Analysis Of The Environmental Performance: Carbon Disclosure, Risk Management And Sustainable Initiatives

Practical Motivation

Discuss about the Analysis Of The Environmental Performance.

The main purpose of this research report is to conduct the empirical analysis of the disclosures of the environmental performance measures and carbon risk management for minimizing the negative impacts of the carbon gas emissions and climate change risks. This research report is aimed at providing an in-depth analysis of the climate change risk management and carbon disclosure report by using the legitimacy theory to maximize the firm’s efficiency for reducing the carbon emission hazards as well as managing the environmental performance and climate change associated risks. This report is based on addressing the adverse impacts of the higher emissions of the carbon gases and climate risks consequences by releasing and communicating the information in general through the firm’s website, annual environmental sustainability report, stand-alone sustainability reports, and CDP (carbon disclosure project data). This report will also analyze the important roles and responsibilities of the management and accounting team for following the risk management procedure and sustainable environmental performance mechanism or initiatives to manage the climate change issues, carbon emissions risks, green-house impact, and environmental pollution activities (Aerts and Cormier, 2009).

Nowadays, the multinational organizations are becoming more environmental friendly by adopting the environmental sustainability strategies and practical implications of the risk management and control process for reducing the climate change risks and green house impacts of the carbon emissions on the corporations. The practical aspects of the environmental changes could be applied to the empirical studies of this research project for managing the climate change issues and carbon risks to assist in protecting the interests of the stakeholders, well-being of the communities and better organizational performance. The climate change and carbon footprints create risks to the organizational financial, marketing, operational and environmental performance and shareholders’ investment value (Al-Tuwaijri, Christensen, and Hughes, 2004).

The setting of the performance sheets, environmental changes initiatives, and incentives and reward of the organizational individuals may assist in achieving better performance outcomes in the form of the organizational financial and environmental performance, and maximize the shareholders’ returns. The regulators are given authority to regulate the unlikely climate changes, such as temperature change, rainfall, sea rise level, humidity and Carmon emissions through an effective control and regulation mechanism for the sustainable environmental performance. Along with this, the regulators and controllers are required to achieve the coordinated balance between the higher temperature, humidity, rainfall, and environmental performance (Beatty and Shimshack, 2010). Additionally, the management and accounting team is required to take initiatives for maximizing the organizational financial performance, such as assets value, share prices, huge profits, large sales volumes and huge revenues by encouraging the high investment or more share by the shareholder and investors in the corporation. This research proposal will implement the research purpose by engaging the management team to design and implement the performance management strategies and initiatives for improving the performances and productivity of the organizational individuals by providing them safe working conditions, flexible environment, performance-based rewards and incentives.    

Theoretical Motivation

The theoretical motivation part is significant to understand and analyze the issues causing for the climate change risks and carbon emissions or green-house effect to disturb the natural environment, communities and societies as well as corporation’s environmental sustainability performance. This part will understand and analyze the effects of the changes in the strategies, targets, and initiatives and risk management procedure for reducing the negatives effects of the climate change, carbon emissions/footprints, and industrial pollution. This research project will support the empirical studies by integrating the practical research with the theoretical research for analyzing the impacts of the carbon risks or green-house impact on the firm performance as well as on the interests of the stakeholders and general public (Botosan, Plumlee, and Wen, 2011). The environment sustainability performance will be linked to the carbon disclosure report, risks management process and control mechanism for reducing the growing impacts of the carbon emissions/green-house impact and climate change risks.

This research will also address the building slacks by the managers of the corporation for the setting of the environmental performance targets, information asymmetry, and management strategies for the sustainable environment performance by reducing the carbon emissions and unlikely climate change risks. This research study will also enable the researcher to make effective judgment and decision for introducing the risk management process and carbon disclosure report for the effective management of the carbon risks and climate change issues (Cho and Roberts, 2010).

From the reviews of the empirical research studies by Clarkson, Overell, and Chapple (2011), it is analyzed that the climate change and green-house effect have become the concerning issue for the organizations operating in the Australian environment as well as in the global context that influence the organizational corporate financial performance, sustainable environmental performance, and stakeholders’ intention.  The empirical studies also state that the impact of the climate change risks and green-house has been gradually increased during the past two decades due to the excessive carbon emissions, industrial wastes, pollution, and global warming. But, the control mechanism, set performance targets, risk management procedure, strategic initiatives, and carbon disclosure reports have contributed to increase the environmental, financial, and operational performances as well as protecting the stakeholders’ intention and interests to the great extent by reducing the excessive carbon emissions, industrial wastes and pollution, and climate change risks during the last five years (Clarkson, Overell, and Chapple, 2011). The legitimacy theory of the CDP report has contributed to follow the environmental protection laws, performance measures, and environment change policies for improving the environmental performance.

Literature Review

The research studies by Degomir (2010) depict that the organizational industrial wastes and excessive carbon emissions create the global warming, ozone layer depletion, and climate change risks (shortage of rainfall, high temperature, and droughts) that cause for the decline in the organizational environmental, financial, and operational performances. But, the environmental-based carbon disclosures and risk management and control procedures have contributed to the minimization of the risks and maximization of the opportunities. The CDP report emphasizes the firm’s ability to estimate the expected carbon intensify and identify the potential carbon emissions and climate change risks and associated opportunities and adoption of the strategic plans or actions in the term of control mechanism and risk management procedure for the management of the climate change risks, carbon emissions, and environmental performance issues (Degomir, 2010).

From the empirical analysis by Dawkins and Fraas (2011), it is reviewed that the carbon disclosure is a set of the qualitative and quantitative information that relates to the firm’s past and forecast environmental performance in the term of the carbon emissions levels, exposure to the financial implications of the climate change and carbon risks and opportunities, and the future actions to manage the climate change issues and carbon risks. The research also investigates that the factors, such as company size, leverage, revenues and profitability, regulatory threats, stakeholder resolutions, economic consequences, stakeholders’ interests and intention, shareholder or investors’ investment value, corporation’s environmental and operational management performance are associated with the carbon disclosure project (Dawkins and Fraas, 2011). 

According to Fisher-Vanden and Thorburn (2011), the CDP report shows that the organizations have the greatest potential with the increased responsibility of the management and accounting team to set performance targets and take action plans and performance strategy initiatives for encouraging and preparing the organizational individuals to understand their roles and responsibilities in the management of the carbon risks and climate change issues. The CPD report shows that the firm’s management is more likely to disclose the reliable and quality information to tackle the climate change risks and historical carbon emissions by partitioning the carbon risk management and disclosure measurements as a proxy for the environmental change and carbon performance (such as carbon emissions and toxic releases). The information related to the environmental emissions performance and climate change risk management procedure will be released or disclosed by the management and accounting to the stakeholders and general public through the corporate website and multiple information disclosure channels, such as stand-alone report, CDP report, and annual environmental performance reports (Fisher-Vanden and Thorburn, 2011). 

In the reviews of Lundholm and Van Winkle (2006), the legitimacy theory depicts that the environmental sustainable organizations are operating within the environmental protection laws, performance standards, and social norms under the social contract between the organization and societies. The environmental sustainable organizations are always trying the best with the greatest potentials and social responsibility to seek the legitimacy conferred by the societies and communities based on the social contracts with the organization. If once the legitimacy is threatened, then the organization will pursue the action plans and strategies to retain the legitimacy again. According to the stakeholder approach, the organizational management decisions could not be taken in the absence of the stakeholders. According to this theory, the participation of the stakeholders is important to communicate or disclose the information regarding the risk management and control process, environmental changes policies, strategic initiatives for protecting the stakeholders’ interests (Lundholm and Van Winkle, 2006).

The empirical research analysis by Lyon and Maxwell (2011) depicts that the legitimacy theory supports the environmental performance initiatives for enhancing the corporate social performance and ethics with the societies and stakeholders by reducing the carbon emissions and excessive industrial waste. According to this theory, the information asymmetry between the firm and externals (general public and stakeholders) regarding the environmental performance is important to improve the organizational financial and operational performance. This theory predicts the positive relationship between the financial-environmental disclosure and environmental-financial performance. The corporate disclosure of the climate change and environmental performance is growing area of research interest for the disclosure of the climate change opportunities and risks, carbon emissions and climate change disclosures in the annual and sustainability report, stand-alone reports, disclosures in response to the climate change risks and CDP questionnaire, and association between the carbon disclosure and climate change and carbon emissions level (Lyon and Maxwell, 2011).

Prado-Lorenzo et. Al views that the CDP is a non-profit or voluntary organization that acts in the interests of 534 institutional investors. The CDP started requesting the disclosure of the information related to the carbon emissions and climate change from more than 37,00 firms across the world.  The CDP encourages the firms for the disclosure and identification of the information of the carbon emissions and climate change risks and opportunities, control management and risks management procedure, action plans, strategies, performance initiatives to mitigate the climate change risks and high carbon emissions. The CDP also includes the setting of the performance targets by the managers for assigning the roles and responsibilities to the organizational individuals in order to mitigate the carbon emissions/green-house impacts and climate change risks. The energy efficiency, environmental audit, and risk management are important aspects of the CDP report that encourage the firms to reduce the carbon emissions, climate risks, and industrial wastes (Prado-Lorenzo, Rodriguez-Dominguez, Gallego-Alvarez, and Garcia-Sanchez, 2009). The CDP promotes the use of the renewable energy resources, recycling of the unused or waste materials, balanced preposition between the climate change and environmental performance, and CSR for reducing the growing impacts of the higher rates of the carbon emissions and climate change risks.

From the statistics of CERES (2009), it is found that the data from 2000-2008 in the global context shows that the despite of the carbon emissions and climate change risk awareness, approximate 76.3% firms do not disclose the climate change risks and opportunities, environmental change initiatives, strategies, and performance measures to mitigate the climate risks and carbon emission levels in their annual environmental performance reports. It shows their less willingness to communicate or share the environmental performance and CDP report in the general public or with stakeholders. CERES (2009) finds from the CDP reports of top 100 global companies in 2008 that these company don’t disclose any CHG or climate change risks/opportunity information with the stakeholders and societies. CERES investigates the factors related to the annual environmental performance and sustainability report disclosure of the CHG emissions and climate change risks on the environmental and financial performance of the corporations (CERES, 2009).

Stanny (2010) depicts that there is higher rate of the responsiveness of the firms to the CDP surveys, but low rates of the disclosure of the detailed information about the climate change and carbon emission risks and strategies to mitigate the negative impacts of the climate change risks. The median values of the MNCs show that the companies disclosing their carbon emissions and climate change information, and action plans and strategies to mitigate the CHG and carbon emissions are $2.3 billion higher than the non-disclosing counterpart corporations (Stanny and Ely, 2010).

From the statements of Reid and Toffel (2009), it is analyzed that after 2010, the trend for the carbon emissions and CHG disclosure has been increased to the great extent. The companies now are more likely to reveal or disclose information about the climate change risks and opportunities, carbon emissions impacts, company’s environmental change policies and technologies, and environmental practices and performance measure to satisfy the company’s stakeholders including shareholders/investors, regulators, employees, and customers. Now, the most of the MNCs are allowing the information asymmetry between the organization and outsiders for expressing their environment performance in the sustainability report (Reid and Toffel, 2009).  

The organizational control process, risk management procedure, and carbon disclosure information system management will be more effective than the strategic importance and environmental performance targets for protecting the stakeholders’ interests and community well-being and organizational performance (CERES, 2009). 

References

Aerts, W. and Cormier, D. (2009). ‘Media legitimacy and corporate environmental communication’, Accounting, Organizations and Society, Vol. 34 (1), pp. 1-27.

Al-Tuwaijri, S., Christensen, T., and Hughes, K. (2004). ‘The relations among environmental disclosure, environmental performance, and economic performance: a simultaneous equations approach’, Accounting, Organizations and Society, Vol. 29, (5-6), pp. 447-71.

Beatty, T. and Shimshack, JP (2010). ‘The impact of climate change information: new evidence from the stock market’, The BE Journal of Economic Analysis & Policy, Vol. 10(1), pp. 1- 27.

Botosan, C., Plumlee, M., and Wen, H. (2011). ‘The relation between expected returns, realized returns, and firm risk characteristics’, Contemporary Accounting Research, Vol. 28 (4), pp. 1085-122.

CERES (2009). ‘Climate risk disclosure in SEC filings: an analysis of 10-K reporting by Oil and Gas, Insurance, Coal, Transportation and Electric Power Companies’, CERES & Environmental Defense Fund, [Online]. Available at: https://www.ceres.org/resources/reports/climate-risk-disclosure-2009/view. (Accessed: 6 September 2017).

Cho, C. and Roberts, R. (2010). ‘Environmental reporting on the internet by America’s Toxic 100: legitimacy and self-presentation’, International Journal of Accounting Information Systems, Vol. 11 (1).

Clarkson, P., Overell, M., and Chapple, L. (2011), ‘Environmental reporting and its relation to corporate environmental performance’, A journal of accounting, finance and business studies, Vol. 47 (1), pp. 27-60.

Dawkins, C. and Fraas, J. (2011). ‘Coming clean: the impact of environmental performance and visibility on corporate climate change disclosure’, Journal of Business Ethics, Vol. 100 (2), pp. 303-22.

Dragomir, V. (2010). ‘Environmentally sensitive disclosures and financial performance in a European setting’, Journal of Accounting & Organizational Change, Vol. 6 (3), pp. 359-88.

Fisher-Vanden, K. and Thorburn, KS (2011). ‘Voluntary corporate environmental initiatives and shareholder wealth’, Journal of Environmental Economics and Management, Vol. 62, (3), pp. 430-45.

Lundholm, R. and Van Winkle, M. (2006). ‘Motives for disclosure and non-disclosure: a framework and review of the evidence’, Accounting and Business Research, Vol. 36, pp. 43-8.

Lyon, T. and Maxwell, J. (2011). Greenwash: Corporate environmental disclosure under threat of audit,  Journal of Economics & Management Strategy, Vol. 20(1), pp. 3-41.

Prado-Lorenzo, JM, Rodriguez-Dominguez, L., Gallego-Alvarez, I., and Garcia-Sanchez, IM (2009). ‘Factors influencing the disclosure of greenhouse gas emissions in companies worldwide’, Management Decision, Vol. 47 (7), pp. 1133-57.

Reid, E. and Toffel, M. (2009). ‘Responding to public and private politics: corporate disclosure of climate change strategies’, Strategic Management Journal, Vol. 30 (11), pp. 1157-78.

Stanny, E. and Ely, K. (2008), ‘Corporate environmental disclosures about the effects of climate change’, Corporate Social Responsibility and Environmental Management, Vol. 15 (6), pp. 338-48.