Determinants of carbon management strategy adoption: Evidence from Australia’s top 200 publicly listed firms

Purpose - – The purpose of this longitudinal study is to examine the determinants of carbon management strategy (CMS) adoption among Australia’s top 200 listed firms. Design/methodology/approach - – A legitimacy theory framework is adopted to investigate whether any significant relationship exists between a firm’s decision to adopt CMS and internal organisational factors, such as the presence of an environmental management system (EMS), as well as corporate governance factors like having an environmental committee, board size and board independence. Content analysis of Carbon Disclosure Project data and other publicly available information sourced from firm websites, annual reports and stand-alone sustainability reports is conducted, covering the period from 2008 to 2012. Findings - – Logistic regression analyses confirm that firms adopting CMS are more likely to have an EMS, an environmental committee, larger board size and greater board independence. The study also finds significant association between CMS adoption, firm size, leverage and environmental sensitivity of the firm’s industry. Originality/value - – The study shows that internal organisational factors and corporate governance attributes play a vital role in maintaining organisational legitimacy through CMS adoption. The findings of this study should be of interest to report providers (i.e. reporting firms), report users (such as investors and consumers) and policymakers.

[1]  Linda C. Angell,et al.  Towards a Process Model of Corporate Greening , 2000 .

[2]  E. Elijido-Ten.  Determinants of Strategic Performance Measurement System Disclosures in Australia's Top 100 Publicly Listed Firms , 2013 .

[3]  Bettina Wittneben,et al.  Carbon accounting: Negotiating accuracy, consistency and certainty across organisational fields , 2011 .

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

[5]  Sumit Lodhia,et al.  Sustainability reporting and reputation risk management: an Australian case study , 2011 .

[6]  C. Saunders,et al.  "Board Members Background Characteristics and Their Level of Corporate Social Responsiveness Orientation: A Multivariate Investigation" , 1989 .

[7]  M. Muttakin,et al.  Corporate Governance and Corporate Social Responsibility Disclosures: Evidence from an Emerging Economy , 2012, Journal of Business Ethics.

[8]  Chris Hope,et al.  REFLECTIONS ON THE STERN REVIEW (1) A Robust Case for Strong Action to Reduce the Risks of Climate Change , 2007 .

[9]  Perry Sadorsky,et al.  The Relationship Between Environmental Commitment and Managerial Perceptions of Stakeholder Importance , 1999 .

[10]  Albert A. Cannella,et al.  Corporate Governance: Decades of Dialogue and Data , 2003 .

[11]  Jonathan L. Johnson,et al.  Number of Directors and Financial Performance: A Meta-Analysis , 1999 .

[12]  Volker H. Hoffmann,et al.  Mitigating climate change – how do corporate strategies differ? , 2008 .

[13]  Nicole Darnall,et al.  Do Environmental Management Systems Improve Business Performance in an International Setting? , 2008 .

[14]  M. Clarkson.  A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance , 1995 .

[15]  Peter M. Clarkson,et al.  Extending the application of stakeholder influence strategies to environmental disclosures: an exploratory study from a developing country , 2010 .

[16]  J. Andrew,et al.  Carbon Disclosures: Comparability, the Carbon Disclosure Project and the Greenhouse Gas Protocol , 2011 .

[17]  Siriyama Kanthi Herath,et al.  Board characteristics and corporate value: evidence from Thailand , 2010 .

[18]  J. Pfeffer,et al.  Organizational Legitimacy , 1975 .

[19]  J. Bartlett,et al.  Marketing to change public opinion on climate change: a case study. , 2009 .

[20]  A. Hoffman.  Climate Change Strategy: The Business Logic behind Voluntary Greenhouse Gas Reductions , 2004 .

[21]  Ø. Ihlen,et al.  Business and Climate Change: The Climate Response of the World's 30 Largest Corporations , 2009 .

[22]  Janek Ratnatunga,et al.  Carbon strategies and management practices in an uncertain carbonomic environment – lessons learned from the coal-face , 2015 .

[23]  J. Solomon,et al.  Private climate change reporting: an emerging discourse of risk and opportunity? , 2011 .

[24]  P. Pope,et al.  Board Monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals? , 2000 .

[25]  A. Kolk,et al.  Business Responses to Climate Change: Identifying Emergent Strategies , 2005 .

[26]  C. Dee,et al.  Environmental Disclosures in the Oil and Gas Industry , 2006 .

[27]  Hussein A. Warsame,et al.  Managing Public Impressions: Environmental Disclosures in Annual Reports , 1998 .

[28]  G. O'Donovan,et al.  Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory , 2002 .

[29]  G. Nicholson,et al.  Board Composition and Corporate Performance: How the Australian Experience Informs Contrasting Theories of Corporate Governance , 2003 .

[30]  G. Benson,et al.  Corporate Boards and Company Performance: Review of Research in Light of Recent Reforms , 2007 .

[31]  R. Gray,et al.  Corporate social and environmental reporting , 1995 .

[32]  Nardia Haigh,et al.  A Framework for Understanding Institutional Governance Systems and Climate Change: The Case of Australia , 2007 .

[33]  Angus Morrison-Saunders,et al.  The impact of voluntary environmental protection instruments on company environmental performance , 2004 .

[34]  R. Adler,et al.  Exploring the reliability of social and environmental disclosures content analysis , 1999 .

[35]  C. Deegan,et al.  Firms' Disclosure Reactions to Major Social Incidents: Australian Evidence , 2000 .

[36]  O. Holsti.  Content Analysis for the Social Sciences and Humanities , 1969 .

[37]  Matthew A. Shapiro,et al.  Carbon reporting: does it matter? , 2011 .

[38]  R. Calantone,et al.  Assessing the impact of environmental management systems on corporate and environmental performance , 2003 .

[39]  Steven T. Petra,et al.  Do outside independent directors strengthen corporate boards , 2005 .

[40]  G. Nicholson,et al.  Evaluating Boards and Directors , 2005 .

[41]  S. Alam,et al.  Framework Convention on Climate Change , 1993 .

[42]  Chukwumerije Okereke,et al.  An Exploration of Motivations, Drivers and Barriers to Carbon Management:: The UK FTSE 100 , 2007 .

[43]  Walter Wehrmeyer,et al.  How warm is the corporate responses to climate change? Evidence from Pakistan and the UK , 2008 .

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

[45]  Ans Kolk,et al.  Towards strategic stakeholder management? Integrating perspectives on sustainability challenges such as corporate responses to climate change , 2007 .

[46]  Ivan Montiel,et al.  The Adoption of Voluntary Environmental Management Programs in Mexico: First Movers as Institutional Entrepreneurs , 2009 .

[47]  J. Bebbington,et al.  Carbon Trading: Accounting and Reporting Issues , 2008 .

[48]  J. Cotter,et al.  Institutional investor influence on global climate change disclosure practices , 2012 .

[49]  Jeffrey A. Sonnenfeld.  EXECUTIVE APOLOGIES FOR PRICE FIXING: ROLE BIASED PERCEPTIONS OF CAUSALITY1 , 1981 .

[50]  T. Busch,et al.  Stakeholder engagement and environmental strategy – the case of climate change , 2010 .

[51]  L. P. Tan,et al.  Implementing ISO 14001: is it beneficial for firms in newly industrialized Malaysia? , 2005 .

[52]  C. Deegan.  Introduction: The legitimising effect of social and environmental disclosures – a theoretical foundation , 2002 .

[53]  Shivaram Rajgopal,et al.  Accounting Discretion, Corporate Governance and Firm Performance , 2005 .

[54]  S. P. Sethi,et al.  A Conceptual Framework for Environmental Analysis of Social Issues and Evaluation of Business Response Patterns , 1979 .

[55]  C. Deegan,et al.  Do Australian companies report environmental news objectively?: An analysis of environmental disclosures by firms prosecuted successfully by the Environmental Protection Authority , 1996 .

[56]  Francisco Ascui,et al.  As frames collide: making sense of carbon accounting , 2011 .

[57]  Volker H. Hoffmann,et al.  EU ETS and Investment Decisions:: The Case of the German Electricity Industry , 2007 .

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

[59]  Andrew Lepone,et al.  The information content of undisclosed limit order around broker anonymity , 2011 .

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

[61]  Mark C. Suchman.  Managing Legitimacy: Strategic and Institutional Approaches , 1995 .

[62]  Michael J. Lenox,et al.  The Strategic Use of Decentralized Institutions: Exploring Certification With the ISO 14001 Management Standard , 2005 .

[63]  Marcia Millon Cornett,et al.  Corporate Governance and Pay-for-Performance: The Impact of Earnings Management , 2008 .

[64]  A. Ahuvia,et al.  Traditional, Interpretive, and Reception Based Content Analyses: Improving the Ability of Content Analysis to Address Issues of Pragmatic and Theoretical Concern , 2001 .

[65]  B. Tabachnick,et al.  Using Multivariate Statistics , 1983 .

[66]  Beverley Jackling,et al.  Board Structure and Firm Performance: Evidence from India's Top Companies , 2009 .

[67]  W. Stubbs,et al.  Corporate Carbon Strategies and Greenhouse Gas Emission Assessments: The Implications of Scope 3 Emission Factor Selection , 2012 .

[68]  S. Hrasky,et al.  Carbon footprints and legitimation strategies: symbolism or action? , 2011 .

[69]  Brendan O’Dwyer.  Managerial perceptions of corporate social disclosure: An Irish story , 2002 .

[70]  J. Lash,et al.  Competitive advantage on a warming planet. , 2007, Harvard business review.

[71]  Blake E. Ashforth,et al.  The Double-Edge of Organizational Legitimation , 1990 .

[72]  Olivier Boiral,et al.  Global Warming: Should Companies Adopt a Proactive Strategy? , 2006 .

[73]  Elizabeth Stanny,et al.  Corporate environmental disclosures about the effects of climate change , 2008 .

[74]  Su-Yol Lee,et al.  Corporate Carbon Strategies in Responding to Climate Change , 2012 .

[75]  Klaus Krippendorff,et al.  Content Analysis: An Introduction to Its Methodology , 1980 .