944 CORPORATE GOVERNANCE

Corporate Governance and

Environmental Reporting: an
Australian study
Kathy Gibson and Gary O’Donovan*

The development of best practice recommendations by the Corporate Governance Council

(CGC) of the Australian Stock Exchange in 2003 clearly linked corporate regulators’ concerns
about good governance to the concept of corporate social and environmental responsibility.
The CGC recommended that one way to demonstrate good governance was to use the annual
report to disclose information to all legitimate stakeholders. This paper reports on the quantity
and categories of environmental information disclosed in the corporate annual reports of 41
Australian companies across eight industry groups covering the period 1983–2003. This time
period has seen the importance of good corporate governance practice in relation to environ-
mental protection escalate, as demonstrated by the introduction of separate environmental and
sustainability reports, the advent of triple bottom line reporting, changes in environmental
legislation and the occurrence of major environmental incidents. The results of this study
indicate that an increasing number of companies are disclosing environmental informa-
tion, and the relative volume of such information in annual reports is increasing across all
categories.

Keywords: Annual reports, environmental reporting, stakeholder, governance, legitimacy,

political economy

Introduction nance is now closely linked to the concept

of corporate social responsibility (CSR) and

I n August 2002, the Australian Stock

*Address for correspondence:
Faculty of Business, University
of Tasmania, Private Bag 84,
Hobart, Tasmania 7001. Tel:
+61(0)3 6226 2278; Fax:
+61(0)3 6226 2095; E-mail:
gary.odonovan@utas.edu.au
Volume 15 Number 5
Exchange (ASX) established the Australian
Corporate Governance Council (CGC). One of
its aims was to develop agreed corporate gov-
ernance requirements and establish best prac-
tice recommendations for Australian entities.
The CGC developed 28 recommendations
based on 10 key principles of good corporate
governance. The tenth of these principles is
aimed at recognising and disclosing legal and
other obligations to all legitimate stakeholders,
and establishing a code of conduct to guide
compliance. It is recommended that disclo-
sures include the extent of compliance with,
and any departure from, best practice recom-
mendation 10.1 in the Annual Report (ASX
Corporate Governance Council, 2003).
It is clear from this key principle and its
related recommendations that good gover-
September 2007
accountability and that one way to demon-
strate CSR is to increase annual report disclo-
sures. One important area of corporate social
responsibility, which is the focus of this study,
is impact on the natural environment and sub-
sequent environmental disclosures.
CSR reporting is not a new phenomenon
and has been traced as far back as 5000 bc in
Egypt (Anderson, 1989). A brief survey of the
extant literature, however, indicates that CSR
reporting, particularly environmental report-
ing, within corporate annual reports has
attracted increased interest, particularly since
the mid to late 1980s. The extent to which the
quantity of environmental information pro-
vided by companies over this time period has
increased commensurately with this interest
has not been consistently tested in Australia.
Whilst many short-term studies, discussed
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing Ltd, 9600 Garsington Road,
Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA
CORPORATE GOVERNANCE AND ENVIRONMENTAL REPORTING 945

below, indicated an increase in the quantity of
environmental information provided, a consis-
tent study over a longer time is required, to
enable a deeper knowledge of reporting prac-
tices and to provide reliable baseline informa-
tion that can be used as a foundation for
further studies. That is the purpose of this
paper.
Corporate reporting of
environmental information
A focus on the “triple bottom line” (TBL) (Elk-
ington, 1998) reporting of financial, social and
environmental issues has emerged since the
mid 1990s and many companies now produce
separate TBL and Sustainability Reports to
complement the reporting of social and envi-
ronmental information in the annual report.
One of the most recent worldwide studies,
illustrated in Figure 1, indicated that the
prevalence of social and environmental (non-
financial) reporting increased substantially
from 1990 to 2003 (ACCA, 2004).
The environment is the largest single com-
ponent of TBL reporting (Figure 2), whether in
the form of a separate report or included in the
annual report. Over 40 per cent of all reports
produced in 2003 were separate environmental
reports (ACCA, 2004).
This study provides information on the
quantity of financial, quantitative non-financial
and descriptive environmental disclosures in
corporate annual reports. Whilst this categori-
sation may enable inferences to be drawn

Source: CorporateRegister.com June 2004 based on a sample of 4,528 hard copy and 4,205 PDF
reports

Figure 1: Number of hard copy and electronic reports produced 1990–2003

Source: CorporateRegister.com Spring 2004 based on a total of 3,637 hard copy and PDF reports

Figure 2: Types of report produced 2001–2003

© 2007 The Authors Volume 15 Number 5 September 2007

Journal compilation © Blackwell Publishing Ltd. 2007
946
about the quality of information, much work
remains to be done in terms of “quality” defi-
nitions, and qualitative judgements are there-
fore not the purpose of this paper. Its major
aim is to provide a reliable baseline from
which future studies can further examine
environmental information provision, includ-
ing quality issues.
The importance and significant contribution
of this study is the 21-year time period that it
covers. This timeframe has witnessed the in-
troduction of separate environmental reports,
major changes in environmental legislation,
major environmental incidents, such as the
Exxon and Ok Tedi disasters, the Rio Earth
Summit, the Kyoto Protocol and, not least, the
1987 stock market crash.
This analysis is not intended to determine
cause and effect, but if major quantitative
changes are observed in environmental report-
ing within annual reports, these may be in
response to changes such as those above. The
major strength of the study is its practical
implications and its usefulness in providing
data for further extensive theory development.
This study is a practical analysis of observed
phenomena that are linked to various extant
theories, and theory development is outside
its scope.1
Environmental information
disclosure by Australian companies
TBL reports in the Asian and Australian
region:
started emerging from the early 1990s but
growth was limited until the late 1990s when it
suddenly became exponential. Three countries
were almost entirely responsible for this
increase, Japan, New Zealand and Australia.
Growth doubled every year between 1996 and
2000 and has only levelled off recently. (ACCA,
2004, p. 35)
Amongst possible reasons for this are changes
to Australian Corporations Law in July 1998
(Section 299 (1)(f)) requiring the Directors’
Report for a financial year for companies
whose operations were “subject to any par-
ticular and significant environmental regula-
tion” to include details of the entity’s
performance in relation to such regulation.
Frost and English (2002) reported that since
the introduction of S.299(1)(f) the number of
companies disclosing information on their per-
formance in relation to environmental regula-
tions has significantly increased. Prior to this,
the provision of environmental information
in annual reports in Australia was voluntary
Volume 15 Number 5 September 2007
CORPORATE GOVERNANCE
and research indicates varying amounts of
disclosure.
Trotman (1979) identified an increasing
trend in environmental information provision
from 6 per cent of companies in 1967 to 35
per cent in 1977. In 1995 Gibson and Guthrie
concluded that some 53 per cent of compa-
nies were providing environmental informa-
tion in their annual reports, but in the
following year Deegan and Gordon (1996)
reported a contrasting disclosure rate of only
36 per cent of firms surveyed. Their findings
also contradicted the UK trend identified
by Gray (1993) of increased environmental
reporting, and in the same year as the
Deegan and Gordon study, Gamble et al.
(1996) estimated that approximately 80 per
cent of US firms reported environmental
information. Disparate results such as these
may be explained by differing sample choices
and time periods, and the major strength of
this study is that it retains the same represen-
tative sample of companies over a 21-year
period, which enables a reliable identification
of the trends in environmental information
provision in Australia.
Environmental information and
annual reports
Annual reports are a major channel for the
communication of information from corpora-
tions to their stakeholders and it has been
established (Gibson and O’Donovan, 1994;
ICAA, 1996) that users expect them to include
information about the environmental effects of
corporate operations. Whilst Ernst & Ernst
(1978) found little financial and quantifiable
environmental information to assist in invest-
ment decisions, Spicer (1978) and Shane and
Spicer (1983) found evidence that environ-
mental disclosure was a significant factor in
investor decision-making. Spicer (1978) in par-
ticular raised the dual issues of public concern
about the side effects of corporate activities,
and a growing number of ethical investors
requiring additional information. Studies such
as Teoh et al. (1998) also found a positive rela-
tionship between financial performance and
environmental disclosure in annual reports,
indicating that environmental information
provision fulfils the purpose of the Statement
of Accounting Concepts 2 (SAC 2, 1990),
to provide information to assist economic
decision-making.
Financial incentives have been linked with
environmental reporting and early research
was concerned with share market perfor-
mance and investor returns (Belkaoui, 1976;
Ingram, 1978; Anderson and Frankle, 1980),
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
CORPORATE GOVERNANCE AND ENVIRONMENTAL REPORTING
links with corporate environmental perfor-
mance (Wiseman, 1982), and relationships
between social and financial performance
(Shane and Spicer, 1983). Other research
during the timeframe of this study linked
environmental reporting within annual
reports to investment portfolio choice (Rock-
ness and Williams, 1988), and to levels of cor-
porate risk (Belkaoui and Karpik, 1989). Based
on agency theory arguments, Ness and Mirza
(1991) concluded that managers disclosed
social information in their self-interest, and
that economic resources may be gained by dis-
closing companies. Shareholder perceptions
were a further reason for the provision of envi-
ronmental information (Surma and Vondra,
1992).
A critical catalyst in the public environmen-
tal debate was the grounding of the oil tanker
Exxon Valdez in Prince William Sound, Alaska,
in 1989, and the consequent environmental
pollution that was widely and graphically
reported. At that time, Union Carbide’s 1984
Bhopal disaster was still fresh in the public
memory, and a groundswell of public opinion
sought greater accountability from profit-
making organisations (Burritt and Gibson,
1993). This led to an expectation of a large
increase in environmental information in
annual reports, which was vindicated by Pat-
ten’s (1992) findings that oil companies other
than Exxon significantly increased the quan-
tity of environmental information provided in
their annual reports in the year following the
Exxon Valdez grounding.
In addition to these financial effects and
sharemarket studies, other writers, such as
Guthrie (1983) proposed that corporations
were taking the opportunity, in a voluntary
environment, to reveal “good news” to stake-
holders, whilst concealing possible negative
environmental effects. Their reasons may
relate to the classic political costs arguments of
Watts and Zimmerman (1986), and represent
an attempt to reduce or avoid such costs
through greater communication with inves-
tors and the broader community. More recent
explanations for environmental disclosure rely
on stakeholder and legitimacy theories, and
the political economy of accounting argu-
ments, briefly reviewed below.
The two main perspectives of stakeholder
theory are the moral, or normative, focus and
the positive, or managerial focus (Deegan,
2000; Roberts, 1992). From a moral perspec-
tive, all stakeholders of an organisation,
including those with a non-financial interest,
have the right to be treated fairly. Companies
adopting this position would be expected to
provide a wide range of information, includ-
ing environmental information, in their annual
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
947
reports. From the positive perspective, an
organisation would identify stakeholders
according to their importance to the organisa-
tion, often depending on their degree of
control over resources.
Campbell (2000) explained the political
economy of accounting arguments in terms of
the varying power positions of stakeholders
that leads to information asymmetry, or
unequal access to information, by which the
actions of information users may be able to be
manipulated. This may be linked to Guthrie’s
(1983) findings that companies report only
positive environmental information. Adams et
al. (1998) used a political economy argument
to propose that a high level of disclosure may
represent an attempt to delay the imposition of
mandatory regulations, and proposed this as a
reason for high levels of environmental disclo-
sure in the UK. The political economy argu-
ment at this level equates with a clear attempt
to avoid political costs.
The legitimacy theory argument is a
complementary concept to that of the political
economy of accounting (Gray et al., 1995).
Legitimacy theory employs the concept of the
social contract and from this perspective the
provision of environmental information in cor-
porate annual reports is an attempt to legiti-
mise the activities of the company by aligning
corporate goals with those of society. It is sup-
ported by findings that organisations have
provided additional environmental informa-
tion in their annual reports in response to
demands of particular pressure groups (Tilt,
1994, 2004), and by Deegan and Gordon’s
(1996) conclusion that firms produce relatively
more positive news as environmental sensitiv-
ity increases.
An alternative view of legitimacy is that the
provision of environmental information may
represent an attempt to manipulate public
support or alter social values (Ashforth and
Gibbs, 1990). In this view, increased informa-
tion may attempt to persuade stakeholders
that the company’s actions are in the best inter-
ests of the environment, or that there are legiti-
mate reasons why environmental concerns
might be overridden by economic or social
imperatives, such as employment levels
(Wilmshurst and Frost, 2000; Milne and Patten,
2002). A third view, and one gaining in popu-
larity, is that the provision of environmental
information may depend upon the personal
values of corporate managers (e.g. Elsbach
and Sutton, 1992; O’Donovan, 1999). Campbell
(2000) also reported the appearance of a
managerial influence on companies’ attitudes
to voluntary social disclosure,2 and there are
suggestions (UNEP, 2000) that companies
whose Environmental Manager is also a Direc-
Volume 15 Number 5 September 2007
948 CORPORATE GOVERNANCE

tor are more likely to provide greater levels of
information in the annual report and/or
provide a separate environmental report to
stakeholders. The wide range of stakeholder
groups at whom information is aimed sug-
gests that information other than purely finan-
cial will be provided.
The above arguments all raise expectations
of an increasing trend in environmental
reporting, and this study reports data in evi-
dence of that trend.
Method
The purpose of this study is to collect data
and report evidence of the number of compa-
nies disclosing environmental information in
annual reports, and the volume of environ-
mental information provided by type, grouped
into financial, quantifiable non-financial and
descriptive information.
In line with many previous studies (e.g.
Trotman, 1979; Rockness, 1985; Deegan and
Gordon, 1996), content analysis is used to
measure changing levels of information provi-
sion. The potential pitfalls of this method are
well recognised (Krippendorf, 1980) and have
been thoroughly discussed (e.g. Guthrie, 1983;
Milne and Adler, 1999), so care has been taken
in this study to ensure that the content analysis
is objective, systematic and comparable. One
of the imperatives of content analysis is that
assessment of the type and quantity of infor-
mation must be consistent throughout the
study and between companies.
Assurance of data reliability in this study
has been gained through independent checks
of the data between companies and over
time.3 In the absence of regulatory standards
for environmental reporting, there are no
completely objective guidelines for compari-
son, and, owing to the large number of annual
reports analysed and the timeframe covered,
there is a possibility of the occurrence of
minor differences in measurement. However,
the importance of the results is in identifying
trends over time, and any minor differences,
when aggregated, will not significantly affect
the trend results. The method used is to
measure the quantity of information in pro-
portions of a page, a method identified by
Unerman (2000) as providing results of
greater relevance than the counting of words
or sentences. Further, this method controls for
differences in grammatical expression, sen-
tence structure and typeface size, and also
enables the inclusion of illustrations such as
the graphs, charts and photographs that
Unerman described as “powerful and highly
effective methods of communication” (2000,
p. 675).
This longitudinal study involved the analy-
sis of annual reports of 41 publicly listed
Australian companies for the 21-year period
1983–2003, from eight industry segments listed
in the Australian Financial Review Listed
Company Handbook (AFR, 1992). Seven of the
industry groups, chosen on the basis of evi-
dence of perceived environmental effects (Elk-
ington, 1994; Gorman, 1992), were Chemicals (4
companies), Paper and Packaging (3 compa-
nies), Engineering (4 companies), Transport (3
companies), Mining (6 companies), Oil and Gas
(4 companies), and Solid Fuels (3 companies).
The eighth category (Miscellaneous) included
14 companies from a number of diversified
industries that did not conform to the other
groupings.
Content analysis of 752 annual reports4 was
conducted using techniques and categories
identified by Ernst & Ernst in their 1978 study.
The data were grouped and analysed as a
whole, and also on an industry basis, to enable
comparison within and between industry
groups, and the quantity of environmental
information was analysed in terms of the pro-
portional space occupied per page of the cor-
porate annual report (Unerman, 2000). The
information was separated into the three cat-
egories shown in Table 1.

Table 1: Categories of environmental information

Category Explanation and example

Financial Included in the financial statements including notes to the

Quantifiable Non Financial
Descriptive
accounts (e.g. provision for future clean up costs)
Included in the annual report but not part of the financial
statements (e.g. graphs or tables indicating emissions to the
air or water)
Narrative and pictorial forms of disclosure (e.g. often textual
references in directors’ report or stand alone social and
environmental sections of the report)

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CORPORATE GOVERNANCE AND ENVIRONMENTAL REPORTING 949

The total amount of environmental informa- information over the 21-year period changed
tion disclosed (number of pages) in each from 46 per cent in 1983 through a low point of
annual report and in each category was aggre- 27 per cent in 1986 to a high of 100 per cent
gated. The total length of each annual report from 1999 to 2003. The number of companies
and each disclosure category was then reporting Financial Environmental Informa-
expressed as a percentage of the total number tion increased from 3 per cent in 1983 to 69 per
of pages in the report. Trends were then iden- cent in 1998 and then levelled around 60 per
tified in relation to the volume of environmen- cent until 2003. Companies reporting Quanti-
tal information disclosed over the 21-year fiable Non-Financial Information grew from 3
period in each of the categories, and the indus- per cent in 1983 to 41 per cent in 1996, fol-
try groupings also enabled a comparison lowed by a period of volatility before settling
between disclosures on an inter-industry at 33 per cent in 2003. This was the smallest
basis. Further, by expressing the quantity of percentage increase of the three categories.
disclosures as a percentage of the annual Companies reporting Descriptive Environ-
report, the relative trends and comparisons mental Information increased from a low of 29
between industry groups and categories were per cent (1984) to 100 per cent by the end of the
analysed. study period. Whilst the 21-year trend was
Variances, or standard deviation measures, positive overall, the number and percentage of
are not useful to this study and are therefore companies disclosing environmental informa-
not reported. This is because they are suffi- tion declined between 1984 and 1988. The
ciently small to have no effect on the conclu- years 1989, 1993 and 1999 delineate three
sions, and would increase the complexity of clearly defined periods during which the
reported findings without adding value. For number of companies reporting environmen-
example, as there were no outliers, the vari- tal information increased significantly. As
ances in percentages of companies reporting Figure 3 clearly illustrates, there is a strong
environmental information are irrelevant, and indication over the long term that the number
the number of report pages which include of companies reporting environmental infor-
environmental information is not sufficiently mation in annual reports has shown a consis-
large to cause any statistical discrepancy. tent increase.
Therefore, the actual percentages calculated This was not unexpected, following the
and reported provide the relative measures introduction of Section 299 1(f) of the Corpo-
that support the conclusions. rations Law in 1999. While this provision is
ambiguous, it nonetheless requires all corpo-
Findings rations to indicate compliance or non-
compliance with relevant environmental
Figure 3 indicates that the percentage of com- legislation, and these findings may indicate
panies in the study reporting environmental that all of the companies had identified envi-

120.0
Percentage of companies reporting

100.0 1999 2000 2001 2002

2003
1996
1993 1994 1997 1998
1995
80.0

1991 1992
60.0 1990
1989
1983
40.0 1985 1996 2003
1984 1988 1997
1993 1994 2002
1986 1987
1995 1999
20.0
1992 2000 2001
1987 1988 1989 1990 1991 1998
0.0 1983 1984 1985 1986
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Financial Info Quantifiable Non Financial Info Descriptive Info Any Environmental Info

Figure 3: Companies Reporting Environmental Information

© 2007 The Authors Volume 15 Number 5 September 2007

Journal compilation © Blackwell Publishing Ltd. 2007
950 CORPORATE GOVERNANCE

2.00 2.50%

Average No. of Pages in Annual Report

1.80

Average % of total annual report

1.60 2.00%
1997
1996
1.40

1.20 1993 1.50%

1992 1994 1995
1.00
1991
0.80 1990 1.00%

0.60 1989

0.40 0.50%
1983 1988
1984
0.20 1985 1986 1987

0.00 0.00%

96

97

98

99

00

01

02
83

84

85

86

87

88

89

90

91

92

93

94

95

03
19

19

19

20

20

20
19

19

19

19

19

19

19

19

19

19

19

19

19

19

20
No. Of Pages Percentage of Annual Report

Figure 4: Total Environmental Information Disclosed

ronmental legislation that was relevant to time and increased to former levels again only
them. in 2003. The trend of disclosure in the Quanti-
Figure 4 shows the quantity of environmen- fiable Non-Financial category was much more
tal disclosure over the period, expressed both volatile than in the other categories.
as a proportion of the total number of annual In each category, the low point of reporting
report pages and as a percentage of the total was in either 1985 or 1986 (and also 1998 for
report. The changes in the number of pages Quantifiable Non Financial) with the results
and percentages mirrored each other over the trending downwards from 1983. The high
21 years, except that after 1998, whilst the total point in each category was 2001 (Financial),
size of annual reports was growing, the 1996 (Quantifiable Non Financial), 2002
increase in space allocated to environmental (Descriptive) and 2003 for total disclosures.
issues did not increase at the same rate. Apart From 1987 until 1997 the amount of environ-
from a small dip in the mid-1980s, between mental disclosure in the descriptive category
1993 and 1995, and again in 1998, the amount had been trending upwards, then fell in 1998
of space allocated to environmental disclo- before trending upwards again to approximate
sures increased markedly, from less than 0.2 1997 levels by 2003. Financial and Quantifiable
per cent (about 0.25 of a page) of the annual Non-Financial disclosures, while more erratic,
report in 1983, to almost 2 per cent (over 1.5 also increased from 1989 until 1997, with
pages) in 1997. The upward trend continued at Financial disclosures at peak levels in the last
around 2 per cent from 1999 onwards, indicat- three years and Quantifiable Non-Financial
ing that the volume of environmental informa- disclosures returning towards peak levels in
tion disclosed in annual reports is increasing. 2003. Over the long term, a comparison of the
Figure 5 shows the average percentage of industry groupings uncovered some diverse
environmental disclosures in the three catego- disclosure practices as illustrated in Table 2
ries, expressed as a percentage of the average below.
total annual reports over the 21-year period From this table it can be seen that industry-
1983–2003 for all companies. For each category specific figures are quite volatile, but over the
there was an increase in the volume of infor- period of the study show an increased trend.
mation disclosed. The highest level of total and The Transport industry differed from the
descriptive disclosures was in 1997, followed trends identified in other industries until the
by a dip in 1998, and then a return to the 1997 late 1990s. Transport companies have provided
level. Financial disclosures reached a peak consistently low levels of disclosure, around
post-1998, but, interestingly, Quantifiable Non- 0.5 per cent, since 1983, with only 1993 (0.58 per
Financial disclosures decreased around this cent) and 1994 (0.61 per cent) slightly above this

Volume 15 Number 5 September 2007 © 2007 The Authors

Journal compilation © Blackwell Publishing Ltd. 2007
CORPORATE GOVERNANCE AND ENVIRONMENTAL REPORTING 951

Average Percentage of Total Annual Report

2.50%
2003

2.00% 1999
1997 2001 2002
1996
2000
1998
1.50% 1993
1992 1994 1995
1991
1.00% 1990

1989

0.50%
1983 1988
1984
1985 1986 1987
0.00%
83

84

85

86

87

88

89

90

91

95

96

97

98

99

00

01

02

03
92

93

94
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20
Descriptive disclosures Financial disclosures
Quantifiable non financial disclosures Total Environmental Information

Figure 5: All Companies – Categories of Environmental Information disclosed

Table 2: Total environmental information per industry group – % of annual report

Year Chemical Paper Oil, Mining, SF Engineering Transport Miscellaneous

1983 0.175 0.700 0.479 0.000 0.500 0.379

1984 0.125 0.000 0.531 0.000 0.233 0.329
1985 0.275 0.133 0.446 0.000 0.133 0.129
1986 0.000 1.133 0.190 0.000 0.100 0.121
1987 0.250 0.467 0.355 0.000 0.000 0.241
1988 0.100 1.267 0.723 0.000 0.070 0.029
1989 0.400 2.900 1.158 0.253 0.183 0.340
1990 0.833 3.100 1.546 0.300 0.157 0.582
1991 0.467 3.167 1.869 0.150 0.090 0.812
1992 4.387 1.933 1.513 1.325 0.233 0.771
1993 1.731 1.236 1.944 0.603 0.578 1.463
1994 1.973 1.383 2.166 0.567 0.610 0.811
1995 0.569 1.896 2.532 0.456 0.341 1.003
1996 0.984 1.504 2.749 0.925 0.346 1.768
1997 1.186 1.803 3.011 1.106 0.469 1.422
1998 0.914 1.064 2.623 0.678 0.519 1.171
1999 2.510 1.315 3.601 0.932 1.377 1.371
2000 3.287 0.692 2.760 0.879 1.260 1.074
2001 0.742 1.231 2.778 1.210 0.931 1.991
2002 2.136 1.059 2.560 1.181 0.817 1.909
2003 4.325 0.724 2.631 1.509 1.768 1.940

level, but moved closer to average percentage from 1983 to 1993, but became more volatile
disclosures of all industries (see Figure 4) by before increasing to a 21-year high of over 2 per
2001. Oil, Mining and Solid Fuels had a steady cent in 2002. The Engineering industry’s disclo-
increase, which peaked at 3.2 per cent by 2001 sures were extremely low until 1996 but, apart
and then declined during 2002 and 2003. The from 1998, they have increased at a rapid rate
Miscellaneous group showed a steady increase during the last few years.

© 2007 The Authors Volume 15 Number 5 September 2007

Journal compilation © Blackwell Publishing Ltd. 2007
952 CORPORATE GOVERNANCE

5.00%

4.50% 2003
1992

Average % of Total Annual Report

4.00%

3.50%
2000
3.00%

2.50% 1999

2002
2.00% 1994
1993
1.50%
1997
1.00% 1996 1998
1990
2001
0.50% 1995
1989 1991
1985 1987
1983 1984 1988
0.00% 1986
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Chemicals Oil, Mining & Solid Fuels Paper & Packaging Engineering Transport Miscellaneous

Figure 6: Total Environmental Information Per Industry Group – % of Annual Report

By far the majority of disclosures in all legitimacy of the industry following the explo-
industry groups were descriptive. Only in the sion, but were not considered necessary once
Oil and Gas, Mining, and Solid Fuels indus- that had been achieved.
tries, and to a lesser extent the miscellaneous During the past decade, increasing numbers
grouping, were there significant Financial of Australian companies have published sepa-
Environmental Disclosures. This may be due rate environmental or TBL reports (ACCA,
to the existence of an approved accounting 2004; KPMG, 2002), and this method of envi-
standard for the extractive industries (AASB ronmental disclosure may have affected the
1022, 1989) and an Urgent Issues Group use of the annual report to disclose environ-
Abstract (UIG 4, 1995), which compulsorily mental information. The first separate reports
required mining companies to account for the appeared around 1994 and the findings from
costs of any proposed environmental rehabili- this study indicate a slight drop in the percent-
tation and restoration. age of environmental disclosures in Annual
A general increase in the trends occurred Reports between 1993 and 1995, a sharp
around 1989/1990. The high profile given to increase to 1997 and then, apart from a decline
environmental matters by the United Nations in 1998, a steady increase in environmental
and other bodies around that time coupled disclosures to their near highest levels in the
with the world-wide attention given to corpo- early 2000s (see Figure 4). This suggests that
rate environmental behaviour as a result of the the introduction of stand-alone TBL reports is
Exxon Valdez oil spill could explain the begin- not resulting in a decrease of environmental
ning of that upward trend (Patten, 1992; disclosures in annual reports. O’Donovan
Walden and Schwartz, 1997). Following this, in (2002) discovered that there was a growing
relation to the chemical industry, it could be tendency to use the annual report to provide
argued that the dramatic increase in environ- references and markers to information con-
mental disclosures in 1992 (Figure 6) was a tained in separate environmental reports,
direct response to the negative publicity which may indicate a reason for an initial
received following a major explosion and toxic reduction in the amount of disclosure after the
emission at Coode Island, close to the Mel- introduction of stand-alone reports and a later
bourne CBD, during 1991, which was poten- increase to high levels. It also suggests that the
tially disastrous for a significant proportion type of information being disclosed in annual
of the Melbourne population. The fact that reports may be different following the intro-
the quantity of environmental disclosures de- duction of stand-alone environment and sus-
creased markedly in 1993 aligns with the tainability reports. Following the introduction
legitimacy theory perspective (Deegan et al., of separate social and environmental reports
2002; O’Donovan, 2002) that the increased dis- by 50 per cent of our sample companies, the
closures in 1992 were intended to repair the environmental information provided in annual

Volume 15 Number 5 September 2007 © 2007 The Authors

Journal compilation © Blackwell Publishing Ltd. 2007
CORPORATE GOVERNANCE AND ENVIRONMENTAL REPORTING
reports was found to increase in 33 per cent of
cases, decrease for 22 per cent of companies,
and for the remaining 44 per cent of companies
there was no change.
Implications of findings for further
research
The data set and findings of this study provide
a springboard for further empirical research.5
The cause of the changes in the amount of
environmental disclosures, investigating theo-
retically grounded explanations including
stakeholder and legitimacy theory are but two
opportunities. The data set could also be used
to assist in identifying antecedents and conse-
quences of environmental reporting
From an antecedent perspective, Frost and
English (2002) found that the 1998 changes to
Section 299(1)(f) of the Corporations Law
resulted in a significant increase in the number
of companies reporting environmental infor-
mation and the quantity of environmental
information provided. The lobbying by compa-
nies in relation to having this section of the law
removed, and the lack of specificity as to how
the section should be operationalised, pro-
vides fertile ground for further research and
this raises interesting questions in relation to
the mandatory disclosure choices made by
companies. The longitudinal data prior to 1999
presented here could be used to examine the
question of why some companies voluntarily
disclosed environmental information prior to
it becoming mandatory (Section 299 (1)(f) of
the Corporations Law), whilst others did not.
The data collected in this study is sufficient to
allow a matched pair sample for this purpose.
In a similar vein, environmental regulation
is principally the domain of state legislators in
Australia. Despite the introduction of the
Commonwealth Environmental Protection Act
(1994), in practical terms there is no national
uniform environmental regulation applicable
to publicly listed companies. Many companies
investigated in this project have operations
and head offices in different states and there-
fore fall under various jurisdictions. If a pos-
sible link were to be pursued between changes
in environmental legislation and environmen-
tal disclosures, the effects of state-by-state leg-
islation and the CEPA would need to be
separately identified.
The amount of environmental information
currently disclosed in printed hard copy
annual reports may also be affected by compa-
nies’ increasing use of the internet to provide
information to stakeholders. This phenom-
enon may affect corporate decisions to disclose
information in the hard copy format of both
annual and environmental reports.
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
953
Projects examining particular industry
groups or individual companies are now pos-
sible, using the data set and findings. For
example, the sudden increase in the chemical
industry disclosures in 1992 could have been
influenced by the proposal for a plastics and
chemical industry code of practice, which
attempted to retain self-regulation for the
industry. Such influence would be consistent
with Adams et al.’s (1998) political economy
arguments, and with legitimation strategies
(Deegan et al., 2002; O’Donovan, 2002).
In looking at the consequences of environ-
mental reporting, research results from studies
of relationships between profits and environ-
mental disclosures are, at best, inconclusive or,
at worst, contradictory (Cowen et al., 1987;
Roberts, 1992). This is also the case with envi-
ronmental disclosures and share price move-
ments (Belkaoui and Karpik, 1989; Wiseman,
1982). A possible argument for the existence
of these relationships which could be ex-
plored using the findings of this study is that
when company profits are high, as they were
in the early to mid 1980s, companies per-
ceive no necessity for providing information
to distract from financial success. Further, in
times of lower profits there is a perception
that management may disclose “good” news
about social and environmental performance
(Deegan, 2000), and the data provided here
would be a useful starting point to examine
these perceptions.
Also, given the range of possible explana-
tions for voluntary environmental disclosure
discussed earlier in this paper, a further
research avenue would be to examine whether
some arguments are better predictors of vol-
untary disclosure for certain time periods (e.g.
Tolbert and Zucker, 1983). Further, a network
model of environmental disclosure could
provide a fresh perspective, for instance by
examining whether associations in inter-
organisational networks, such as interlocking
directorships, influence the incidence or extent
of environmental disclosure by firms (Davis,
1991). Future research could also analyse this
data using event-history methodology, with
environmental disclosure as an “event” of
interest, following Dhanaraj and Beamish
(2004) and Cox and Oakes (1984).6
Limitations of findings
Although the findings show a trend towards
increased environmental disclosures in annual
reports, especially in the descriptive category,
no attempt was made in this study to measure
the quality of the disclosures. The amount of
space allocated to the different categories also
Volume 15 Number 5 September 2007
954
needs to be considered. It is not within the
scope of this study, for example, to compare
the relative importance of a two line note to
the financial statements included in the Finan-
cial Information category with a full page
glossy photograph of a “feel good” environ-
mentally friendly scene.
Given the relatively small number of com-
panies in some of the industry groupings, it is
risky to generalise about reasons for the
change in amounts of environmental disclo-
sure on an industry- by-industry basis. It
should be noted, however, that the number of
companies in the industry groups of Chemi-
cals, Oil and Gas, Engineering, Paper and
Packaging, Transport, and Solid Fuels was
greater than or equal to 60 per cent of the total
number of Australian listed public companies
in that industry (AFR, 1992).
Conclusion
In conclusion, the volume of environmental
disclosures in annual reports, expressed as a
percentage of the total annual report, has
increased over the 21-year period 1983–2003,
with the largest increases occurring between
1988 and 1989, between 1995 and 1996, and
again from 1998 until 2003. The trend, while
increasing, indicates some downward fluctua-
tions between 1983 and 1986, and again
between 1993–1995 and 1998. These down-
ward trends are curious within the context of
the overall upward trends observed.
There could be many explanations for these
observations. For example, government policy
statements, changes in environmental legisla-
tion, industry association requirements,
reported profits, economic indicators, “bad”
publicity, or changes in company policies
could all be examined, based on the findings
of this research. More specifically, the use of
case study approaches for individual com-
panies could help determine factors such as
managers’ perceptions of the reasons for dis-
closing environmental information and any
linkages between environmental disclosures
and changes in company policies.
Comparison with the results from similar
studies such as Deegan and Gordon (1996),
Guthrie and Parker (1990) and ACCA (2004) is
interesting, and could be further pursued.
Deegan and Gordon (1996) found that 36 per
cent of the Australian companies in their
survey reported environmental information,
while Guthrie and Parker found that 21 per
cent disclosed environmental information.
Their findings were significantly lower than
those identified in this longitudinal study and
the reason for these differences may be the
Volume 15 Number 5 September 2007
CORPORATE GOVERNANCE
more recent time period of this study and its
much longer timeframe. The previous studies
did not analyse the same companies over a
long period, and the results of this study are
more consistent with Gamble et al.’s (1996)
work in the US.
These findings indicate that, should the
identified trend continue, the amount of envi-
ronmental information provided in corporate
annual reports will increase. This increase may
be sustained by initiatives such as Environ-
mental Reporting Awards, now well estab-
lished in Australia, Europe and Japan, and by
“best practice” recommendations for corpo-
rate governance which include the provision of
environmental information to legitimate stake-
holders (ASX Corporate Governance Council,
2003). Environmental reporting is further
encouraged by international standards ISO
14000, and the “UNEP 50” ingredients for
environmental reporting. Local initiatives
such as the Greenhouse Challenge and Austra-
lian National Pollutant Inventory will also act
to sustain increasing levels of environmental
information provision.
Acknowledgements
The authors are grateful to participants of
research seminars at RMIT and the University
of Tasmania, and the Australian National Uni-
versity for their very helpful comments. The
assistance of Geoff Wyss, Leisel Metz and Shar
Molloy is also greatly appreciated. The authors
would particularly like to acknowledge the
valuable suggestions of two anonymous
reviewers.
Notes
1. For a review of the theoretical arguments,
readers are referred to the work of Owen (1992),
Gray et al. (1995) and, more recently, Campbell
(2000).
2. A more complete review of legitimacy theory
within the context of environmental information
in corporate annual reports is provided in
O’Donovan (1999).
3. Data were collected by three research assistants,
based on a template developed and tested by the
authors. Spot checks on collected data were
carried out by the authors, using audit sampling
techniques, and this indicated no material dis-
crepancies in the quality and allocation of envi-
ronmental disclosures into the relevant
categories. Consistency between the work of the
three assistants was thus assured.
4. If all of the companies in the study from 1983
had continued to exist in the same structure
through the period of the study, the total avail-
able reports should have been 861. A number of
companies merged, were taken over, or delisted,
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007
CORPORATE GOVERNANCE AND ENVIRONMENTAL REPORTING
and subsequently operated in different indus-
tries during this study, which results in the final
sample of 752 reports. There were only three
reports known to have been published that the
authors were unable to access.
5. The full data set can be obtained from the authors
by researchers who wish to use it as a basis for
future research.
6. The authors would like to acknowledge the
helpful contribution of an anonymous reviewer
to these recommendations for further research.
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Kathy Gibson is currently Associate Dean,
Teaching and Learning in the Faculty of Busi-
ness, University of Tasmania. She joined aca-
demia following a career in the finance
industry, and has research interests in social
and environmental accounting and ethics. She
has taught accounting theory and social and
environmental accounting for several years
and is co-author of a text on ethics, governance
and accountability.
Gary O’Donovan has worked in academe for
over 27 years at a number of Australian Uni-
versities and is currently the Dean of the
Faculty of Business at the University of Tas-
mania. His main areas of teaching are
accounting theory, financial reporting and
analysis and corporate sustainability. His PhD
was in the area of environmental reporting
and accounting and his other research inter-
ests include social and environmental
accountability, triple bottom line reporting
and innovation in accounting teaching and
learning.
© 2007 The Authors
Journal compilation © Blackwell Publishing Ltd. 2007