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AN EMPIRICAL INVESTIGATION OF THE ENVIRONMENTAL
DISCLOSURE STRATEGY OF FRENCH LISTED COMPANIES
Florence DEPOERS
Business school of Lyon 3
6 cours Albert Thomas
69008 LYON
FRANCE
[email protected]
ABSTRACT
Over the last 30 years, many studies have investigated the practices of environmental
disclosure by companies. More specifically, researchers have examined the nature and the
extent of environmental disclosure, and related environmental disclosure scores to some
firms’ characteristics. The results of these studies can be summarised as following:
longitudinal studies show a significant increase of corporate environmental disclosure ; the
quality and the amount of disclosures depend of firms’ industry and size. They may also be
related to lagged profits ; information disclosed may not reflect firm’s environmental
performance.
All these studies are based upon the observation that firms tend to report (more and more)
environmental information through annual reports or any other forms of communication.
But environmental disclosure is not a systematic activity. In addition, the quality of
information disclosed seems relatively low.
The purpose of this paper is to examine environmental disclosure decision by taking into
account both incentives to disclose and incentives to withhold information. As a matter of
fact, disclosure will only occur if the perceived benefits outweigh the perceived costs.
(1) The first objective of this paper is to identify from literature the incentives for
environmental disclosure and to organize them into a hierarchy.
(2) The second objective concerns the factors restricting corporate environmental disclosure.
As incentives, identified constraints are organised into a hierarchy.
(3) The third objective connects incentives and restricting factors in order to analyse the
disclosure decision. The latter is likely to depend on specific items of disclosure and forms of
communication. The cost/benefit arbitration of 11 items of information disclosed in the annual
report and in the environmental report is then examined.
The extent to which each factor influences the disclosure decision is assesed by a sample of
french listed companies’ financial directors. The industries selected for the study represent
companies whose operations could have a negative material impact on the environment such
as for example chemistry.
216 questionnaires were sent to the sampled companies. To date, 42 of them sent back a filled
up questionnaire.
Our findings suggest a strong influence of stakeholders’ demand and ethical considerations on
disclosure decision. Business issues and compliance with what other firms do also encourage
to a certain degree firms to disclose information while stock market considerations are
relatively unimportant.
The hierarchy of factors constraining environmental communication is as follows: the
uselessness of environmental information, material costs which include production and
communication costs, technical processing problems and proprietary costs (possibility of
regulators’ interventions).
As expected, results also indicate that the cost/benefit arbitration depends on the nature of the
disclosure. Narrative and non-financial items, information about the past, give rise to the
greatest net benefits. Companies perceive the disclosure of some items as resulting in an net
cost.
Taken overall, the perceived net costs or net benefits of the items are significantly different
according to the form of communication used – ie annual report or environmental report.