of disclosing companies is high, with 99% and 91% of the

companies disclosing some form of environmental information and CO2 information,

respectively. Consistent with Hooks and Van Staden (2011), we find that the annual

report is the preferred medium of reporting (99%), followed by the website (93%).

About one-fourth (24%) publish a stand-alone report for the year. The result of the

Cochran‟s Q test reveals that the difference among the reporting media is significant

at 1% level[16]

.

Table 5

Distribution of reporting companies and descriptive statistics of the disclosure scores

Disclosure

type

Reporting

Medium

Reporting Companies Disclosure Scores

Number % Max Mean Mean_ADJ Median Min

Overall

disclosure

ENV_AR 202 99 59.31 17.39 17.64 16.56 0.00

ENV_SAR 49 24 77.48 10.97 45.91 0.00 0.00

ENV_WS 191 93 44.37 11.29 12.12 8.61 0.00

ENV_ALL 203 99 78.81 27.11 27.38 22.52 0.00

CO2

disclosure

CO2_AR 179 87 58.44 16.29 18.65 14.29 0.00

CO2_SAR 49 24 68.83 11.21 46.92 0.00 0.00

CO2_WS 157 77 72.73 12.55 16.38 8.11 0.00

CO2_ALL 187 91 83.12 25.73 28.20 19.48 0.00

ENV_AR is the disclosure scores for the overall environmental information reported in the annual report.

ENV_SAR is the disclosure scores for the overall environmental information reported in the stand-alone

report. ENV_WS is the disclosure scores for the overall environmental information reported on the website.

ENV_ALL is the aggregate disclosure scores for the overall environmental information. CO2_AR is the

disclosure scores for the CO2 emissions information reported in the annual report. CO2_SAR is the disclosure

scores for the CO2 emissions information reported in the stand-alone report. CO2_WS is the disclosure scores for the CO2 emissions information reported on the website. CO2_ALL is the aggregate disclosure scores for

the CO2 emissions information. Mean_ADJ is the mean scores after adjusting for the actual number of

reporting companies.

In terms of the comprehensiveness of the disclosure, the highest score for

ENV_ALL is 78.81%, and 83.12% for CO2_ALL. This indicates that the disclosure

indices do not represent an unrealistic expectation from the companies. Enel S.p.A,

the largest power company in Italy is ranked the highest for ENV_ALL, and this is

heavily influenced by the publication of stand-alone reports (in which the company is

also ranked the top). In 2007, the company published a sustainability report and an

environmental report. For CO2_ALL, the highest score belongs to Centrica Plc, a

leading integrated energy company based in the UK. The high score is due to the

30

publication of a CDP report which is made available on the company website.

Interestingly, these high scores are not evidenced for disclosures in other reporting

media. ENEL S.p.A is only ranked 66th

for ENV_AR and 18th for ENV_WS.

Likewise, Centrica Plc is ranked 25th and 12

th for CO2_AR and CO2_SAR,

respectively. This implies that unless the variety in the reporting media, and to a

certain extent the type of information, are considered, any results would give a

misleading representation of the level of corporate environmental disclosure.

Despite these two companies demonstrating high quality of disclosure, the overall

quality is still relatively low. The average score for ENV_ALL is 27.11% and for

CO2_ALL is 25.73%. It implies that the companies only meet about one-fourth of the

criteria determined by the disclosure indices. An in-depth analysis of the scores

reveals that the low scores are largely affected by poor disclosures in the performance

indicators category. The maximum score allocated for this category is 82 for the

overall environmental information and 23 for the CO2 emissions information (see

column „Scores‟ in Tables 3 and 4). On average, the sample companies score 15.20

(or 18.5%) and 3.28 (14.3%) for both measures, respectively (see the last column in

Tables 3 and 4). This lack of performance-specific data, and similarly, the emphasis

on general-type information are consistent with attempts at legitimising (see Aerts &

Cormier, 2009; Clarkson et al., 2008; Deegan & Rankin, 1996; Gray, Owen, &

Adams, 1996; Hackston & Milne, 1996).

The analysis of the mean of disclosures for the sample companies (n=205) also

reveals that the disclosures made in the annual report (mean ENV_AR= 17.39;

CO2_AR=16.29) is more comprehensive than the disclosures made on the website

(mean ENV_WS= 11.29; CO2_WS=12.55) and in the stand-alone reports (mean

ENV_SAR= 10.97; CO2_SAR= 11.21). Using Friedman‟s ANOVA to measure the

difference (see De Vaus, 2002; Field, 2005), we find that the difference is statistically

significant (p=.000). Despite these differences, correlation analysis among the scores

shows positive and significant coefficients (see Table 6). In essence, companies are

being consistent in their reporting practices in which those with higher scores for a

reporting medium (say, annual report) are also the ones that have higher scores for

other reporting media (stand-alone report, website, and in aggregate).

31

Table 6

Correlation statistics for the disclosure scores

AR SAR WS ALL

AR - .370*** .563*** .820***

SAR .484*** - .435*** .699***

WS .610*** .454*** - .738***

ALL .901*** .708*** .770*** -

Results of the correlation statistics for overall environmental information are above the diagonal and for CO2 emissions information, below. *** represents

significance level (two-tailed) at 1%.

4.2 Findings by disclosure item or category

Table 3 and 4 present the disclosure scores in greater detail. Column “Scores”, as

mentioned earlier, indicates the maximum score allocated for each disclosure item (or

category) and for the disclosure indices. The three columns that follow present the

mean disclosure scores by reporting medium. Each column is also denoted (a), (b),

and (c). In the Friedman‟s ANOVA column, we report the chi-square and significance

values, indicating the difference in scores among the reporting media. The final

column, denoted (d), represents the disclosure scores in aggregate i.e. considering

disclosures in all the media. It is worth reiterating that (d) is neither simply the sum of

(a), (b), and (c), nor necessarily the highest of (a), (b), or (c). Instead, in calculating

the total scores (d), we consider all disclosures in each medium except for any

repetitive information that do not result in the increase in the overall score of a

disclosure item.

An analysis of the results by disclosure category and disclosure item reveals some

interesting patterns. The annual reports provide more comprehensive disclosure in all

but two disclosure categories. First, the disclosure of the report parameters category is

provided in more comprehensive manner on the website (particularly, for the overall

environmental disclosure) and in the stand-alone report (particularly, for the CO2

emissions disclosure). The majority of the websites contain a specific section on the

environment (item 3.4 in the disclosure indices), while the stand-alone reports, on

average, include the discussion on the report process (item 3.2) and the methodology

used (item 3.3) in greater detail, and publish an assurance statement. Second, the

websites also provide more detailed discussion on the governance, commitments, and

engagement category, in particular, the disclosure of the environmental policy (item

4.3), the commitment to external initiatives (item 4.4), and stakeholder engagement

activities (item 4.5). However, this is limited to the overall environmental disclosure.

32

The annual reports provide more comprehensive disclosure of this category for the

CO2 emissions disclosure.

Most of the disclosure items show a significance difference in the

comprehensiveness of the information being reported in each medium. We provide

tentative evidence that links the disclosures to the stakeholders of interest, as

supported by prior literature. For example, De Villiers and Van Staden (2010b), in a

study of shareholders in the US, the UK, and Australia find the following information

are important for their investment decisions (by at least 45% of the respondents):

liabilities and contingencies, risks/impacts, policy, waste handling, toxic release, and

emissions, energy use, fines, and carbon trading (see also De Villiers & Van Staden,

2010a). In our study, we find the same types of information - risk and regulations;

internally developed (carbon) policy; initiatives on materials and waste; initiatives on

greenhouse gas emissions and on other emissions; materials use; energy consumption;

compliance, complaints, and sanctions; expenditures and investments; and dollar

savings or monetary benefits - are more predominant in the annual reports, than in

other disclosure media. These types of information could also be of interest to the

government and other regulatory agencies (for monitoring and enforcement purposes)

and to the financial stakeholders, including brokers and banks (for investment and

lending decisions) (see for e.g. Deegan & Rankin, 1997).

By contrast, the stand-alone reports show more comprehensive coverage of certain

items in the report parameters category (as mentioned earlier), training and awareness,

and the majority of the items in the performance indicators category. This implies that

the report (and disclosures therein) is targeted at users with more sophisticated

information needs such as academics, environmental NGOs, and other advocacy

groups, and at employees (for information on training and awareness). For example,

Deegan and Rankin (1997) find that the reviewers (including trade unions,

environmental lobby groups, industry associations, and consumer associations) and

the academics groups attach higher importance to environmental performance

information than the shareholders, banks, and brokers. This is also consistent with the

findings of Danastas and Gadenne (2006) and O‟Dwyer et al. (2005) which show that

(social and) environmental NGOs prefer environmental disclosures in stand-alone

reports.

Finally, the websites contain general-type environmental disclosures such as the

vision and/or mission statement, general policies, and initiatives on biodiversity, as

33

well as a discussion on activities with direct involvement with the public and other

stakeholders such as involvement in external initiatives (e.g. associations),

stakeholder engagement, and other contributions (e.g. donation, community outreach

programs, and education). A survey by Adams and Frost (2004) among the web

managers in the UK, Germany, and Australia, identifies pressure groups/NGOs,

government bodies, and customers as the most important stakeholders in designing

the contents of ethical, social, and environmental information on websites. Our

findings suggest that local communities and the general public as other groups of

stakeholders targeted by the website disclosures. All these findings extend support to

the importance of analysing disclosure by reporting medium and type of information

in order to improve our understanding of corporate environmental reporting strategy.

4.3 Additional analyses

As discussed earlier, we use a polychotomous scoring system in assigning scores

for the disclosure items in our indices. In addition, they are not weighted. However, a

polychotomous scoring system (Marston & Shrives, 1991) and having more items in

certain categories than in the others (Coy & Dixon, 2004) are argued as extensions of

a weighting system. We run two additional analyses to control for this.

First, we use a dichotomous system to score the items. This makes the maximum

disclosure scores for ENV_ALL and CO2_ALL are 43 and 25, respectively.

Consistent with Hooks and Van Staden (2011) and Webb et al. (2008), we find that

the disclosure measures are highly correlated under both polychotomous and

dichotomous scoring systems (not tabulated here). The correlation coefficient for

ENV_ALL is .986 (p= .000, two-tailed) and for CO2_ALL is .988 (p= .000, two-

tailed).

Second, to check for internal consistency, we run correlation analysis among the

scores for each category and with ENV_ALL and CO2_ALL. Table 7 presents the

result of the correlation analysis. The table infers that companies with higher scores in

one category also have higher scores in other categories. Thus, categorisation of the

disclosure items is not an issue of serious concern. The table also implies that the

performance indicator category is the most important category driving the results for

the overall environmental disclosure (R= .959, p=.000) and the discussion on

initiatives to mitigate CO2 emissions drives the CO2 emissions disclosure (R= .955,

p=.000).

34

Table 7

Correlation analysis among the disclosure categories (n=205)

SA OP RP CG EI PI ENV_ALL

SA - .350*** .545*** .578*** .547*** .542*** .596***

OP .425*** - .493*** .657*** .646*** .667*** .714***

RP .531*** .599*** - .773*** .823*** .802*** .860***

CG .538*** .695*** .769*** - .860*** .806*** .902***

EI .593*** .653*** .826*** .842*** - .818*** .928***

PI .461*** .581*** .778*** .702*** .752*** - .959***

CO2_ALL .616*** .738*** .890*** .900*** .955*** .850*** -

Results of the correlation statistics for overall environmental information are above the diagonal

and for CO2 emissions information, below. SA is strategy and analysis. OP is organisational

profile. RP is report parameters. GC is governance, commitments, and engagements. EI is

environmental/CO2 initiatives. PI is performance indicators. *** represents significance level

(two-tailed) at 1%.

5. CONCLUSION AND DISCUSSION

Climate change, global warming, acid rain, radioactive waste, and biodiversity

loss are some major environmental issues being attributed to the electricity industry.

Various initiatives, both mandatory and voluntary, have been implemented at the

international, regional, and local arena and these have brought the industry further

into the spotlight. Thus, this industry would make an interesting case to explore, and

understand, the use of environmental disclosure in response to these ever increasing

challenges.

Based on established reporting guidelines and an extensive review of the

literature, we develop two disclosure indices, focusing on environmental issues

relevant to electric utilities. First, to consider the various impacts of the industry on

the environment, we develop an overall environmental disclosure index. Second,

since the electricity industry is the main contributor of CO2 emissions which cause

global warming and climate change problems, we develop a CO2 emissions disclosure

index. The items in the indices are scored on a polychotomous basis, with maximum

scores of 151 (for the overall environmental disclosure index) and 77 for the CO2

emissions disclosure index), respectively.

We use these indices to evaluate the comprehensiveness of the environmental

reporting practice (both the overall and CO2 related disclosures) of 205 global electric

utilities for the year 2007. Our results suggest that, on average, the disclosures are

relatively low in which only one-fourth of the criteria for comprehensive disclosures

are evidenced in the current reporting practice. This scenario is rather alarming, in

light of the huge impacts this industry has on the environment. Such a low disclosure

level adds to the existing problem of the lack of corporate environmental databases

35

(such as KLD and EIRIS), making the assessment of corporate environmental

performance more difficult, and perhaps even worse, unreliable. Hence, our findings

extend support for mandatory environmental reporting. We believe that mandatory

reporting is plausible considering the regulated nature of this industry.

We examine the environmental disclosure across the reporting media, i.e. annual

reports, stand-alone reports, and websites. We argue that focusing on a particular

reporting medium can be misleading and that analysing disclosures by reporting

media enhances our understanding of the corporate environmental reporting strategy.

We find that, for both the number of reporting companies and the comprehensiveness

of the reported information, the annual report is ranked first, followed by the website,

while the use of stand-alone report is still embryonic. On average, companies

reporting higher disclosures in a reporting medium are also high disclosers in the

other media.

A closer examination of the disclosure items offers preliminary evidence on the

possible link between reporting medium and the intended audience. In summary, we

find that the disclosures in the annual report are influenced by the information needs

of the shareholders, government, and other financial stakeholders. By contrast, the

stand-alone reports contain information of high relevance to academics, NGOs, and

employees. The information on the website appears to be directed at a wide spectrum

of stakeholders, including customers, local communities, and the general public.

However, this is far from conclusive and further evidence is needed to support these

inferences. All these findings substantiate the importance of analysing the disclosure

by reporting medium and type of information.

We check for (and demonstrate) the consistency of our disclosure scores: with the

GRI application levels and an alternative (dichotomous) scoring system; across the

disclosure categories; and between two coding rounds. In view of the subjectivity

inherent in content analysis procedures, such consistency could establish reliability in

our findings and enhance the validity of any inferences made thereon.

However, our study has several limitations. First, we only provide a snapshot

scenario due to the focus on a single year. The results reported here may not be

representative of the disclosure in other years. For example, we came across several

companies that publish a stand-alone report biannually, and since they do not publish

one in year 2007, their disclosure level for year 2007 could be considerably lower

than the disclosures made in 2006 and/or 2008. A longitudinal study could overcome

36

this problem. Second, we do not examine the volume (e.g., number of sentences,

words, and pages) of information. However, prior studies have provided evidence that

the quality measure is highly correlated with the quantity measure (e.g. Hasseldine et

al., 2005; Hooks & Van Staden, 2011; Warsame, Neu, & Simmons, 2002). Finally,

our disclosure scores for the website can be argued as „relative‟ since the period of

actual analysis is 2010 (while the year of analysis is 2007). We also use the Internet

Archive: Wayback Machine tool to help us tracing back the respective websites as

they would have appeared in fiscal year 2007.

Endnotes

[1] The interpretation of the findings from these studies must be made with caution. Frost et al. (2005) is

the only study that has examined the nature and types of information by reporting media,

individually. By contrast, other studies have either combined the findings for the stand-alone reports

with the annual reports (Aerts et al., 2008; Cormier & Magnan, 2004) or with the website disclosure

(De Villiers & Van Staden, 2011). Patten and Crampton (2004) and Belal et al. (2010) do not include

the stand-alone reports in their analysis. Haque and Deegan (2010) do not study website disclosures.

[2] The guideline is published on 15 April 2009. This final version has been in development since June

2006 while the first draft is released in January 2007.

[3] This broader study‟s population is based on the Standard & Poor‟s Compustat® Global and North

America databases for the year 2007. A total of 621 electric utilities are identified. A number of

utilities are removed for the following reasons: No electricity generation business (101 utilities), no

environmental performance data in the Carbon Monitoring for Action (CARMA) database (198), and

no corporate website (80) and/or no annual report (46).

[4] We also use the Internet Archive: Wayback Machine tool to trace company websites as at the 2007

financial year end date (or at the closest date available). This is done for validation purposes, i.e. to

identify any information that, due to the timing difference, is possibly no longer available on the

current website.

[5] This is determined by the number of clicks required to arrive at the environmental information from

the homepage/sitemap (see Chatterjee & Mir, 2008; Coupland, 2006).

[6] In addition to possibly being mandatory, more often these reports are located beyond two levels from

the homepage/sitemap.

[7] The authors claim that the selection of the items is “[o]n the basis of the literature review, relevant

guidelines, and [their] knowledge of the Bangladeshi context” (Belal et al., 2010, p. 153). The

number of items for the climate change disclosure index is 11 (our disclosure index has 25 items)

and for the overall environmental disclosure index is 24 (we have 43 items).

[8] The index by Clarkson et al. (2008) is based on the GRI guidelines. Van Staden and Hooks (2007)

develop their index based on the scoring system of SustainAbility/UNEP (1997). Aerts and Cormier

(2009) expand the 18-item Wiseman index into 39 disclosure items, whilst Hooks et al. (2004)

construct a disclosure index for electric utilities in the New Zealand context. The checklist

37

instruments referred to in this study have been further used or refined by other researchers including

Deegan, Rankin, and Tobin (2002) and Nik Ahmad, Sulaiman, and Siswantoro (2003).

[9] This involves an application of the disclosure indices on the environmental reporting in the annual

reports, stand-alone reports, and the websites. The sample selected in the pilot study represents a

combination of electric utilities with a varying degree of reporting quality, in which ten of the

companies produce stand-alone reports for the year 2007, whilst the remaining 10 do not . All these

electric utilities are included in the final analysis.

[10] According to IPCC (2007), CO2 emissions make up about 77% of the total GHG emissions in 2004,

and CO2 emissions are the major cause of global warming/climate change.

[11] These results however should be interpreted with care. For example, Naser and Nusaibeh (2003)

find a significant difference in the results using weighted and unweighted systems. Furthermore, Coy

and Dixon (2004) find consistent results only when using a polychotomous system, but not when

using a dichotomous system.

[12] Some disclosure items have more than three criteria or sub-elements. For this reason, we use „meets

all the criteria‟, „meets at least half of the criteria, and „meets less than half of the criteria‟ to score

the items, instead of using numbers e.g. „meets three criteria‟, „meets two criteria‟ and „meets one

criterion‟. A set of detailed criteria is available from the first author upon request.

[13] The results of Kolmogorov Smirnov and Shapiro Wilk tests show that all disclosure measures have

p values of less than .05, indicating that the data are not normally distributed. Thus, we use non-

parametric tests throughout the analysis.

[14] The environmental dimension has 30 performance indicators. The social dimension consists of

labour practices and decent work (14 indicators), human rights (9), society (8), and product

responsibility (9). The economic dimension has only nine (9) indicators.

[15] We also compare the GRI application levels with CO2_ALL. We find that CO2_ALL is positively

correlated with the decision to use GRI guidelines (R=.641, p=.000, two-tailed) and with the GRI

application level (R=.642, p=.000, two-tailed). Finally, we run the correlation analysis among GRI

companies (n=44), and both measures are positively correlated (R=.252, p=.099, two-tailed)

[16] The Cochran‟s Q values are too large and thus, not reported here.

38

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