THE CONTENT AND DISCLOSURE OF AUSTRALIAN CORPORATE ENVIRONMENTAL POLICIES+

Carol Ann Tilt*

SCHOOL OF COMMERCE RESEARCH PAPER SERIES: 99-4 ISSN: 1441-3906

*Lecturer, School of Commerce

All Correspondence to: Dr Carol Ann Tilt School of Commerce Flinders University GPO Box 2100, Adelaide South Australia, 5001

Ph: (08) 8201 3892 Fax: (08) 8201 2644 Email: [email protected]

+The author wishes to thank Markus Milne and Tony McMurtrie for their invaluable comments on earlier drafts. Thanks must also go to Rob Gray, David Owen and other participants of the 2nd APIRA conference held in August 1998 for their helpful discussions. THE CONTENT AND DISCLOSURE OF AUSTRALIAN CORPORATE ENVIRONMENTAL POLICIES

Abstract

Studies of environmental disclosure levels in companies’ annual reports have shown an increasing interest in the environment. A major part of this interest has become the development of a Corporate Environmental Policy (CEP). This study considers the CEPs of Australian public companies and the subsequent disclosure related to that policy found in their annual reports. It then examines other disclosure media such as press releases, employee magazines, and environmental booklets, to determine whether there is a link between the policy, standards and reporting. The results show that Australian companies are surprisingly behind other countries in environmental reporting trends.

Keywords: corporate environmental policies; content analysis; annual reports; environmental disclosure; environmental reporting.

INTRODUCTION Corporate Social Reporting (CSR) and in particular environmental reporting and disclosure have become the topic of many studies and debates over the last few years. While many studies have investigated the disclosure of environmental information by companies in their annual report, and the development of Corporate Environmental Policies (CEPs), only recently has research considered the disclosure (or non-disclosure) of those policies. This paper attempts to equate companies’ policies with subsequent reporting. It also considers other disclosure or reporting vis-a- vis the policy, via a variety of disclosure media including the annual report. The results show that Australian companies have not adopted the compliance-with-standard style of reporting recently being observed overseas.

CEPs are usually seen as the first and an essential step for businesses when embracing the environmental agenda. These policies provide a broad statement of the company’s philosophy and the background to all of their activities that affect the environment. While many studies have considered the process of developing a CEP, the essential elements of a CEP, and whether companies are adopting CEPs, little analysis has taken place regarding their content or how they might be used within the organisation. This study attempts to partly fill that gap by considering whether the CEP plays any part in standard setting and subsequent environmental reporting or disclosure.

2 The paper has two aims. First, to examine a sample of CEPs to determine their information content and the extent to which they conform to the format suggested by recent literature. Second, to examine the levels of environmental disclosure found in annual reports and other disclosure media with particular reference to the content of the CEPs.

CONCEPTUAL BACKGROUND Many researchers outline a need for a general theoretical framework for CSR and they identify three broad categories of research (Parker, 1995; Gray et al., 1996; Hackston and Milne, 1996): the neo-classical economic paradigm characterised by decision usefulness studies (eg. Spicer, 1978; Belkaoui, 1980, 1984; Dierkes and Antal, 1985); the “middle of the road” paradigm where the status quo is accepted (eg. Laughlin, 1990; Gray et al., 1988) and the radical, critical or socio- political paradigm (eg. Tinker et al., 1991; Gray et al., 1995; Lehman, 1995) where more recent research appears to centre itself. For a good discussion and critique of the debate between proponents of these paradigms see Tinker et al (1991).

Early studies into social disclosure concentrated on the end user of that social information. These studies investigate the reactions of various user groups (investors, shareholders, and creditors) to the release of social and environmental information in annual reports. This is done either by surveying the users (Buzby and Falk, 1979; Belkaoui, 1980; Dierkes and Antal, 1985; Belkaoui and Karpik, 1989) or by measuring the stock market reactions to companies that disclose (Spicer, 1978; Mahapatra, 1984). The results of studies undertaken within this paradigm have been limited in providing insight into the practice of social and environmental reporting (Ullmann, 1985; Gray et al.1987).

More recent studies suggest other reasons why companies might choose to disclose social and environmental information. These range from the pursuit of corporate legitimacy to the desire to be seen as accountable or transparent (Gray et al.1987, 1988, 1995a). Studies using a political economy argument assert that companies make social and environmental disclosures because they are “…under pressure from employees, customers, suppliers, the general public and other social activist groups” (Adler and Milne, 1997 p. 4). Thus the disclosures are seen as a “…medium for managing (negotiating or manipulating) stakeholders” (Adler and Milne, 1997 p. 4).

Compliance With Standards From these more recent studies a minimum requirement that has appeared for reporting on social and environmental issues is compliance with the law (Bebbington and Gray, 1993). An extension

3 of this is a compliance-with-standards (CWS) approach to reporting which should begin to discharge the accountability of an organisation to the public and its stakeholders (Gray et al., 1987, 1996). Under this approach an organisation would report the extent to which its responsibilities, derived from existing law and other sources, had been met. Gray et al. (1987) assert that the standards must be derived from outside the reporting organisation, thus as well as law, environmental charters or guidelines could also be used. They also consider that any report should be externally audited or verified. This study considers CEPs and other environmental disclosures of Australian companies to determine the level of conformance to CWS reporting and to look for any other evidence that companies are discharging their accountability.

A recent survey of Australian publicly listed companies (Tilt, 1997) found that 46% of companies made their CEP publicly available, and over 60% claimed to prepare reports assessing performance against the policy. Although these were distributed most widely to management rather than released publicly, some form of reporting that relates to the policy could reasonably be expected from companies that have a CEP in place. Given that most companies include a statement of objectives in their CEP (Tilt, 1997), there may be a link between these policy objectives and standards then set by the company that provide the basis for CWS style reporting. These reports, or information from them, may then be found in annual reports or other media (such as separate booklets or media releases). At the very least, an objective that the company will ‘set standards’ against which to assess performance, seems an appropriate inclusion for the CEP. This study provides an initial exploration into this possible link between policies, standards and reporting by comparing the companies’ policies with their subsequent disclosures in a variety of disclosure media.

LITERATURE REVIEW

Social and Environmental Disclosure Many studies have been conducted both in Australia and overseas that attempt to determine the amount and type of environmental disclosures (often as a subset of social disclosures) that companies are producing (Guthrie and Parker, 1990; Gray et al., 1995b; Deegan, 1996; Deegan and Gordon, 1996). Disclosure of social information has been steadily increasing over the last 20 years, particularly in annual reports but also in separate reports on the environment (Ernst and Ernst, 1978; Trotman and Bradley, 1981; Parker 1986; FEE, 1996). The United Nations (1994) conducted a study of environmental disclosures on a sample of 203 1992/1993 annual reports from Fortune magazine’s ‘Global 500’ companies representing a number of industries. They found that 97% of companies disclosed some environmental information, however vast differences occurred between

4 industries and the types of disclosures made. In general, the chemical, forestry and petroleum companies disclosed more information, and the chemical and petroleum industries in particular usually disclosed their environmental policy (92% of chemical industry; 74% of petroleum industry respondents).

Harte and Owen (1992) reviewed a number of studies of social disclosure from the 1980s and 1990s and found “a very limited response in general on the part of UK companies towards the evolving green agenda” (p. 174). They did suggest, however, that more companies were reporting and there were some outstanding examples of best practice reporting. Harte and Owen (1992) found in their survey of UK companies, that only one company utilised a separate report for disclosing information on social issues. They also found that 40% of companies mentioned social and environmental issues in their statement of corporate objectives, and these issues were most commonly found in the chairman’s statement or review of activities. Finally they found that most disclosure was narrative in nature and that a few companies referred to “externally derived standards when discussing specific areas of performance” (Harte and Owen 1992, p. 188).

Most studies, including those discussed above, consider only the corporate annual report as a form of disclosure (Wiseman, 1982; Freedman and Jaggi, 1986; Cowen et al., 1987; Guthrie and Parker, 1989, 1990; Roberts 1992). The annual report has been used in these studies for a number of reasons. It is produced on a regular basis, is required by legislation and is produced by all companies, thus making comparisons relatively easy. It has also been suggested that the annual report is the major medium for a company to promote itself and the inclusion of other information with the financial may indicate its relative importance (Gray et al., 1995b). Similarly, many examine only monetary measures in their studies (Mahapatra, 1984; Freedman and Jaggi, 1986; Belkaoui, 1980). This study includes annual reports for the above reasons however it does not restrict the analysis to annual reports because there are suggestions that social and environmental information is not communicated exclusively via the annual report (Zéghal and Ahmed, 1990). In addition to the annual report, this study examines press releases, advertisements, corporate booklets, employee magazines and miscellaneous disclosure items. In addition, this study will focus on the corporate environmental policy documented by the company. The development of such a policy has been seen in more recent times as a major result of the growing pressure on companies to become more environmentally aware.

5 Corporate Environmental Policies (CEPs) There are two major types of CEPs. First, charters that are developed by an outside body and subscribed to by various organisations, and second, those that are developed by the company itself - or ‘in-house’ policies. The most well known charter that has been developed is the CERES (1990) Principles which outline a voluntary code of conduct established after the Exxon Valdez oil spill (Burritt and Gibson, 1993). Another example of a charter is one listed by the British Institute of Management: “A Policy for Management and the Environment” and includes regular review of environmental policies and provision of information to the public (Lester, 1992). The International Chamber of Commerce (ICC) also launched a Business Charter for Sustainable Development in 1991 (Gray et al., 1993) supported by over 400 organisations, and which includes the development, implementation and review of environmental policies, including conducting environmental audits.

Many industry-based charters also exist, such as the Chemical Industry Association’s Responsible Care Programme. Subscription to these is on a voluntary basis and Gray et al. (1996, p. 134) suggest that such approaches to self-regulation have “more to do with form than substance”. In Australia, the Australian Minerals Industry has recently developed a Code for Environmental Management introduced in 1996. It “establishes a regime of consultation, environmental monitoring, continual improvement and internal and external reporting” and it “encourages accountability for actions and seeks to achieve environmentally sensitive mining industry” (Brennon and Ireland, 1997). The Code includes nine principles, including sustainable development, integrated environmental management, performance targets and reporting. The Code is due to be reviewed in 1999 by the mining companies listed on the register at that time (Brennon and Ireland, 1997).

The alternative to subscription to one of the charters described above, is for companies to develop their own policy (note that the list of charters outlined here is not exhaustive, see Gray et al. (1993) for a comprehensive review). Gray et al. (1993, p. 59) outline the pros and cons of developing such an “in-house policy”. The charters tend to include a commitment to sustainable development. In- house policies, however, may not include such a commitment. The major difference in the two approaches, is that while developing an in-house CEP can be ‘reactive’ in its implementation, one which is committed to sustainable development must be ‘anticipatory’ in nature (Pearce et al., 1989).

In looking at the characteristics of a CEP, Harte and Owen (1992) found that 40% of a sample of UK organisations used a “statement of corporate objectives” to reveal their commitment to the

6 environment. The use of a clear statement of objectives has been identified as one of the necessary components of a good CEP (Shimell, 1991). In an Australian survey 85% claimed to include such objectives (Tilt, 1997). Other important components of a CEP are complete backing from the board, the need to “harness the enthusiasm of employees”, an environmental audit, putting a senior board member in charge of environmental management, and making it public (Cairncross, 1991).

Although there is a large amount of literature outlining changes in the general attitudes of companies, and posturing theories as to the most appropriate characteristics of environmental management and policies, only a few studies have emerged that actually detail the current state of environmental policy development by organisations. Recently some studies have appeared which attempt to investigate companies’ CEPs further. In a survey of UK, USA and European companies with CEPs, a number of common characteristics were established and from them an outline of a desirable CEP constructed (Shimell, 1991). These are now considered briefly.

Commitment of the Board The Institute of Directors (IOD) in the UK has conducted a survey in 1990 that showed that 49% of company directors said that their board activities have changed to reflect environmental concerns, and 43% of the companies had a specific environmental policy (Buck, 1992). In 1990, Touche Ross (UK) conducted a survey of eight countries to establish the extent of their environmental policies. The results ranged from very few companies in France and Luxembourg having environmental policies, to 60% and 70% in Ireland and the Netherlands respectively. In all countries, however, over 50% of companies felt that the importance of environmental issues will increase in coming years (Hardwick, 1991).

Involvement of Staff Müller and Koechlin (1992) assert that if responsibility for environmentally conscious management is delegated to all levels within the organisation, while it will not overcome all problems, the employees will be aware that the company is taking environmental issues seriously. Little evidence has been found, however, that environmental responsibility has been devolved beyond managers. Coopers and Lybrand Consultants (1993b, p.4) however, state that “...informing and involving employees in environmental improvements will help to keep and attract good staff...” as people increasingly wish to work for ethical and environmentally responsible organisations.

7 Integration with other Policies An organisation with a concerned environmental philosophy, has been considered to be the natural counterpart of the quality movement (Ford, 1992). It is believed that lessons can be learned from the implementation of Total Quality Management (TQM). It is considered that the elements of a TQM system are consistent with the development of an environmental quality system. Ledgerwood et al. (1992, p.127) state that “...[q]ality control of the corporate environmental programme is thus at the heart of its credibility...the systematic application of Total Quality management to the corporate environmental programme is essential.” Such an approach has been taken by some major companies in the UK such as AT&T, Baxter Healthcare and BP Chemicals (James, 1994).

Environmental Audits The use of an environmental audit is increasing at a rapid rate and in Denmark, the government has proposed the establishment of a new profession of environmental auditors (Roder and Hibbitt, 1993). In the United States it was developed in the early 1970’s so that companies could check that they were complying with environmental legislation. Presently the environmental audit is seen as a way to make sure that the company is protected not only against the possibility of litigation, but also for protection against criticism (Cairncross, 1991). It also identifies avenues for improvement. In Australia, in 1993, between 66 per cent and 90 per cent of all respondents to a survey of the top 1000 companies claimed to have undertaken an environmental audit depending on the industry in which they operate (Coopers and Lybrand, 1993a).

Publication or Disclosure Voluntary reporting on environmental issues is increasing and many organisations feel there is a need for practical guidelines in the area (Gray, 1994). Quite a number of guidelines have appeared in response to this including the United Nations. Other guidelines have been produced by the Hundred Group of Finance Directors, the Advisory Committee on Business and the Environment, the Environment Council, and the ICAEW and the ACCA in their environmental awards scheme (Gray, 1994) just to name a few. In their Industry Report (UNEP IE, 1994) the United Nations Environment Programme summarised the contents of five international industry codes of conduct and found that four of the five included the reporting of an environmental policy as an essential ingredient (Gray et al., 1996).

Despite the evidence of an increase in the number of organisations developing CEPs in the UK, again there is little evidence of detailed disclosure of such policies. Touche Ross, the Institute of Business Ethics, and Coopers and Lybrand Deloitte, all conducted surveys in 1990 and found only

8 limited evidence of disclosure (Harte and Owen, 1992). According to a survey undertaken by SustainAbility Ltd., in North America and Europe, over 85% of companies considered that their employees were the key target audience of their environmental report. Environmental campaigners were also seen as important in North America and Europe but less important in Japan. Local communities, shareholders and the media were also mentioned as important user groups and consumers were considered more important in Europe than in North America. Only a very small number of organisations had, however, undertaken any research on the needs of user groups (Elkington, 1993).

Prior Studies into CEPs Gray et al. (1993, p. 35) summarise a number of business/environment surveys and they conclude that the environment is not on the agenda of many UK companies, and that only half have formal CEPs. They also conclude that there is much resistance to disclosure in the area of environment, environmental audits are on the whole not undertaken, and that the primary motivation for taking environmental issues seriously is divided between legislation, personal/social opinion and public opinion. The development of a CEP is often considered the first step in implementing a complete environmental management system.

There are some outstanding examples of companies that have fully encompassed the environmental agenda into their business activities. A UK company with a commitment to the environment is Glaxo. The technical and quality director asserts that “the backbone of corporate environmental policy is the law” (Ferguson, 1989). Glaxo has the commitment of top management, conducts environmental audits, prepares monthly reports, and annual master reviews for the environment are carried out. The greening of the chemical industry has been proceeding fairly rapidly and the Chemical Industries Association Responsible Care Programme (CIA RCP) was launched in 1989. The policy includes compliance with legislation, availability of information and monitor and review of the charter (Gray et al., 1993). The major chemical company ICI’s policy includes four objectives covering regulation, waste, energy conservation and recycling (Gray et al., 1993, p. 239) and it first published its environmental policy in 1989 when it dedicated its entire annual report to the environment (Buzzelli, 1991; Gray et al., 1993).

Although many companies include a commitment to sustainable development in their environmental policy, few appear to have considered it more than in superficial terms and, as already stated, little evidence has been found of the implementation of sustainable activities (Bebbington and Gray, 1993). As discussed earlier, John Elkington of SustainAbility Ltd. has

9 described the evolution of the corporate environmental report as covering five stages heading towards sustainable development. He considers that most companies are currently in stages 1 or 2, with a small number reaching stage 3 and an even smaller group at stage 4. Stage 5 remains unexplored (Elkington, 1993, p. 43). Guidelines for stage 3 (environmental management systems) have been developed although few companies have embraced them.

In Australia, few studies have looked at CEPs, but have concentrated on disclosures in the annual report. Coopers and Lybrand Consultants (1991, 1992, 1993a) do however, conduct annual surveys of Environmental Management Practices of major Australian organisations which give some indication of the number of CEPs being developed. They found that 58% of companies do have a formal CEP, most being developed over the last two years. A study was conducted, however, by Polonsky et al. (1992) using the data gained in the Coopers and Lybrand (1991, 1992, 1993a) reports. The results discovered that no more than half of the sample in any one industry sector has environmental policies or an environmental manager/specialist. Most that did have a CEP had had it for less than two years.

METHOD This study was conducted on a sample of companies that were listed on the Australian Stock Exchange (ASX) in 1994, that were in the top 500 Australian companies by market capitalisation, and which stated that they have a formal, documented CEP in place. The existence of a CEP was determined via a survey (Tilt, 1997) and 75 of the 167 companies that returned the questionnaire stated that they had one. These respondents were then contacted and asked to provide their CEP, their annual report for the year ended June or December 1994, and any other items that they use to disclose environmental information (such as press releases, advertisements, employee magazines or newsletters, separate booklets or internal documents). In total, 59 of the 75 companies with a CEP sent their annual report and a further 11 were obtained independently (93%). Similarly 41 sent a copy of their CEP (55%) and 37 responded to the request for other items of disclosure (49%).

The CEPs, annual reports and other disclosure items were analysed using content analysis. Content analysis has been widely used in studies on annual reports in the areas of social and environmental reporting (Ernst and Ernst, 1978; Abbott and Monsen, 1979; Guthrie and Mathews, 1985; Guthrie and Parker, 1990; Zéghal and Ahmed, 1990; Hackston and Milne, 1996). There are two methodological issues which must be addressed when utilising content analysis: reliability and validity (Weber, 1985). The problem of the reliability or consistency of the classification of text is generally a result of the ambiguity of word meanings or category definitions. Validity problems are

10 also a result of the ambiguity of meanings or definitions, however validity refers to the “extent to which [a variable] measures the construct the investigator intends it to measure” (Weber, 1985, p. 15). Holsti (1969) asserts that the best way to ensure reliability is to employ more than one coder. In this study a pilot test was conducted which used three coders to refine the categories used and to establish the rules and procedures for coding. Categories were carefully developed from the literature to ensure validity. Reliability coefficients are presented in the pre-testing section below.

Unit of Analysis The most appropriate unit of analysis to use with content analysis has been the subject of considerable debate in the literature (Gray et al.1995b). Arguments for the use of individual words are usually made when the readability of text is being studied. The theme is considered most appropriate but creates difficulty due to its subjectiveness and thus may cause validity problems (Holsti, 1969; Carney, 1972). In studies of social and environmental disclosure, most tend to use one or a combination of words, sentences and pages. Number of pages as a measure of disclosure is often said to be problematic due to differences arising from font size, margins, graphics etc., while number of words causes difficulties due to concise or verbose styles of writing (Hackston and Milne, 1996). Milne and Adler (1998) argue that most prior studies, while using words, paragraphs or pages to measure the social or environmental content of text, actually use sentences to code the content. That is, sentences are used to determine into which box or category the text is classified regardless of the unit of analysis chosen. In this study, therefore, number of sentences was chosen as the most appropriate measure of disclosure to overcome this inconsistency.

Categorisation An essential element of research design in content analysis is the selection and development of categories into which content units (see above) can be classified. Holsti (1969, p. 95) states that “... [c]ontent analysis stands or falls by its categories”. In this study a series of categories of environmental disclosures were developed for coding each sentence determined to be an environmental disclosure. These categories were developed from prior literature in the area of CEPs, particularly the five major characteristics discussed in the literature review. Categories must also be mutually exclusive, exhaustive and independent (Holsti, 1969). The majority of other content analysis studies have been on the broader subject of social disclosure and therefore one category for ‘environment’ was all that was required. In the few studies conducted on environmental disclosures specifically, a number of sub-categories have appeared. The final categories were developed from these and the CEP characteristics discussed in the previous section.

11 The results of the coding of the CEPs, annual reports and other items are also analysed for differences between industry groups using five industry classifications: mining and chemical; food and household; industrial; trade and services; and financial services. These were developed from the ASX industry classification list (see Tilt, 1997). Differences between size groups are also considered. In this paper the results are presented using size measured by number of employees. Size tests were also performed using two other measures of size (total revenue and total assets) as has been done in other studies (ie. Polonsky et al., 1992) however these were not significantly different to the results using number of employees thus are not presented here.

Pre-Testing For this study separate analysis instruments were developed for analysis of the CEPs, the annual reports and the other media collected. All instruments were then tested for validity and reliability through pre-testing. Three independent coders were used to test the instrument. As the purpose of pre-testing is not to draw inference about the text being analysed, but to test the reliability and validity of the coding instrument (Holsti, 1969), annual reports for the previous financial year were obtained for companies which comprised part of the final sample to be analysed. These reports and a random sample of CEPs and other items were then used to test the coding instrument. Results were compared and discrepancies between coders discussed. From the discussions a number of additions were made to the definitions of categories and some further rules of coding were included.

The basic coding rules used in the study were obtained from Hackston and Milne (1996) which were based on prior work by Ng (1985) and Ernst and Ernst (1978). The definition of an environmental disclosure used was ‘any sentence that discusses or mentions the natural environment and/or its relationship with the organisation’. The coders identified all sentences that they considered to meet this definition and classified each according to which category of disclosure it belonged, its type of disclosure (monetary, non monetary or declarative) and where in the annual report it appeared. Any sentences that did not fit into a category listed on the coding sheet but would have been classified into the ‘other’ category were highlighted so that they could be scrutinised later in order to refine the categorisation used. This is important so that the ‘other’ category does not consequently have the greatest number of responses.

The sentences were then totalled and the percentage of agreement between coders was identified using a formula adapted from Osgood (1959) and Holsti (1969) to determine a simple coefficient of reliability. As Holsti (1969, p. 140) points out however, this simple formula “does not take into account the extent of inter-coder agreement which may result from chance”. Therefore, Scott’s

12 index of reliability (pi) was also used as a test of reliability. This test corrects for the “probable frequency with which each [category] is used” (Holsti, 1969, p. 140). There are other tests of reliability, however Scott’s pi is considered the most useful (Holsti, 1969) particularly when only two coders are being compared and the “categories of the variables are unordered (nominal scale)” (Krippendorff, 1980, p. 138). The most well known reliability test when more than two coders are used is Krippendorff’s  (1980). Scott’s pi and Krippendorff’s  will be equal when there are only two coders (Krippendorff, 1980). Thus for completeness the final annual report and CEP were analysed by a third coder and both Scott’s pi and Krippendorff’s  were calculated between all three coders.

Although no standards or guidelines have been established for inter-rater reliability in content analysis on social/environmental disclosure (Hackston and Milne, 1996) it is suggested that 80% or above is acceptable (Guthrie and Mathews, 1985). Similarly, Wimmer and Dominick (1991) suggest that 0.75% or above for Scott’s pi or Krippendorff’s alpha is an acceptable level for content analysis. The final levels of inter-coder reliability found after pre-testing and modifying the instrument in three phases were well over the acceptable level of 80% by the end of the third round of pre-testing. As coding over a length of time may cause discrepancies to appear in the coding of text (Weber, 1985), a random sample of one annual report, one CEP and one press item was re- coded one month after the final coding of the entire sample was complete. The simple reliability coefficients were still well above 80%.

Limitations of the Method As with all methods, content analysis is subject to a number of limitations. Carney (1972, p. 196, p. 196-197) describes the limitation that “...to make inferences from message to intent will require ...several different content analyses, ...some type of theory, ...or external data, and a study, on the communicator”. Suggesting that content analysis alone may not be sufficient. There is also an element of subjectivity involved in content analysis. “The same document can mean wholly different things to different users” Carney, 1972, p. 197). The frame of reference used by the investigator will also have an effect on the research, that is, it “...can affect what the ‘content’ of a document is”. To minimise subjectivity a rigorous instrument must be developed. In this study the instrument was pre-tested thoroughly using three measures of reliability.

Only disclosures made by companies that have a formal CEP were analysed using content analysis. It is possible, however, that the companies that do not have a formal CEP may still disclose information about the environment in their annual reports or in other disclosure media. These

13 possible disclosures are not considered, as they are beyond the scope of this study, however, it is important to note the possibility of their existence. Analysis of disclosures by companies that do not have a CEP would be a useful area for further research.

RESULTS Analysis of CEPs In general the size of CEPs varied from a few short sentences, to a booklet containing 59 sentences. The mean number of sentences was 14.2 but with a standard deviation of 10.6 sentences indicating wide variability. Most CEPs were approximately one A4 page and contained a general statement of policy following by a series of specific aims or objectives. These objectives however, were stated in very broad terms as will be illustrated below. Few contained pictures or graphs, and almost none included any monetary or quantitative information, concentrating mainly on narrative text.

The following excerpt from a CEP typifies the kind of general statements made in most CEPs and the types of objectives often included regarding compliance with laws and regulations and involvement of staff (the name of the company has been deleted to preserve anonymity):

The opening statements read:

[company name] is committed to understanding and minimising any adverse environmental impacts of our activities, while continuing to meet the expectations of our consumers and customers for quality and service, and to provide a safe working environment for employees.

We believe that all [company name] employees and everyone associated with the Company, have an important role to play in achieving our environmental goals. We aim, therefore, to provide our people with the necessary tools to enable their full involvement. Followed by objectives:

 Aim to achieve a level of environmental performance which goes beyond that required for regulatory compliance.

 Encourage and equip our employees to identify and act upon opportunities to minimise any adverse environmental impacts and issues.

 Reduce, reuse and recycle our on-site wastes wherever practicable and ensure that we dispose of our wastes safely and with minimal impact.

The category most often included in a CEP was ‘staff involvement’ with the policy (93%). It appears that most organisations consider the most important factor in the success of the policy is the commitment of all staff members. ‘Environmental law’ was mentioned in 80% of the CEPs

14 indicating that compliance is a major part of the policies, industry environmental standards also being included in 51% of cases. ‘Waste and recycling’, ‘environmental management’ and ‘reporting’ were also among the most often included items. By far the most common form of sentence in a CEP is the declarative or narrative.

Table 1 presents a list of each of the variables (CEP characteristics) investigated. It also provides the frequency of inclusion in the CEP and the mean number of sentences dedicated to each variable.

Table 1 Descriptive Statistics for CEP Characteristics Investigated (n = 41) Variable Frequency Frequency Mean Standard (n) (%) Sentences Deviation General Classification: General policies 41 100 3.17 1.94 Objectives 34 83 8.37 7.11 Other sentences 15 36 1.44 3.0 Non Env sentences 13 32 1.22 3.59 Specific Variables: Report on objectives 22 54 0.85 1.26 Involvement of staff 38 93 1.46 1.05 Funding 9 22 0.22 0.42 Board member 1 2 0.07 0.47 Charter subscription 3 7 0.15 0.65 Integration of policies 5 12 0.12 0.33 Sustainability 8 19 0.22 0.48 Research & Devlpmnt 10 24 0.27 0.50 Capital Expenditure 1 2 0.02 0.16 Env mngmt system 17 41 0.50 0.67 Env manager / 5 12 0.29 1.06 committee Env Audit 12 29 0.42 0.89 Env Law 33 80 1.05 0.77 Env Standards 21 51 0.79 0.97 Pollution 4 10 0.10 0.30 Rehabilitation 4 10 0.15 0.48 Land, water, forests 7 17 0.39 1.05 Waste and recycling 18 44 0.71 1.32 Env impact assessment 3 7 0.10 0.37 Products 9 22 0.37 0.94 Other env activities 12 29 0.46 0.87 Other Disclosures 39 95 4.15 2.88

An interesting aspect that can be gleaned from the table above, is that the greatest proportion of sentences in a CEP are in the form of objectives - 59% of all sentences and 83% of all companies include them. This indicates that firms do appear to be using their CEPs to set environmental objectives. Notably however, an objective to report or to set environmental standards or targets

15 only appeared in about half of the CEPs and where it did appear, less than one sentence was dedicated to it.

Each of the individual variables (categories) were then tested by industry and by the three measures of size to determine if any specific differences appeared. For all of the tests the null hypothesis could not be rejected at the 5% level of significance except four variables. Total sentences found in a CEP did not differ significantly by industry (p = 0.926) nor by size (p = 0.991). Thus it appears that for most types of disclosure industry and/or size has little effect on the size of the CEP or its contents.

The next stage of the analysis was to examine the to determine whether any one category has a significantly greater number of sentences than another. By looking at the descriptive data obtained in Table 2 above some categories have an obviously much higher mean number of sentences than others. These were initially grouped together and tested for significant differences using the Kendall’s Coefficient of Concordance test for k related samples. The initial test of all variables with a mean of more than 20 sentences showed that there were significant differences (p = 0.000). Variables were then gradually removed (removing largest first) until no further differences appeared. This was then repeated for variables with a mean of less than 10 sentences and variables gradually added until they became significantly different. Due to the method of performing multiple tests on the same data set and thus the possibility of multiplicity (Lindsay, 1997) any variables that showed significance levels that were borderline at the 5% level, were treated conservatively. Lindsay (1997, p. 243) asserts that multiple testing on the same data set will “undermine statistical inference by inflating type 1 errors well above reported significance levels” thus p-values at or near 0.05 were assumed to be higher. Table 2 shows the groupings that resulted from these tests in ascending order. The first group indicates that staff involvement in the policy and environmental law are the two (equally) most common elements found in a CEP.

16 Table 2 Significant Characteristics of CEPs Group of Variables that come from P value same population (adjusted)* 1. Staff Involvement 0.05** Environmental Law (0.071) 2. Report on objectives 0.477 Environment Management System (0.462) Environment Standards Waste and Recycling 3. R&D 0.634 Environmental Manager (0.628) Environmental Audit Land, Water, Forests Products Other Activities Funding Sustainability 4. Board member 0.593 Integrated policies (0.608) Capital Expenditure Pollution Env Impact Assessment Charters Rehabilitation * Asymptotic P-value (Monte Carlo Significance level) ** Although the P-value indicates that these variables are significantly different at the 5% level, due to their borderline nature they will be treated as the same due to the possibility of multiplicity (see above).

The ‘other disclosures’ category was not included as a variable in the above analysis as it contains a variety of different topics. When these were examined more closely it was found that they were mostly general statements about the ‘importance of the environment’ to the company. For example, a medium sized company from the ‘mining and chemical’ industry produced a single A4 page policy beginning with the statement:

[company name] ...recognises the ever increasing environmental expectations of the Community and will, in all of its activities, be a leader in implementing environmentally acceptable practices and procedures.

Analysis of Annual Reports The average number of sentences that can be classified as an environmental disclosure in the annual reports investigated is 12.3 (median 6.5), with a minimum number recorded as zero and a maximum in any single report of 78 sentences. By far the majority of the disclosures are declarative in nature (87%) with only a very few being sentences containing quantified information (maximum of 7 sentences in any one report). 13 of the companies (19%) did not include any environmental disclosures in their annual report at all, which is surprising given that the entire sample reported to have a formal CEP in place. The most commonly included disclosure category found in annual

17 reports was rehabilitation with 43% of companies including it. The number of mining companies in the sample probably biases this result however, and thus the sample is broken into industry and size classifications in Table 3.

Table 3 Mean Sentences in Annual Reports by Size and Industry (n = 70) Industry No. Analysed % of total* Mean sentences in Report Mining and Chemical 33 47 17.6 Food and Household 8 11 3.5 Industrial 16 23 12.1 Trade and Services 7 10 5.9 Financial Services 6 9 2.7 No of Employees < 200 11 16 9.0 200 – 1000 16 23 7.2 1000 – 4000 19 27 9.2 > 4000 23 33 19.3 * totals may not add to 100% due to some missing data and rounding.

The ‘total sentences’ variable was tested for significant differences between industries using the Kruskal-Wallis Test and the Mann-Whitney Test. Not surprisingly when looking at the descriptive data above, the tests showed two distinct groups - the ‘mining and chemical’ industry combined with the ‘industrial’ industry (p = 0.31). The other three industries were not significantly different to each other (p = 0.551, 0.554 and 0.682 for the different combinations of industries).

The specific characteristics investigated are identified in Table 4, which also provides the number of individual annual reports that contain each characteristic. Of particular interest, is that given these companies have all indicated that they have a CEP, the average number of sentences that specifically mention CEPs is only 0.4 and this was done by only 16 (23%) companies. This may be partially accounted for in that on average, an additional 0.7 of a sentence was also dedicated to environmental policies in general, but still indicates that a relatively small proportion of total companies with a CEP appear to draw attention to the fact in their annual report. Notably, when the 16 annual reports are divided into those companies that chose to send their CEP for analysis and those that did not, only two of those not providing their CEP mention the CEP in their annual report compared to 14 for those that did provide it.

18 Table 4 Descriptive Statistics for Specific Variables of Annual Reports (n = 70) Variable Frequency Frequency Mean Standard (n) (%) Sentences Deviation Monetary sentences 27 38 0.90 1.34 Non monetary sentences 16 23 0.66 1.5 Declarative sentences 56 80 10.73 14.41 Total Sentences 12.29 15.96 Specific Variables: CEP 16 23 0.41 0.99 General Policies 24 34 0.66 1.61 Objectives 15 21 0.40 1.07 Report on objectives 7 10 0.13 0.41 Env Audit 15 21 0.40 1.00 Env Awards 10 14 0.24 0.66 Sustainability 7 10 0.10 0.30 Involvement of staff 6 8 0.14 0.52 Funding 0 0 0.00 - Charter subscription 3 4 0.43 0.20 Integration of policies 5 7 0.07 0.26 Env Mngmnt Program 26 37 0.83 1.71 Env Manager / committee 16 23 0.51 1.31 Board member 1 1 0.01 0.12 Research & Development 6 8 0.14 0.57 Capital Expenditure 4 6 0.08 0.34 Env Law 21 30 0.49 0.97 Env Standards 13 18 0.29 0.79 Pollution 16 23 0.63 1.71 Rehabilitation 30 43 2.38 3.82 Land, water, forests 18 26 0.79 2.11 Waste and recycling 20 28 0.97 2.50 Env impact assessments 6 8 0.11 0.44 Products 6 8 0.10 0.35 Other env activities 17 24 0.63 1.49 Other Disclosures 43 61 1.71 2.61

Much more predominant in the annual reports was discussion of the firms’ activities with regard to rehabilitation, waste and recycling, and other environmental activities. In particular rehabilitation stands out with an average of 2.4 sentences appearing in the annual report with 43% of companies including it. There are two possible reasons for this. First, almost half of the companies in the sample were from the mining industry (47%), where rehabilitation is a major activity undertaken. Upon testing the rehabilitation variable by industry using the Mann-Whitney U test, the mining and chemical industry was found to be significantly different to all of the other industries (p = < 0.006). Second, mining companies in Australia receive tax benefits by disclosing a provision account for rehabilitation costs in the financial statements, suggesting an alternative motive for the disclosures (Tilt and Symes, 1998). If the rehabilitation disclosures are considered without those found in the

19 financial statements, and the Kruskal Wallis test is run again, the result is that there is no significant difference between industry types for rehabilitation disclosure levels (p = 0.432).

The various classifications of disclosures were tested using the Kendall’s W Test for k related samples to determine which variables (categories) were significant using the same method used for CEPs. As for CEPs, any tests for which the result was borderline was treated conservatively due to the possibility of multiplicity (Lindsay, 1997). The following table (Table 5) identifies significantly different groups of categories reported with their corresponding p-values in ascending order of total number of sentences.

Table 5 Significant Variable Groups in Annual Reports (n = 70) Group of Variables from same population P-Value (adjusted)* 1. Land Rehabilitation 0.881 Other Disclosures (1.000) 2. Environmental Management Program 0.176 Land, Water and Forests (0.168) Waste 3. CEP 0.177 General Policies (0.164) Environmental Awards Objectives Environmental Audit Industry Standards Environmental Manager Environmental Laws Pollution Other Env Activities 4. Report on Objectives 0.121 Sustainability (0.109) Funding Charters Integration with Other Policies Board member R&D Capital expenditure Env Impact Assessment Products * the p-value is the asymptotic significance level. The adjusted p-value is the Monte Carlo significance level.

As for CEPs, the ‘other disclosures’ were looked at separately to determine whether there is something in particular that was not classified into one of the existing categories. Most of the disclosures are general statements that do not address anything in particular, but are remarks about the ‘importance of the environment’ or how the environment is ‘an area of interest to the community’, etc. As for CEPs some of these ‘other’ disclosures addressed the need for consultation with local communities near a mine site or industrial plant, or for negotiations with indigenous communities affected by the company’s activities.

20 Analysis of Other Disclosure Media As mentioned above, the other disclosure media used most by the organisations surveyed were inter alia press releases or advertisements, interim reports, glossy booklets/brochures and internal magazines. Specifically, of the 30 organisations that sent other disclosure items, these included: 9 organisations’ press releases, media articles or advertisements; 8 general environmental booklets or brochures; 7 site specific booklets or brochures; 5 employee or shareholder newsletters or magazines; and 4 glossy corporate booklets. Nine organisations also sent a letter explaining that they do not disclose environmental information anywhere other than in their annual report or CEP.

One difficulty in analysing these items is the varying amounts of each collected. In the discussion of the analysis that follows, the differences in items analysed are clearly indicated. Additionally, the analysis is limited to descriptive statistics and narrative discussion with few statistics used due to problems with comparability. Although a limitation, this is an applicable treatment as it is the first analysis of its kind to be undertaken. The exploratory nature of the analysis leads to many further research questions, which are discussed later.

When considered in total, the other disclosure items generally contain around 50% non- environment related disclosures, are declarative in nature and have a mean number of sentences of 33. There did not appear to be any significant differences between industries as to the amount of disclosure dedicated to each characteristic indicating that industry does not affect what is disclosed other than in the annual report. This contrasts the results for annual reports where industry was shown to be a major factor in determining disclosure levels. When the size groups were considered for each characteristic only one difference appeared – for the ‘general policies’ variable - with larger companies including fewer sentences about their general environmental policies than smaller ones.

The individual characteristics were then considered by disclosure item type (press item versus separate booklet versus magazine etc.) to determine whether any pattern emerged regarding where particular categories of disclosure might appear. Again, most characteristics showed no significant difference between the different items used for disclosure. This indicates that in general the type of disclosure media used does not affect what is disclosed, however, tests did indicate that the disclosure item type does affect how much is disclosed. The Kruskal Wallis Test for total sentences and total environmental sentences showed that the items did not all come from the same population (p-value 0.001). General environmental booklets are larger in size (mean 115 sentences) and

21 therefore contain more disclosures (mean 82 sentences). Corporate booklets and internal magazines contained the fewest number of disclosures. These disclosure items are now considered briefly.

Press Items A variety of press releases, articles and advertisements were received from respondents. The content analysis on these items showed that press items mostly contained disclosure that was declarative in nature (a mean of 8 sentences per press item). Very few sentences contain monetary or other quantitative material. Interestingly, most items contained some non-environmental disclosures with a mean number per press item of 43 sentences (the mean number of total sentences per press item was 52). The reason of such a large amount of non-environmental related sentences was usually because a number of paragraphs were devoted to introducing the organisation including its size, operations and other details. Alternatively it was because the press item was a large press release covering many issues (often including financial results) of which the environment is only one.

The majority of press releases were about the environmental activities of the companies, such as pollution levels (mean 3 sentences); activities that affect land, water and forests (mean 4 sentences); and waste and recycling (mean 3 sentences). It would appear that companies generally only release environmental information to the press when a specific incident has occurred, a new product has been released, or a new technology or process has been introduced. For example mining companies will make a statement to the media when they are rehabilitating a mine site, or an industrial company will release details of its new recycling plant.

Environmental Booklets Eight companies sent an environmental booklet that they produce for their organisation as a whole and seven companies had specific environmental booklets for particular sites or operations. The general booklets were larger ranging from 50 to 313 sentences in size with an average total number of sentences of 115. Specific booklets were between 2 and 8 A4 size pages long and contained between 30 and 100 sentences. Again, the sentences tended to be declarative in nature. Approximately 30% of the sentences in the general booklets and 45% in the specific booklets are not environmental disclosures but described the company and its operations as occurs in the press releases.

In these environmental booklets, the greatest amount of disclosure deals with environmental activities such as pollution, rehabilitation and waste as for press releases. One outstanding figure

22 however, is that the general booklets dedicated 7.2 mean sentences to their CEPs. It appears that the company’s environmental policy is often referred to in corporate booklets.

Internal Magazines, Newsletters and Corporate Booklets Internally distributed magazines or newsletters for employees were received for five organisations. The magazines varied from 4 to 23 A4 pages, with the majority being 8-10 pages. Average total disclosures found in these was 26.5 sentences, with 22 of these being declarative in nature. Almost all of the disclosures concerned pollution levels, with a few on other activities such as waste and land issues. As these magazines are produced for employees it is surprising that very few contain disclosures regarding policies. Rather, they appear to be designed to inform employees about what the company is doing.

Of the four companies that produced a corporate booklet, three had a separate section on the environment (sometimes including other things such as ethics or safety) and one had only one line on their environmental responsibility in the introduction. Interestingly, the major issue covered in these corporate booklets was the company’s impact on land, water and forests with a mean number of sentences in this category of 22 compared to only 1 to 3 in any other category. This may, however, be a coincidence of the data collected being such a small sample, thus conclusions are not drawn as to why this issue dominated. Again, most sentences were declarative. It would appear that these corporate booklets are not considered the most appropriate place for environmental disclosures.

SUMMARY AND CONCLUSIONS The content analysis in this study appears to support findings of other authors that the annual report is still considered by companies to be the most appropriate medium for environmental disclosure, demonstrated by their preference for it over other media. Other items are used primarily to disclose information about specific activities of the organisation or particular events that have occurred recently. Even in the annual report, particular emphasis is put on disclosing activities such as rehabilitation, waste and recycling, and pollution control measures rather than on general policies, research and development or capital expenditure.

Analysis of the CEPs showed that companies are developing policies and objectives. They are not however, referred to very often in the annual report or in any other media considered in this study. Similarly, the disclosures that are made do not appear to come from any reports on results of performance against targets or objectives. Only in a few cases are policies reported in the annual

23 report or other media, in contrast to assertions made about reporting by the same respondents in a recent survey (Tilt, 1997). This leads to the obvious question of whether performance is assessed at all, and if so, where are the results reported? If such reports are kept within the company, why are they not reported publicly in order to discharge accountability?

It appears that policy development, and standard setting and performance evaluation, may be being developed and implemented independently within the organisation, as shown by the lack of any link or connection between the CEP and the disclosure found. The use of a fully integrated environmental management system would suggest that this should not be the case. The possibility that annual report disclosure may in turn be produced independently, perhaps being substantially a public relations or marketing exercise, also exists. This is supported by the analysis of disclosures in this study, as they tend not to relate to the firms’ policies nor to their environmental performance. Moreover, the apparent lack of stand-alone environmental reports in Australia highlights the problem that companies are not making themselves accountable. Further research is warranted into the processes that companies undertake to develop and implement environmental policies. In particular, case studies would be useful in determining whether the processes of policy development, standard setting and performance evaluation are interrelated. Finally, the function of annual report preparation could be investigated to determine from where the information in the annual report is obtained.

When compared to the United Nations (1994) survey of multinational companies from Fortune magazine’s ‘Global 500’, Australian companies appear to be lagging behind other countries in disclosure of policies and thus in general commitment to the environment. Australian companies apparently prefer to disclose their activities and specific programs, rather than research and development, capital expenditure, policies or performance. Key comparisons are presented in Table 6. It is important to note that this comparison is to gain a general picture only and compares only those variables that have an equivalent one in the current study. Detailed comparisons are not possible due to differences in sample and instrument.

Table 6 Comparisons to United Nations (1994) Study % of Companies Disclosing Disclosure Variable United Nations Study This Study Policies 60 43 Major Programs 27 37 Law 25 30 Research & Development 48 7 Capital Investment 31 6 Remediation 14 26

24 Compared to a UK study (Harte and Owen, 1992) Australian companies appear to be similar in their reporting of policies in their annual reports. Harte and Owen (1992, p. 183) found that 40% of respondents “…utilised what may loosely be termed a statement of corporate objectives in drawing attention to their commitment to the pursuit of social and environmental, in addition to profitability, goals”. In this study, the term ‘objectives’ was used to infer specific targets, rather than general statements that were called ‘policies’. Harte and Owen (1992, p. 183) state that these sentences were actually statements “…of general philosophy or policy”.

Similarly, Harte and Owen (1992) found little evidence of any quantified targets or specific objectives in UK annual reports. A finding mirrored in this study which found only 10% mentioned targets and very few of these were quantified in any way. In all, Harte and Owen (1992) found that ‘compliance with standards’ information was “…very much the exception rather than the rule amongst companies in our survey”. In this study, the same result occurred – very few examples of information provided in the annual report could be classed as ‘compliance with standards (CWS)’ reporting, and no evidence was found in any of the other disclosure media analysed. Less than five companies did provide CWS-style reporting and were predominantly mining companies reporting compliance levels. For example, a large mining company reported the following:

In 1992 we set ourselves the goal of achieving 100% compliance, by the end of 1993, with all license limits set for our operations by statutory authorities. ...We only just fell short of our goal in 1993. We did not make it this year [1994] either but we did do better, achieving 98.8%.

The results have implications for reporting practice in Australia. Although mining and chemical companies were found to disclose most, the Australian Minerals Industry code for Environmental Management (see Table 1) requires a number of elements that were found to be missing in this study. This Code was introduced in 1996 however, and this study was undertaken on companies in 1994 thus, an important area for further research is to see whether the Code has had an impact on the type of disclosure or reporting being undertaken since its introduction.

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