International Journal of Administration and

Governance
ISSN-2077-4486
2017. 3(3): 14-18

RSEARCH ARTICLE

Relationship between Company Profit and

Size towards Sustainability Reporting in Oil
and Gas Companies in Malaysia
1Safarina Abdul Ghani and 2Diana Rosdi
1Safarina
Abdul Ghani, Faculty of Business & Information Science, UCSI University, Terengganu Campus, MukimRusila, 21600 Marang,
Terengganu, Malaysia.
2Diana Rosdi, Faculty of Business & Information Science, UCSI University, Terengganu Campus, MukimRusila, 21600 Marang,

Terengganu, Malaysia.

Address For Correspondence:

Safarina Abdul Ghani, Faculty of Business & Information Science, UCSI University, Terengganu Campus, MukimRusila, 21600
Marang, Terengganu, Malaysia.
+60193408020; E-mail: safarina@ucsiuniversity.edu.my

Received 3 August 2017; accepted 10 October 2017; published 20 October 2017

ABSTRACT

Sustainability reporting is becoming a growing trend in the society due to growing concern about global environmental issues. Oil and gas
industry is one of the most exposed industry to devote sustainability reporting as it deals with destructive operations. The objective of this
study is to analyze the relationships of company profit and size towards sustainability reporting of oil and gas companies in Malaysia by
adopting the Global Reporting Initiative (GRI) index. The study is to examine the relationships between company profit and company size
towards the disclosure of sustainability reporting in oil and gas companies in Malaysia. This research will be a quantitative study by using
the secondary data extracted from the annual report, sustainability report and corporate social responsibility report from year 2013 to 2016.
A sample of 27 companies selected from the Malaysia Oil and Gas Report 2016 Quarter 2. Regression analysis and correlation will be used
to examine the relationships between variables in this study. The findings of this study are expected to show a significant relationship
between company size and profit towards the sustainability reporting. This research is expected to contribute valuable knowledge to
improvise the companies’ practice in their sustainability disclosure.

Key words: Sustainability reporting, GRI, Global Reporting Initiatives, environmental reporting.

INTRODUCTION

The Global Reporting Initiative (GRI) is one of the global policy networks that has emerged as aguideline
for sustainability reporting (Massie, R.K., 2001). Sustainability reporting is possible to be seen by all types of
companies and organizations from all around the world. In a sustainability report, it consists of economic,
environmental and social impact which is caused by the organization and its day-to-day basis activities. The
non-financial subjects that is not covered in the annual report are covered by sustainability reporting which is
defined by the GRI as "the practice of measuring, disclosing, and being accountable to internal and external
stakeholders for organizational performance towards the goal of sustainable development" (Global Reporting
Initiative, 2011). The companies find the opportunities to show their dedication to social reporting initiatives
through the corporate social responsibility (CSR) reporting and they may voluntarily follow various guidelines.
Maximizing the value of the corporation is the ultimate goal when engaging in CSR reporting in which it
may be accomplished by aligning social activities with the corporate objectives where the CSR strategy
facilitates this combination. However, if there are negative impacts or no impacts on the company's value, the
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This work is licensed under the Creative Commons Attribution International License (CC BY).
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To Cite This Article: Safarina Abdul Ghani and Diana Rosdi., Relationship between Company Profit and Size towards Sustainability
Reporting in Oil and Gas Companies in Malaysia. Int. J. Adm. Gov, 3(3): 14-18, 2017
15 Safarina Abdul Ghani and Diana Rosdi, 2017
International Journal of Administration and Governance, 3(3) December 2017, Pages: 14-18

companies tend to not report nor invest in CSR activities (Malik, M., 2014). Increasing number of companies
have made significance on environmental matters. As the company may incur environmental obligations as a
direct consequence of the company's core business, the environmental matters are more evident to some
companies.Outof several industries that are exposed to environmental risks, the oil and gas industry is one it.
Hence, the environmental obligations may affect the financial statement (The International Federation of
Accountants, 2016). In addition, as two of the world's most important resources, oil and gas plays a vital role in
driving the global economy where the expansion is heavily dependent on the supply of oil and gas (Alazzani, A.
and W. Wan-Hussin, 2013). There had been an evident impact on the progress of the companies' CSR reporting
under public awareness of the negative environmental impacts of the oil and gas industry.
An oil platform exploded in the Gulf of Mexico in April 20 th 2010, which caused the oil to gush from the
platform into the water for nearly 3 months. This catastrophe is seen as the worst environmental disaster in the
U.S. history (CNN, 2016). According to the U.S. federal government, it was claimed that BP had spilled 4.2
million barrels of oil into the Gulf of Mexico, but it was much lower BP claimed that it was much lower.
However, BP was ruled by the court to be responsible for spilling 3.1 million barrels of oil into the ocean. The
scientists argue that it is too soon to recognize the long-term negative effects five years after the disaster. On the
other hand, BP claims that the Gulf is healing itself in which BP supports their claim by releasing a five-year
report concluding that the Gulf of Mexico has largely recovered. The Natural Resource Damage Assessment did
not agree and called the report “inappropriate as well as premature” (CNN, 2016).
Due to a growing concern regarding environmental matters, sustainability reporting has become a
mainstream practice among many corporations around the world, including Malaysia. Under Malaysia
Economic Transformation Programme, which was launched on 21 September 2010, oil and gas industry is one
of the National Key Economic Areas (NKEAs) in which it is projected to bringing renewable energy into the
Mainstream Renewable power generation which can help Malaysia manage carbon emissions, meet sustainable
development goals and diversify the national energy mix, apart from improving the energy security and energy
autonomy of the nation. In order to achieve this goal, Malaysia needs to enhance and develop its human capital,
a responsibility the Sustainable Energy Development Authority of Malaysia (SEDA Malaysia) has been tasked
with in the renewable energy landscape under the Oil, Gas and Energy NKEA.
The oil and gas industry is one of the five most polluting industries (Peter, M., et al., 2008). The fact that oil
and gas companies disclose sustainability reports despite major negative impacts from their core operation is
controversial and therefore interesting to investigate further. Academic studies show that there is a greater
adoption to the GRI guidelines in industries with an increased risk of environmental impacts (Alonso-Almeida,
M.D., et al., 2014; Noronha, C., et al., 2013; Frynas, G., 2010a). An industry put more effort into the material
impacts related to their operating activities, hence the oil and gas industry focus mainly on the environmental
issues (Noronha, C., et al., 2013). The GRI is the most widely used international guidelines regarding
sustainability reporting and the guidelines provide environmental, social and economic reporting sections. There
are many academic studies regarding the GRI (Alonso-Almeida, M.D., et al., 2014; Isaksson, R. and U. Steimle,
2009; Alazzani, A. and W. Wan-Hussin, 2013), the value creation of sustainability reporting and environmental
performance (Peter, M., et al., 2008; Malik, M., 2014), yet few studies have focused on the oil and gas industry
and to what extent the companies comply with the environmental indicators in the GRI guidelines.
The aim of this study is to identify the relationship between company’s profit and company size towards the
disclosure of sustainability reporting of oil and gas companies in Malaysia with the use of the GRI guidelines.
The study would be interesting to explore due to the global environmental issues affecting the society and the
growing trend in sustainability reporting. The researcher will investigate a few research question specifically to
achieve the objective of this research. This study will be conducted by using the latest GRI guidelines as
benchmark. Besides, previous research conducted in Malaysia was only focusing on level of disclosure in
sustainability reporting. Therefore, this study is expected to contribute to new knowledge. This study is limited
to investigate solely the oil and gas companies that involve in the upstream projects in Malaysia, in which those
companies disclose their sustainability reports. Further, the chosen companies had to present their sustainability
disclosure in the GRI index during 2013, 2014, 2015 and 2016 and all other oil and gas companies have been
excluded due that not all companies disclose the sustainability reporting. The research period is limited to a
four-year period because many of Malaysian companies adopted the sustainability reporting only started in 2010
so the companies are still not actively practicing it.

Literature Review:
Upstream industry is the portion of the oil and natural gas industry that is responsible for finding crude oil
and natural gas deposits, along with producing them. Upstream industry is sometimes known as the exploration
and production or E&P sector. Oil refineries are major polluters, consuming largeamounts of energy and water,
producing large quantities of wastewaters, releasing hazardous gases into the atmosphere and generating solid
waste that are difficult both to treat and to dispose of.On the other hand, despite its potential threats to the
environment, the oil industry plays a positive role in society as well, creating many jobs and generating a
16 Safarina Abdul Ghani and Diana Rosdi, 2017
International Journal of Administration and Governance, 3(3) December 2017, Pages: 14-18

significant volume of tax revenues and royalties to national governments. The oil industry also holds a major
potential of hazards for the environment, and may impact it at different levels: air, water, soil, and consequently
all living beings on our planet. Within this context, the most widespread and dangerous consequence of oil and
gas industry activities is pollution. Today, the commitment to promote sustainable development goes beyond
ethical and moral obligations, and has become a demand from society. This commitment alone is a limiting
factor to the survival of companies, since numerous consumers may be influenced by the negative image
associated with companies that harm the environment.
CSR emerged as a field of study during the 1950s in the United States and the ideology was mainly based
on the assumption of the obligation of business to society. The assumption arose due to scholars’ view on
businesses as an instrument of society and the view of managers as public trustees. The scholars believed that
managers had to balance different demands of their stakeholders. During this time most research tried to
combine both the shareholders’ value-maximization and the organization’s social obligations. However, the
view of CSR changed from trying to fulfil societal obligations through philanthropy to a more strategic view of
CSR that tie corporate social initiative to corporate objectives (Banerjee, S., 2007).
The European Commission defines CSR as “the responsibility of enterprises for their impact on society”
(Noack, J., 2012). The European Commission argues that CSR is important for the competitiveness, innovation
and sustainability of the EU enterprises and the EU economy. It brings benefits for cost savings, risk
management, customer relationships, and access to capital and to human resource management (Noack, J.,
2012). Thus, this theory is also used in Malaysia. The connection between the society and the companies’
published information is described by the legitimacy theory. The theory is based on the assumption of a contract
between the two parties and to earn legitimacy the company needs to act according to the rules and expectations
of the society. This encourages the company to communicate and disclose information in their reports favored
by their stakeholders. By disclosing the information, the company can receive an evaluation on how well they
are meeting the expectations of the society. The disclosed information is voluntary and many companies
disclose information to show that they operate within the set boundaries.
However, some voluntary disclosures are only disclosed to divert the society from the negative parts of the
company. Some of oil and gas companies engaged in CSR activities are due to pressure from politicians, NGOs,
consumers and media rather than the companies driving force and care for the environment. The authors also
state that companies choose to invest in sustainability due to improved reputation, lowered costs and increased
business.In 1987, the World Commission on Environment and Development (WCED) defined sustainable
development as "Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs". The WCED report, also called the
“Brundtland report”, was chaired by the Norwegian Prime Minister Gro Harlem Brundtland. The concept
“sustainable development” has been around since 1980, but the report put the topic on the international political
agenda in 1987. Since the 1990s the growth of sustainability reporting has increased significantly and today it is
a common practice for many large companies.
Sustainability reporting is the environmental, social and governance information provided in documents
such as sustainability reports and annual reports (Van Wensen, K., et al., 2011). The sustainability report is
published by the company and it is a help to understand, measure and communicate their social, environmental,
economic and governance performance. The issues are communicated through the report and it is a key platform
for the organization to communicate both positive and negative impacts of their actions to their stakeholders
GRI, (2016b). CSR, by integrating the financial and social areas. It is easier to accomplish the company’s CSR
activities when the company consider their stakeholder responsibility. A company communicate its CSR
activities to its stakeholders through sustainability reporting. The stakeholders’ awareness of a business negative
environmental impact creates an increased pressure for sustainability reporting.
The stakeholder theory further emerged when the shareholder view, with the merely purpose of profit
maximization, was challenged. The stakeholder approach advocates the importance of the specific stakeholder
groups that are affected by the company and its operations. The company should not neglect their shareholders
but it is important to embrace the wider group of the company’s stakeholders. The relationship between the
company and its stakeholders is explained by the stakeholder theory (Banerjee, S., 2007). The stakeholder
theory implies that in addition to its shareholders, the corporation has obligations to several stakeholder groups
that have an interest in the corporation. These groups include, among others; employees, lenders, suppliers and
the society. Stakeholder groups have also been referred to as “those groups without whose support, the business
would cease to be viable” and the company needs to create value for these groups. The stakeholder theory can
add value to the discussion and development of CSR, by integrating the financial and social areas. It is easier to
accomplish the company’s CSR activities when the company consider their stakeholder responsibility. A
company communicate its CSR activities to its stakeholders through sustainability reporting. The stakeholders’
awareness of a business negative environmental impact creates an increased pressure for sustainability
reporting. The stakeholder theory further emerged when the shareholder view, with the merely purpose of profit
maximization, was challenged
17 Safarina Abdul Ghani and Diana Rosdi, 2017
International Journal of Administration and Governance, 3(3) December 2017, Pages: 14-18

Sustainability reporting is a growing trend in the society. One of the most exposed industries to
environmental matters is the oil and gas industry, which commit to sustainability reporting in order to deal with
the industry’s destructive operations.Sustainability reporting is the environmental, social and governance
information provided in documents such as sustainability reports and annual reports (Van Wensen, K., et al.,
2011). CSR, by integrating the financial and social areas. It is easier to accomplish the company’s CSR
activities when the company consider their stakeholder responsibility. A company communicate its CSR
activities to its stakeholders through sustainability reporting. The stakeholders’ awareness of a business negative
environmental impact creates an increased pressure for sustainability reporting.Sustainability reporting is
synonymous with the triple bottom line (TBL), CSR and it is a part of integrated reporting (IR) which combine
both the financial and non-financial performance (GRI, 2016b). During the mid-1990s, (Elkington, J., 1997)
presented a new framework to measure sustainability. According to (Elkington, J., 1997), the sustainability
issues can be divided into three different bottom lines of the business, called the TBL. The concept focus on
three different areas; “Economic Prosperity”, “Social Justice” and “Environmental Quality” (Elkington, J.,
1997), which is usually associated with the three Ps: “Profit”, “People” and “Planet” [17]. The three areas
should measure the company’s financial, social and environmental performance and thereby take full
responsibility for its costs related to doing business (Elkington, J., 1997). Earlier traditional reporting
frameworks had only focused on investment results such as profits, return on investment and shareholder value.
By focusing on the business performance along with the dimensions of profits, people and the planet, the
TBL can be an important reporting tool to support sustainability goals. However, the criticism towards the
framework is how to measure it. The three different areas do not have a common unit of measure and it is a
challenge to find a proper measurement that fit all three areas (Slaper, T. and T. Hall, 2011). Some scholars
argue that the TBL is inherently misleading and it promises something it cannot deliver. They imply that even if
a company makes a concrete commitment to follow the TBL, the framework is vague and it results in few
commitments. Firms do not have to worry about being compared to other firms or sectors, since the social and
environmental bottom lines are adaptable and there is no real way to calculate the bottom lines. The authors also
state that a problem is that companies can choose to present data that are favored by their stakeholders and leave
out negative data.

Discussion:
This research will be a quantitative study by using the secondary data extracted from the annual report,
sustainability report and corporate social responsibility report from year 2013 to 2016. A sample of 27
companies selected from the Malaysia Oil and Gas Report 2016 Quarter 2. Regression analysis and correlation
will be used to examine the relationships between variables in this study. This study will have two independent
variables which are the profit and size of company while the dependent variable will be disclosures of
sustainability reporting. It is expected that the bigger the size of the company, the more responsible of the
company to concern about the sustainability reporting. This is because large company is synonym with large
capital and also associate with mega oil and gas projects. Each and every activity is exposed to public
knowledge hence enforced them to disclose more information in the reporting. Similar with the profit, when the
companies gain higher profit, the more provision will go to environmental care and sustainability concern. Thus,
this effort is assumed to be disclosedin the sustainability reporting as part of their responsibility to the
stakeholders. Data for the research is obtainable from secondary sources which will be gathered from the
sustainability reports of local or Malaysian based oil and gas companies. This study will use Correlation
Coefficient and Regression Analysis. It is expected that the study will give 0.71 to 0.90 positive relationship for
both profit and size of companies towards the disclosure of sustainability reporting

Conclusion:
The findings of this study are expected to show a significant relationship between company size and profit
towards the sustainability reporting. This study is expected to discover another area of GRI reporting which was
not being focused earlier. The expected results of study will help the companies, authority and public to
improvise sustainability disclosure which in line with the actual activities.This research is expected to contribute
valuable knowledge to improvise the companies’ practice in their sustainability disclosure.

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