Environmental Policy, Sustainable Development, Governance Mechanisms and Environmental Performance

We investigate the effects of environmental policy (Climate Change Act – CCA), sustainable development frameworks (Global Reporting Initiative – GRI; UN Global Compact – UNGC) and corporate governance (CG) mechanisms on environmental performance (carbon reduction initiatives – CRIs; actual carbon performance – GHG emissions) of UK listed firms. We use the generalized method of moments (GMM) estimation technique to analyse data consisting of 2245 UK firm†year observations over the 2002–2014 period. First, we find that the CCA has a positive effect on CRIs, and this effect is stronger in better†governed firms. Second, we find that the GRI†based framework is positively associated with CRIs. Third, we find that firms with poor CG structures have lower actual carbon performance compared with their better†governed counterparts. Overall, our evidence suggests that firms can symbolically conform to environmental policy (CCA) and sustainable development frameworks (GRI, UNGC) by engaging in CRIs without necessarily improving actual environmental performance (GHG emissions) substantively. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment

[1]  A. Gouldson,et al.  The Governance of Corporate Responses to Climate Change: An International Comparison , 2017 .

[2]  Evgenia Anagnostopoulou,et al.  Relationship between Corporate Climate Change Disclosures and Firm Factors , 2015 .

[3]  C. Ntim,et al.  Black Economic Empowerment Disclosures by South African Listed Corporations: The Influence of Ownership and Board Characteristics , 2012, Journal of Business Ethics.

[4]  Mohammad Jizi.  The Influence of Board Composition on Sustainable Development Disclosure , 2017 .

[5]  Michaela Rankin,et al.  An Investigation of Voluntary Corporate Greenhouse Gas Emissions Reporting in a Market Governance System: Australian Evidence , 2011 .

[6]  Hens Runhaar,et al.  Governing Corporate Social Responsibility: An Assessment of the Contribution of the UN Global Compact to CSR Strategies in the Telecommunications Industry , 2009 .

[7]  Qingliang Tang,et al.  Corporate Incentives to Disclose Carbon Information: Evidence from the CDP Global 500 Report , 2012 .

[8]  Ella Mae Matsumura,et al.  Firm-Value Effects of Carbon Emissions and Carbon Disclosures , 2014 .

[9]  W. Ben‐Amar,et al.  Board Effectiveness and the Voluntary Disclosure of Climate Change Information , 2015 .

[10]  Martin Freedman,et al.  Global warming, commitment to the Kyoto protocol, and accounting disclosures by the largest global public firms from polluting industries , 2005 .

[11]  J. Galbreath.  The Impact of Board Structure on Corporate Social Responsibility: A Temporal View , 2017 .

[12]  Vic Naiker,et al.  The Effect of Board Characteristics on Firm Environmental Performance , 2011 .

[13]  L. Gómez-Mejia,et al.  Environmental Performance and Executive Compensation: An Integrated Agency-Institutional Perspective , 2009 .

[14]  James J. Cordeiro,et al.  Does explicit contracting effectively link CEO compensation to environmental performance , 2008 .

[15]  Jean-François Henri,et al.  Modelling the impact of ISO 14001 on environmental performance: a comparative approach. , 2012, Journal of environmental management.

[16]  C. Ntim.  Corporate Governance, Corporate Health Accounting and Firm Value: The Case of HIV/AIDS Disclosures in Sub-Saharan Africa , 2015 .

[17]  Wenjing Li,et al.  Government Engagement, Environmental Policy, and Environmental Performance: Evidence from the Most Polluting Chinese Listed Firms , 2015 .

[18]  K. Maas,et al.  Sustainability Targets in Executive Remuneration: Targets, Time Frame, Country and Sector Specification , 2016 .

[19]  W. Powell,et al.  The iron cage revisited institutional isomorphism and collective rationality in organizational fields , 1983 .

[20]  C. Ntim,et al.  Corporate Governance and Performance in Socially Responsible Corporations: New Empirical Insights from a Neo‐Institutional Framework , 2013 .

[21]  José-Valeriano Frías-Aceituno,et al.  Relationship Between Sustainable Development and Financial Performance: International Empirical Research , 2015 .

[22]  Qingliang Tang,et al.  Does voluntary carbon disclosure reflect underlying carbon performance , 2014 .

[23]  Peter M. Clarkson,et al.  Revisiting the Relation between Environmental Performance and Environmental Disclosure: An Empirical Analysis , 2006 .

[24]  Katherine Campbell,et al.  Executive compensation and non-financial risk: An empirical examination , 2007 .

[25]  Toshi H. Arimura,et al.  The Effect of ISO 14001 on Environmental Performance: Resolving Equivocal Findings , 2015, Journal of environmental management.

[26]  C. Oliver.  STRATEGIC RESPONSES TO INSTITUTIONAL PROCESSES , 1991 .

[27]  D. Siegel,et al.  Does the Market Respond to an Endorsement of Social Responsibility? The Role of Institutions, Information, and Legitimacy , 2010 .

[28]  Jonathan P. Doh,et al.  Stakeholder Pressures as Determinants of CSR Strategic Choice: Why do Firms Choose Symbolic Versus Substantive Self-Regulatory Codes of Conduct? , 2012 .

[29]  Raine Isaksson,et al.  What does GRI‐reporting tell us about corporate sustainability? , 2008 .

[30]  Robert D. Klassen,et al.  Firms’ Response to Climate Change: The Interplay of Business Uncertainty and Organizational Capabilities , 2016 .

[31]  Sulaiman A. Al-Tuwaijri,et al.  The Relations Among Environmental Disclosure, Environmental Performance, and Economic Performance: A Simultaneous Equations Approach , 2004 .

[32]  Shaomin Li,et al.  National Adoption of International Accounting Standards: An Institutional Perspective , 2010 .

[33]  V. Hoffmann,et al.  How Hot Is Your Bottom Line? Linking Carbon and Financial Performance , 2011 .

[34]  Frank Figge,et al.  Greenhouse gas reporting quality in the oil and gas industry , 2015 .

[35]  Antonio Parbonetti,et al.  The effect of corporate governance on sustainability disclosure , 2010, Journal of Management & Governance.

[36]  Kumudini Heenetigala,et al.  Integrating Environmental, Social and Governance (ESG) Disclosure for a Sustainable Development: An Australian Study , 2017 .

[37]  J. M. Moneva,et al.  GRI and the camouflaging of corporate unsustainability , 2006 .

[38]  A. Gómez,et al.  The effect of ISO 14001 certification on toxic emissions: an analysis of industrial facilities in the north of Spain , 2011 .

[39]  L. Belkhir,et al.  Does GRI Reporting Impact Environmental Sustainability? An Industry-Specific Analysis of CO2 Emissions Performance between Reporting and Non-Reporting Companies , 2015 .

[40]  I. García‐Sánchez,et al.  The Role of the Board of Directors in Disseminating Relevant Information on Greenhouse Gases , 2010 .

[41]  V. Tauringana,et al.  The effect of DEFRA guidance on greenhouse gas , 2014 .

[42]  Edeltraud Guenther,et al.  Definition, Conceptualization, and Measurement of Corporate Environmental Performance: A Critical Examination of a Multidimensional Construct , 2015 .

[43]  J. E. Morhardt,et al.  Scoring corporate environmental and sustainability reports using GRI 2000, ISO 14031 and other criteria , 2002 .

[44]  D. Coluccia,et al.  Factors Influencing Corporate Environmental Disclosure , 2016 .

[45]  Qingliang Tang,et al.  Gender Diversity, Board Independence, Environmental Committee and Greenhouse Gas Disclosure , 2015 .

[46]  R. Gray,et al.  W(h)ither Ecology? The Triple Bottom Line, the Global Reporting Initiative, and Corporate Sustainability Reporting , 2013 .

[47]  Michael V. Russo,et al.  Explaining the impact of ISO 14001 on emission performance: a dynamic capabilities perspective on process and learning , 2009 .

[48]  Lois S. Mahoney,et al.  An Examination of the Structure of Executive Compensation and Corporate Social Responsibility: A Canadian Investigation , 2006 .

[49]  F. Windmeijer.  A Finite Sample Correction for the Variance of Linear Two-Step GMM Estimators , 2000 .

[50]  Timo Busch,et al.  Disclosed corporate responses to climate change and stock performance: An international empirical analysis , 2011 .

[51]  Michael Behnam,et al.  Environmentally Sustainable Development through Stakeholder Engagement in Developed and Emerging Countries , 2015 .

[52]  Giovanna Michelon,et al.  Board reputation attributes and corporate social performance: an empirical investigation of the US Best Corporate Citizens , 2010 .

[53]  Reginald Hooghiemstra.  Corporate Communication and Impression Management – New Perspectives Why Companies Engage in Corporate Social Reporting , 2000 .

[54]  Liliane Cristina Segura,et al.  Carbon emission reduction: the impact on the financial and operational performance of international companies , 2015 .

[55]  Faizul Haque.  The Effects of Board Characteristics and Sustainable Compensation Policy on Carbon Performance of UK Firms , 2017 .

[56]  Rajesh Tharyan,et al.  Environmental and Social Disclosures: Link with Corporate Financial Performance , 2016 .

[57]  M. Arellano,et al.  Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations , 1991 .

[58]  Richard A. Johnson,et al.  The Effects of Corporate Governance and Institutional Ownership Types on Corporate Social Performance , 1999 .

[59]  Ruth V. Aguilera,et al.  Putting the S Back in Corporate Social Responsibility: a Multi-Level Theory of Social Change in Organizations , 2004 .

[60]  Eduardo Ortas,et al.  The Environmental, Social, Governance, and Financial Performance Effects on Companies that Adopt the United Nations Global Compact , 2015 .

[61]  B. Jaggi,et al.  Global Warming Disclosures: Impact of Kyoto Protocol Across Countries , 2010 .

[62]  J. Galbreath.  Corporate governance practices that address climate change: an exploratory study , 2009 .