The application of the Global Reporting Initiatives‘ G4 environmental indicators: A content analysis of environmental disclosures of 32 Fortune Global 500 oil companies.
This paper was prepared for the Master Thesis of Corporate Communication
University of Amsterdam, the Netherlands Master Thesis Corporate Communication Supervisor: Dhr. Dr. J. Slevin
Michelle Gabriëlle Maria Keijzer Student number: 5983258 Date: 26th of June, 2015
2 Abstract
This research contributes to the field of CSR communication by analyzing the environmental disclosures of 32 oil and gas companies from the Fortune‘s Global 500 list. The content of their corporate environmental disclosures have been analyzed and assessed according to the environmental indicators suggested by the Global Reporting Initiative G4 guideline. Despite the fact that this guideline is apprized by many studies, previously conducted research indicate that the GRI guidelines are not properly applied by companies. The primary aim of this research is to gain insight into the application of the GRI standards in environmental disclosures and whether this proposition is also true for oil and gas companies. Unlike other studies, this study focuses on the environmental information provided in both annual and sustainability reports. Moreover, only the environmental communication and indicators of oil companies are assessed, due to the environmentally sensitive industry they are operating in. The secondary aim of this study is to suggest possible improvements for applying the GRI guidelines in the environmental disclosures of oil companies. The results indicate that the GRI guideline is indeed not fully applied by oil companies. However, the companies in this industry seems to apply more indicators than other industries.
Keywords: Sustainability reporting, Corporate social responsibility, annual reports, environmental disclosure, Global Reporting Initiative, corporate communication, oil and gas industry
3 Introduction
Oil and gas are among the world‘s most important resources for today‘s society and play a huge role in the global economy. Subsequently, these resources have many negative impacts on the environment. Their impacts are increasing as the demand for these products also increases (Alazzani & Wan-Hussin, 2013). Many environmental disasters are associated or caused by the activities of oil and gas companies. These disasters do not only have great impact on the environment, but also have material effects on the company‘s financial reports (The International Federation of Accountants, 2010). The most recent example of such a disaster is the catastrophic oil spill caused by BP in 2010. This oil spill inflicted major damage to the ecosystem and had subsequently financial implications for the organization as well (Alazzani & Wan-Hussin, 2013; Kleinnijenhuis, Schultz, Utz, & Oegema, 2013).
Due to this possible environmental degradation, many stakeholders pay close attention to the environmental implications of the activities of the oil and gas organizations. These stakeholders, such as governments and lobby groups, want these companies to be more environmentally responsible. Not only the stakeholders, but also society in general are more and more concerned about corporate social and environmental performance and demand greater transparency and accountability of a company‘s practices and CSR performances (Kim, Park & Wier, 2012; Melé, Debeljuh, & Arruda, 2006; Cornelius, Wallace, & Tassabehji, 2007). Especially those who are making decisions, such as investors and shareholders, require access to information about a company‘s environmental behaviour (Skouloudis, Evangelinos, & Kourmousis, 2009). In this light it is important for organizations to consider their impact on the environment (Alazzani & Wan-Hussin, 2013).
Corporate social responsibility calls for an organization to respond to not only the shareholders, but also other stakeholders such as customers, employees and affected
4 communities (Hamann, 2003). As a result many of these companies try to meet the expectations and attempt to contribute to the mitigation of environmental issues, such as gas emissions, climate change and biodiversity loss (Hamann, 2003). As the contribution of companies to the protection of the environment grow, so does the reporting and extent of the disclosures on these kinds of practices (Deegan, 2002; Magnan & Van Velthoven, 2005). Corporate social responsible reporting appears to meet the various demands of the stakeholders, because the sustainability reports are intended to include non-financial information and to deliver information beyond what is provided in its financial report. Doing so seems to be crucial given the paramount necessity to establish a dialog among all stakeholders (Krajnc & Glavi, 2005; Gilbert & Rasche, 2007). Having some kind of sustainability report have already shown to be beneficial in financial ways, but since corporate social responsibility is based on ethical advantages for society and its environment, detailed intentions are needed. Especially for those oil companies whose environmental impact can be major - and therefore are subject to huge pressure from investors, stakeholders, pressure groups and other involved parties - effective environmental reporting is of great concern.
As the before mentioned societal expectations about the responsible role of corporations in society are on the increase and subsequently the contribution of the companies to these expectations, so does the developments of a variety of instruments to improve, evaluate and communicate socially responsible practices (Golob & Bartlett, 2007). However, research indicates that environmental performance is often communicated in an ineffective way (Pollach et al., 2012), neglecting the guidelines that have been developed specifically for this purpose (Koerber, 2010). One of the most widely used worldwide standards for corporate responsible reporting is the Global Reporting Initiative (GRI) (Skouloudis et al., 2009; Alazani & Wan-Hussin, 2013; Leszczynska, 2012). Being that it is the best instrument for sustainability reporting due to the fact that it is based on the three dimensions of CSR;
5 economy, society and environment (Manetti, 2011; Coulmont, Berthelot, & Thibault, 2013). Also Du, Bhattacharya and Sen (2010) argue that companies should adhere to leading reporting standards such as the GRI to increase the credibility of their sustainability report. However - as previously stated - the GRI guidelines are not fully applied by companies (Koerber, 2010; Morhardt, Baird & Freeman, 2002). That, while it can be expected that especially those companies operating in highly environmentally sensitive sectors, such as oil companies, will apply these kinds of guidelines to ensure their legitimacy. Environmentally sensitive industries are characterized as receiving high amounts of attention from environmental lobby groups (Deegan & Gordon, 1996), operating in sensitive areas (Adams, Hill, & Roberts, 1998), and known for their higher levels of sustainability disclosure (Feijoo, Romero, & Ruiz, 2014; Jose & Lee, 2007; Tagesson, Blank, Broberg & Collin, 2009; Gamerschlag, Moller & Verbeeten, 2011).
Little previous research has been done with regard to the application of the GRI in the oil industry. If research has been done, it mostly focuses on non-financial reporting due to the fact that these sustainability reports are associated with environmental information (Alazzani & Wan-Hussin, 2013). Thus, neglecting the disclosures in annual reports, which is striking as research indicates that most stakeholders get their information on environmental issues primarily out of annual reports (PriceWaterhouseCoopers, 2014). To be more specific annual reports are the primary information source for investors creditors, employees, environmental groups and government regulators (Neu, Warsame, & Pedwell, 1998, p.269; Patten, 1992, p.472; Gamble, 1995, p.34). Therefore, this research focuses on the application of the GRI in the environmental disclosures of both the annual reports and the non-financial reports. Moreover, previous studies focuses on the application of both social and environmental indicators of the GRI guideline. Being that the environment is the primary stakeholder for companies operating in the oil and gas industry, this approach can be criticized (Sweeney &
6 Coughlan, 2008). Besides, oil companies seems to focus mainly on environmental matters in their sustainability reporting (Hoder-Webb, Cohen, Nath & Wood, 2009). Hence, the present study solely focus on the environmental information provided by oil companies.
The primary aim of this research is to gain insight into the application of the Global Reporting Initiative standards in environmental disclosures of oil companies to examine if this guideline is really not applied by these companies. Unlike other studies, this study focuses on only the environmental indicators of the GRI and how these are reflected in the environmental disclosures. Moreover, this research focuses on the environmental information provided in both annual and sustainability reports. The secondary aim of this study is to suggest recommendations for improving the application of the GRI guidelines in the environmental reporting of oil companies worldwide. In this way, this research attempt to aid the company to become more attractive to their current and potential stakeholders. Finally, recommendations will be given for improving the GRI application in the environmental disclosures. The following research question can be derived from this aim: ―To what extent are the environmental disclosures of oil companies congruent with the environmental indicators as proposed by the Global Reporting Initiative?‖
Theoretical background
The following section will contribute to the understanding of corporate social responsibility communication. Firstly, stakeholder theory and legitimacy theory will be described as the driving forces behind CSR practices. Secondly the concept of corporate social responsibility – also known as sustainability – and the associated communication and reporting of such practices will be explained. Finally, the Global Reporting guideline will be discussed and previously conducted research on the application of this global instrument for CSR reporting.
7 Stakeholder theory and legitimacy theory
The paper is built on the foundation of two recognized views with regard to corporate social responsibility. Firstly, the mainstream instrumental view, which regards CSR as an organizational instrument to reach organizational aims such as legitimacy. Secondly, the communication view, which regards CSR as communicatively constructed in dynamic interaction processes, whereby the organization is constituted by their communication efforts (Schultz, Castello, & Morsing, 2013). The emphasis of this paper will be on the communication of CSR practices - in specific environmental practices - in the annual reports of oil companies, whereby Corporate Social Responsibility will be further designated as sustainability or CSR. When it comes to explaining the extent and content of CSR reporting, system-oriented theories, such as legitimacy and stakeholder theories, seem to be the most successful (Gray, Kouhy, & Lavers, 1995; Milne, 2002; O‘Dwyer, 2003).
Whereas on one hand corporate social responsible activities are seen as activities that are aimed at making profit (Friedman, 1970), on the other hand it is focusing on the true responsibility of a corporation with regard to its stakeholders (Freeman, 1984). Freeman (1984, p. 25) defines a ‗stakeholder‘ as ―any group or individual who can affect or is affected by the achievement of the firm‘s objectives‖. According to Freeman (1984) the most involved stakeholders are those who have a legitimate interest in the company, such as investors, employees and customers. These groups are also known as primary stakeholders. Other stakeholders like competitors, distributors, interest group, media, and society are referred to by the term secondary stakeholders. Stakeholder theories (Freeman, 1984) suggest that these different kinds of groups, that an organization can affect, have legitimate claims on the organization. Furthermore, these external interest groups provide organizations with a variety of resources such as capital, customers, materials, employees and legitimacy (Deegan, 2002). These resources are required to conduct their business and create a mutual obligation where
8 stakeholders provide a ‗license to operate‘ to the organization in return for the provision of socially acceptable or legitimate actions (Suchman, 1995). Thus, this creates some kind of social contract that allows the organization to continue to operate (Deegan, 2002). Legitimacy is described as ‗the rationale for public relations‘ (Boyd, 2000; Massey, 2001). In this sense, ―organizations have an obligation to society and to their stakeholders to operate in ways that are perceived as socially and environmentally responsible and beneficial. Society on her turn has the right and the power to define expectations for those who operate within its boundaries‖ (Toppinen, Li, Tuppura & Xiong, 2012, p.192). Especially large companies tend to be under greater political and regulatory pressure from external stakeholders and subsequently disclose more information on their CSR practices to reduce these potential political costs. Compared to smaller companies these companies seem to have more money available for the disclosure of this kind of information. In doing so, they try to maintain their legitimacy (Gamerschlag, Moller & Verbeeten, 2011). Also companies operating in sensitive environmental industries use sustainability disclosure to legitimize their practices to their stakeholders (Deegan & Gordon, 1996).
Sustainability and CSR
The Commission of the European Communities (2001) connects the stakeholder theories to the concept of Corporate Social Responsibility. They define CSR as ―a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis‖ (Commission of the European Communities, 2001, p.6). However, with regard to corporate social responsibility several other definitions can be found in previous literature as well. One of the most cited ones, is the one suggested by Carroll (1979, p.500) who argues that the ―social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that society has of organizations at a given point of time‖. This definition determines and
9 underlines the scope of the responsibilities and the different themes of CSR reporting. Also Whetten, Rands and Godfrey (2001) provide a definition for corporate social responsibility and describe it as ―societal expectations of corporate behavior: a behavior that is alleged by a stakeholder to be expected by society or morally required and is therefore justifiably demanded of business‖ (p.374). However, Whetten et al. (2001) focus more on the societal and stakeholder expectations, which are according to Golob and Bartlett (2007, p.3) ―the rationale for assessing the interactions of different publics and engaging in the reporting practice‖. In order to understand corporate social responsibility reporting, it is useful to combine both definitions.
‗Corporate social responsibility‘ and ‗sustainability‘ are two of many terms used to describe the social and environmental contributions and consequences of business activities (Jenkins & Jakovleva, 2006). Although the practice of corporate responsible and sustainable behavior goes way back, a series of business changes and corporate scandals in the early 1990s has made it a pervasive and a well-known phenomenon (Doh & Guay, 2006; Vogel, 2005). The idea behind sustainable development is that corporations need to contribute to the progress of the following three dimensions; economic development, environmental protection and social cohesion (Jenkins & Yakovleva, 2006). Economic development is focused on the maintenance of high and stable levels of economic growth and employment. Environmental protection is based on effective protection of the environment. Social cohesion aims to recognize the needs of everyone, and is thus focused on the human well-being (Jenkins & Yakovleva, 2006). Companies need to participate on issues related to these three dimensions. Corporate Social Responsibility programs aim to address these complex challenges across the entire enterprise, whereby CSR have shown to be an excellent tool for risk management (Kytle & Ruggie, 2005).
10 CSR communication
An often-overlooked component of both CSR practice and CSR research is communicating CSR (Ziek, 2009). Different kind of stakeholders such as government agencies, non-governmental organizations, employees, customers, investment firms and other involved parties seek information concerning company policy and programs on environmental and social issues, community involvement and social programs (Dawkins & Lewis, 2003). Delivering this information becomes an integral part of managing and extenuating risks associated with of CSR issues. Organizations must not only adopt CSR as part of their mission and follow the behavioral standards, they must also communicate about their CSR activities and initiatives to their stakeholders (Bronn & Vironi, 2001). Research has shown that especially large organizations communicate about their CSR activities (Graafl, van den Ven, & Nelleke, 2003; Chapple & Moon, 2005; Knox, Maklan, & French, 2005; Haddock-Fraser and Haddock-Fraser, 2008). For this purpose, various means are utilized by organizations in order to communicate their CSR practices such as annual reports, annual shareholder letters, web pages, and nonfinancial reports (Ziek, 2009).
Sustainability and CSR reporting
How key stakeholders view an organization is important for the company‘s future (Cornelissen, 2004). Therefore, it is of great importance that companies strategically manage and organize their activities aimed at these stakeholders and in this way build and nurture their relationship (Nielsen & Thomsen, 2007). CSR reporting is one of these activities used by companies and has often been seen as an important communication tool, which can ensure greater corporate transparency (Golob & Bartlett, 2007; Nielsen & Thomsen, 2007). Transparency is a concept that is often linked to reporting in general, and in particular to CSR reporting (Kaptein & Van Tulder, 2003). Based on the amount of pressure of stakeholders, each company determines the required level of transparency as part of their CSR
11 communication strategy (Feijoo, Romero & Ruiz, 2014). For example, oil and gas companies are labeled as cautious with the environment, because they were one of the first to report on environmental issues with regard to CSR practices (Deegan & Gordon, 2009; Aerts & Cormier, 2009). In this way CSR reporting is one of the key tools for communication with stakeholders about CSR activities. Moreover, communication about such issues enables a better engagement with multiple stakeholders, such as investors (Golob & Bartlett, 2007; Nielsen & Thomsen, 2007). In other words; it creates mutual understanding between the company and its stakeholders, it enables the managing of potential conflicts (Grunig, 1989) and it helps to achieve legitimacy (Aldrich & Fiol,1994; Nielsen & Thomsen, 2007). Conceived as a corporate communication tool, it is the aim for annual reports - but also for sustainability reports - to present the organization to all their internal and external stakeholders. On the one hand a strong social and environmental commitment needs to be communicated, whereas on the other hand the expectations of the various stakeholders need to be taken into consideration (Nielsen & Thomsen, 2007).
Many organizations are obligated to produce and release an annual report with information on the financial movement of the company. However, these annual reports become most often an all-encompassing report for both financial and nonfinancial information. In this way these annual reports are often used for the publication of CSR evaluations and environmental performance (van Huijstee & Glasbergen, 2007; Brown & Deegan, 1998). Despite the fact that a lot of stakeholders demand greater transparency, many of these stakeholders are not proactively looking for information on corporate responsibility. Subsequently, organizations embedded their CSR messages in more mainstream communication such as the annual reports (Dawkins, 2004).
Even though reporting of environmental and social information is not mandatory, a lot of organizations produce nonfinancial reports (Morhardt, Baird, & Freeman, 2002;
12 Frankental, 2001). These nonfinancial reports ―offer a previously unavailable window into corporate environmental and social strategy and performance‖ (Cerin, 2002, p.217). In this way they are considered to improve the accountability of the company to external stakeholders (Graafl et al., 2003). The accountability of the company can be even more stretched when the organization has followed the GRI guidelines (Cerin, 2002). These annual reports have also become an important source of information for investors (Collison et al., 2008). It should be noted that non financial reports differ in contrast with the nonfinancial reporting in annual reports. Initially, it started with social information disclosures in the financial annual reports, which are referred to by the terms corporate social reporting and corporate social responsibility (Guthrie & Parker, 1989). Later, the environmental reports were introduced which were separated from the annual reports (Burh, 2007). These environmental, nonfinancial reports are known by the term environmental reporting. Now - during the last two decades - companies have extended the content of these environmental reports with social and economic information. These extended reports are often termed sustainability reports (Burh, 2007). Ioannou and Serafeim (2011, p.2) describe sustainabilit y report as ―a firm-issued general purpose non-financial report, providing information to investors, stakeholders (e.g., employees, customers and NGOs), and the general public about the firm‘s activities around social, environmental and governance issues, either as a stand-alone report or as part of an integrated (e.g. financial and sustainability) report‖. However, a lot of companies use their own terms for these sustainability reports and sometimes these reports may even be published separately; one environmental, one social and one economic report (Coulmont, Berthelot & Thibault, 2013).
As stated earlier, the reporting on sustainability practices in annual reports is not always mandatory, it can also be voluntary (Ioannou & Serafeim, 2011).Those, who argue that reports should be mandatory, believe that reporting should be regulated by the state in
13 order to ensure the appropriate and right information is provided. Also it aims to protect citizens with regard to public goods issues such as the environment and public health (Doane, 2002).
Nowadays, corporate social reporting can even be solicited (Van der Laan, 2004). Solicited reporting is a new form of reporting and is based on the demand for information issued by a specific stakeholder group (Van der Laan, 2004). This form of reporting opens up for more symmetrical and dialogical communication as suggested by Grunig and Hunt (1984) in their two-way symmetrical model of communication. In this way solicited reporting enables stakeholders to obtain richer information about the corporation (Van der Laan, 2004).
Yet, the reporting on a voluntary basis is the most recognized form of reporting, whereby the corporation voluntary reports about their CSR activities and initiatives. In this way the company can ‗inform their stakeholders and put the company and its image in a favourable light‘ (Stittle, 2002, p.239). According to the KPMG 2005 international survey voluntary CSR reporting has risen significantly in the last decade (Kolk, van der Veen, Pinkse, & Fortanier, 2005). However, voluntary reporting seems not always to happen in the appropriate way, whereby public pressure to develop CSR policies is arising (Ariel, Aaronson & Reeves, 2002). For this reason some governments and some other institutions introduce different accreditation mechanisms, standards and guidelines for CSR practices and reporting. Those instruments are not aimed at mandate CSR practices and CSR reporting, but rather focus on finding a way to hold organizations accountable for their own actions (Ariel, Aaronson & Reeves, 2002; Hopkins, 2003; Stittle, 2002).
Global instruments of CSR reporting - Guidelines and standards
During the past few decades, CSR standards have increased in number and popularity, resulting in more than 300 global standards worldwide (Ligteringen & Zadek, 2004). With the growing demand for corporate transparency and accountability, it has become a necessity for
14 organizations to apply or even develop standardized reporting guidelines for environmental and social reporting (Toppinen et al., 2012). In order to make it tangible, different countries and organizations attempt to establish a common global framework for CSR reporting (Owen, 2003). The Global Reporting Initiative has been developed by CERES - a United States non-profit organization - in cooperation with the United Nations Environment Program (UNEP), an independent organization based in Amsterdam (Hopkins, 2003; Owen, 2003; Hedberg & von Malmborg, 2003). Her goal is to develop and disseminate globally applicable Sustainability Reporting Guidelines, which enable organizations to voluntarily report on their social, environmental and economical activities. The GRI offers a set of principles and structured report content with indicators for how to report on these three areas (Owen, 2003, p.18). The GRI-guidelines thus enables companies to communicate with their stakeholders about their performance and accountability beyond the financial bottom line (Willes, 2003). This initiative seems to have success, as among the 250 biggest global companies the GRI guidelines seem to be now well applied (Kolk et al., 2005; Leszczynska, 2012). Kolk et al. (2005, p.7) state that ―Currently, 660 companies spread throughout 50 countries report on the basis of GRI guidelines‖.
A similar initiative has also been introduced by the Institute for Social and Ethical Accountability (ISEA) (Owen, 2003). The standard they developed is called the ‗Accountability AA1000 assurance standard‘ and is similar to the GRI (Hopkins, 2003). However, AA1000 is not as strict in terms of reporting guidelines, because it does not concern itself with prescribing reporting formats. Rather it focuses on the importance of engagement with stakeholders (Owen, 2003). Nevertheless, Hopkins (2003) state that the GRI is one of the more popular instruments for sustainability reporting and is more often applied than the AA1000.
15 There are also several other international standards and guidelines for CSR reporting frequently mentioned in literature, which can be subdivided into three distinct but complementary categories (European Commission [EC], 2004; Hopkins, 2003). Firstly, codes of conduct, such as the OECD Guidelines, UN Global Compact and ILO Declaration. These guidelines define standards of corporate behavior. Secondly, there are management standards, which offer frameworks for implementing socially responsible practices, such as the SA8000, the ISO 26000 and the ISO 14000. The last category consists of screenings and rankings, which aim to provide the basis for responsible investing and comparing companies. Examples of these kinds of standards are the Dow Jones Sustainability Index and the FTSE4Good (Golob & Bartlett, 2007). It is notable that there is some degree of overlap among these guidelines and standards, even though they are designed to satisfy the specific needs of a particular stakeholder group (Koerber, 2010). In order to establish a common global network, the Global Reporting Initiative has included elements of other standards such as OECD, SA8000, ISO14000, Sullivan‘s Global Principles and the AA1000 in its reporting guidelines (Hopkins, 2003).
The GRI guideline is the most often selected standard for analysis, because it is the most widely used worldwide standard for corporate responsible reporting (Skouloudis et al., 2009; Prado-Lorenzo, Gallego-Alvarez, & Garcia-Sanchez, 2009; Tsang, Welford, & Brown, 2009; Brown, de Jong, & Levi, 2009a; Rasche, 2009; Levy, Brown, & de Jong, 2010; Alazzani & Wan-Hussin, 2013; Leszczynska, 2012). Moreover, the GRI represents the best instrument for CSR reporting given that it is based on economic, environmental and social dimensions and thus reflects the key dimensions of sustainability (Manetti, 2011). In this way it is the most comprehensive benchmark, as it covers most information elements on the corporate social responsible dimensions (Coulmont, Berthelot, & Thibault, 2013). Besides, the GRI standard is the only consensus-based guideline that covers the interests of multiple
16 stakeholders internationally (Richards & Dickson, 2007). Prado-Lorenzo et al. (2009, p.99) even describe the GRI as ―a harmonized, standardized, understandable and objective report for all firms worldwide‖. Furthermore, the GRI is - after the ISO 14001 standard- the second most influential standard with regard to sustainability (Berman, Webb, Fraser, Harvey, Barsky, & Haider, 2003). Finally, the Global Reporting Initiative Guidelines are strongly supported by various companies and nongovernmental organizations worldwide (Leipziger, 2010). Keeping all these arguments in mind, the present study solely focus on the Global Reporting Initiative.
Previous research on the application of the GRI standard
Although many studies have focused on the diffusion of management standards, such as ISO 9001 and ISO 14001 (Casadesus, Marimon, & Heras, 2008; Delmas & Montes-Sancho, 2011; Marimon, Casadesus & Heras, 2006; Llach, Marimon, & Bernardo, 2011), there is little research on the diffusion of sustainability reporting initiatives such as the GRI (Marimon, del Mar Alonso-Almeida, del Pilar Rodríguez, & Cortez Alejandro, 2012; Toppinen, et al., 2012). The ISO (2010a, p.43) states that ―environmental responsibility is a precondition for the survival and prosperity of human welfare‖. Because environmental issues are linked to other social responsibility issues - that are fundamental in promoting the sustainable societies - the GRI offers a guide to incorporate sustainability development. In this environmental guide the GRI reporting has incorporated indicators of environmental performance regarding subjects such as efficiency improvements, initiatives for reducing greenhouse gas emission and biodiversity loss (Marimon et al., 2012; Global Reporting Initiative, 2011; Fonseca, McAllister, & Fitzpatrick, 2014).
Despite the fact that there is little scientific research on the application of the GRI standard in environmental reporting in environmentally sensitive industries, there are a few examples of previously conducted research on this matter. A study carried out by Koerber
17 (2010) found that 80% of the reports on environmental issues indicate that organizations use their own social responsibility guidelines rather than using a standard as the GRI. In particular small- and medium-sized organizations seem to ignore the GRI standards (Marimon et al., 2012). Some explanations for this outcome can be made. First of all, the CSR reports are both expensive and often complex. Secondly, companies who are smaller than others are also less visible. This often results in less pressure to adopt standards such as the GRI (Levy et al., 2010). Yet, with regard to the environmental reports of the 40 world‘s largest organizations, the results of the GRI application for environmental reporting are striking. Morhardt, Baird and Freeman (2002) found that only 20 percent of the points in the GRI 2000 scoring system were achieved; meaning that the standard is not fully applied by these companies. Morhardt et al. (2002) argue that there is a tremendous gap between what large organizations think they need to report and what is hoped for by the Global Reporting Initiative. As a reason, they state that ―most companies are content to leave their financial reporting to their annual financial reports, and much of the remainder to the fact that social reporting is either not perceived to be appropriate for an environmental report, or is simply not being reported at all‖ (Morhardt et al., 2002, p.225).
Regarding the application of the GRI guideline in the reports of companies operating in highly environmentally sensitive sectors, most studies are focusing on non-financial reporting (Alazzani & Wan-Hussin, 2013). For example Samuel, Agamuthu and Hashim (2013) focus on GRI performance indicators on non-financial corporate reporting in the petrochemical industry. Other research is focused on the GRI application in the forest-based industry, which is interesting for the rapid emergence of new production regions as a result of the globalization and its unique raw material base associated with the global greenhouse gas balance (Toppinen et al., 2012; Ernst & Young, 2009). Other examined industries are the mining industry (Kraut, Dennis, & Connole, 2012) and the five most polluting industries:
18 chemicals, utilities, oil and gas, metals and mining, and pulp and paper (Clarkson, Li, Richardson, & Vasvari, 2008).
Also Coulmont, Berthelot and Thibault (2013) did a research on the application of the GRI standards in non-financial reporting media. They examined the determinants of CSR reporting on the websites of Canadian oil and gas companies. For their research they evaluated 68 web pages of the largest oil firms listed on the S&P/TSX. The index they used was based on the three GRI components; environment, social and economic. The research found that the larger the company and the greater the media exposure of the company, the more likely it is that they included CSR disclosures on the corporate website. Thus the size and media exposure largely determines the level of sustainability reporting. The scholars indicate that despite the growing popularity of standards such as the GRI, there is still a wide variety of disclosure practices among the CSR reporting of these organizations. They argue that the oil and gas companies made relatively little use of GRI guidelines for the reporting on environmental, social and economical practices (Coulmont, Berthelot & Thibault, 2013). It must be noted that for this research the GRI guideline has been used as an instrument to examine CSR information on corporate websites. However, the GRI is actually designed for the writing of CSR annual reports or sustainability reports. Also the fact that this research focuses solely on corporate websites can be criticized for the simple reason that most stakeholders are not actively looking for information on CSR practices on the websites, but get their information out of annual reports. Analyzing only the information available on the websites neglects further important information that might be mentioned in the annual reports. Alazzani and Wan-Hussin (2013) did a research on the influence of the use of a voluntary standard assessment system for environmental reporting on the damage caused by oil and gas companies. With the aid of a content analysis they evaluated the environmental practices of eight oil and gas companies (Chevron, Nexen, OMV, OSL, OXY, Petronas, SK
19 Energy and Total) against the sustainability reporting guidelines issued in 2006 by the GRI. Their research indicates that these guidelines appear to provide a good tool for reporting environmental activities. They found that the voluntary adoption of these guidelines by a vast majority of the researched companies increases attributes such as transparency, comparability and credibility of CSR reporting. Despite the positive outcomes of this study, there are a few drawbacks. Firstly, this research omit to include the annual reports and focus solely on the environmental reports. Moreover, the research that has been conducted is quite small - only the reports of eight companies have been analyzed. These companies were mainly operating in developed countries, with a particular focus on Yemen. Therefore, this research is not representative for the whole oil and gas industry.
As these research examples suggest, most studies have focused on the application of the GRI guidelines in non-financial reports. However, as previously mentioned, most stakeholders get their information on environmental issues primarily out of annual reports (PricewaterhouseCoopers, 2014). Likewise, other scholars found that annual reports are the primary information source for investors creditors, employees, environmental groups and government regulators (Neu, Warsame, & Pedwell, 1998, p.269; Patten, 1992, p.472; Gamble, 1995, p.34). However, because most of the previously conducted research on this matter is focused on sustainability reports, this research focuses on both annual and sustainability reports. It is expected that most of the environmental information is provided in the sustainability report. Therefore, the following hypothesis is proposed:
H1. Oil companies disclose more environmental information in the sustainability report than in the annual report.
Content analysis of companies‘ annual and sustainability reports has been a frequently used method in research of environmental reporting. Especially the amount of environmental disclosure is a popular subject (Milne & Adler, 1999). These studies most often found that
20 company size and profitability are the most important determinants of sustainability reporting (Van der Laan-Smith, Adhikari & Tondkar, 2005). Ng and Koh (1994) argue that profitable organizations are more exposed to political pressure and public scrutiny and therefore are more willing to use self-regulating instruments. Subsequently, in order to avoid regulation they disclosure environmental information voluntary. Also research point out that profitable organizations have more financial means to disclose these kind of information in comparison to companies that are less profitable (Hackston & Milne, 1996; Pirsch, Gupta & Landreth-Grau, 2007). For companies, who are less profitable, it is less expensive to disclosure their environmental information in the annual reports than disclose it separately (Tagesson et al, 2009). Therefore, it is reasonable to suppose that profitable oil companies disclose more environmental information. The following hypothesis can be reduced from this assumption: H2. There is a positive relationship between the profitability of oil companies and the amount of environmental information disclosed.
Likewise, - although the variable ‗size‘ does not really measure any theoretical aspect of CSR reporting - the variable size provides more evidence that contributes to the extent of CSR reporting. In this light the third hypothesis can be stated:
H3. There is a positive relationship between the size of a company and the amount of environmental information disclosed.
Next to the extent to which oil companies report on environmental performances, the extent to which oil companies apply the GRI guideline is of great importance. However, previously conducted research does not provide enough evidence to make reliable statements. Therefore the following research question is drafted:
RQ1: To what extend are the GRI environmental indicators applied by oil companies?
Moreover, Hahn and Lülfs (2014) argue that CSR reports are supposed to provide a complete and balanced picture of a company‘s performances. However, companies tend to
21 report mainly on the positive aspects of their CSR practices, because reporting on the negative aspects can endanger the legitimacy of the company (Holder-Webb, Cohen, Nath, & Wood, 2009). Especially when these negative aspects are perceived by the stakeholders as not being in line with the values and norms of society. The GRI guidelines attempt to overcome this problem by offering a guideline that challenges companies to reports on both positive and negative aspects of a company‘s performance. However, as the results of Hahn and Lülfs (2014) indicate, mainly positive aspects to modify the perception of stakeholders are communicated. In this way, the communication of these companies does not seem to meet the requirements of impartiality as emphasized by the Global Reporting Initiative. These findings are in line with the previous findings of Deegan and Gordon (1996). Their findings point out that companies produce relatively more positive news than negative news as the practices of the company are more environmentally sensitive. Since oil companies have been labeled as belonging to an environmentally sensitive industry, it is expected that the environmental disclosures in the annual reports of oil and gas companies are written in a more positive than negative overall tone. This expectation leads to the following hypothesis:
H4. The majority of the oil companies use a positive overall tone in their environmental disclosure.
Moreover, Han and Lülfs (2014) give a few examples of negative aspects with regard to environmental reporting, which is mainly associated with the pollution of the ecological environment (air, water, soil et cetera). These examples include the production of toxic waste, the release of harmful emissions or hazardous substances and so on (Han & Lülfs, 2014; p.404). Following the research by Han and Lülfs (2014), the present study expects that positive environmental indicators are more likely to be reflected in the disclosures of oil companies than negative indicators. This leads to the following hypothesis:
22 H5. Companies operating in the oil and gas industry highlight more positive environmental practices than negative practices in their environmental disclosure.
The application of environmental indicators is often linked to the turn to third-party assurance companies (Alazzani & Wan-Hussin, 2013). Third-party assurance is defined as ‗‗a process in which a practitioner expresses a conclusion designed to enhance the degree of confidence that intended users can have about the evaluation or measurement of a subject matter that is the responsibility of a party, other than the intended users or the practitioner, against criteria‘‘ (The International Federation of Accountants, 2012, p.16). Due to the fact that stakeholders demand companies report truly and fairly about their performance, some organizations introduce third party assurance to overcome this challenge (Park & Brorson, 2005). It has been found that five of the eight companies disclosed that they had obtained third-party assurance of their CSR reports. This type of assurance can add more value and credibility to the environmental reports (Alazzani & Wan-Hussin, 2013; Ball, Owen, & Gray, 2000).
H6. There is difference between oil companies with third-party assurance and those without third-party with regard to the application of environmental indicators.
Method
Case Selection. This research examines the environmental disclosures of environmentally sensitive companies in the oil and gas industry. The companies were targeted according to the Global 500 list as identified by the Fortune 500 (Global Fortune 500, 2014). The sample targets the largest oil companies (N=38). Some of these companies did not have any annual report and environmental report available and therefore the following oil companies were excluded; Ecopetrol, PDVSA, Phillips 66, National Iranian Oil, Sonatrach,
23 and TNK. Leaving this research with a final 32 companies (see appendix I). Excluding those six companies seems better, because these companies might have an environmental disclosure only available for their stakeholders. Without those reports, it is impossible to give an appropriate verdict on the environmental communication of these companies. The cases were selected according to the following criteria: (1) the companies are on the 2014‘ Global 500 list (2) the companies are within the oil and gas industry, (3) the organizations operate in divers countries (4) the companies have an annual revenue of at least 40.000 billion US dollar (M = 163567; SD = 130783) and thus belonging to the largest companies worldwide (Fortune Global 500, 2014).
Information regarding the environmental practices has been collected from the annual reports and sustainability reports available on the corporate websites. This included the latest available reports (i.e., stand-alone sustainability reports and/or integrated annual reports) at the time of analysis in May 2015. Thus, only recent annual reports and sustainability reports of the past two years, namely 2013 or 2014 are included (if there were no reports of 2014 available, the reports of 2013 were selected). The documents are PDF-versions of reports, allowing for deeper analysis of the text. The use of both 2013 and 2014 reports should not have any impact on the extent to which the GRI environmental indicators were applied, because in both cases the GRI G4 was already published before the reports were published. In case the environmental disclosures were not public or directly available, the companies were contacted through email.
Research design. The primary aim of this research is to get insights on the application of the Global Reporting Initiative standards G4 in the environmental disclosures of oil companies. More precise, this report focuses on the application of the G4‘s environmental indicators in the environmental information provided in both annual and sustainability reports.
24 The secondary aim is to suggest possible improvements for applying the GRI guidelines in the environmental reporting of oil companies worldwide.
Overall strategy. In order to compare the environmental information with the environmental indicators as proposed by the Global Reporting Initiative, the latest GRI guideline the ‗G4‘ is obtained as PDF-document from the GRI‘s website. This guideline is launched in May 2013 and is presented in two parts: (1) Reporting Principles and Standard Disclosures, and (2) Implementation Manual. This study will only use the content from the ―Reporting Principles and Standard Disclosures‘, because the ‗Implementation Manual‘ serves for the preparation of sustainability reporting; how to apply the reporting principles and how to prepare disclosure of certain information. This will not be not further investigated in the present study. The GRI G4‘ index comprises of three categories, namely social, environmental and economic; of these categories only the environmental categories will be used as a guidance throughout the entire research. Being that the environment is the main importance for oil companies (Sweeney & Coughlan, 2008), only the environmental category is taking into account. According to the GRI G4 ―the environmental dimension of sustainability concerns the organization‘s impact on living and non-living natural systems, including land, air, water and ecosystems‖ (Global Reporting Initiative, 2014, p.52). This environmental category consists of twelve aspects; (1) materials, (2) energy, (3) water, (4) biodiversity, (5) emissions, (6) effluents & waste, (7) products & services, (8) compliance, (9) transport, (10) overall, (11) supplier environmental assessment, and (12) environmental grievance mechanism. Each of these aspects contain numerous amounts of codes and accompanying indicators.
A manual content analysis of the published reports of 32 oil companies from the Fortune Global 500 has been conducted. The environmental disclosures in the reports of these companies mainly consist of text and occasionally tables and figures. Because this research
25 focuses on the application of each of the environmental indicators in both text, tables and figures it is difficult to use an automated content analysis. Being that it is quite difficult to find the ‗constructs‘ in the text; every company expresses the relevant information in their own way. Besides the automated content analysis could pass up on relevant information provided in the tables and figures. For this reason, this research has been carried out manually with the aid of a codebook (see appendix II). The coding was executed by tallying the presence of the environmental indicators in the environmental text. The coding was executed by one coder, making it difficult to comply and secure reliability. However, four of the environmental disclosures were analyzed by an external source to secure inter-coder reliability. The Krippendorff‘s Alpha (KALPHA) showed that the reliability of the codebook was reliable (α = 0,88) and thus the disclosures were researched. The resulting dataset was analyzed with SPSS 22 Statistics software.
Content analysis and operationalization. The codebook consists of four sections: company characteristics, disclosure characteristics, content characteristics, and application of G4 environmental indicators. Company characteristics include company name, headquarter location (country), profitability (revenue in dollars), and size (total assets. The profitability of the company is measured according to the ‗gross revenue in billion dollars‘ as proposed by Neu et al. (1998). The size of the company is measured according to the ‗total amount of assets‘ (Cormier, Magnan, & Van Velthoven, 2005).
The disclosure characteristics sections consists of type of environmental disclosure (annual report, sustainability report or both), year of publication (2013 or 2014), size of the environmental disclosure. The latter is measured according to the amount of words used particularly in the part where environmental information is provided.
26 The content characteristics consists of the use of an Global Reporting Guide (the G3 guideline/ the G4 guideline/ or no guideline used), mentioning of third party assurance (no/yes), overall tone of the environmental disclosure (positive/negative/neutral/not clear).
Finally, the application of G4 environmental indicators section consists of the GRI‘s environmental category, which in turn consists of twelve aspects; (1) materials, (2) energy, (3) water, (4) biodiversity, (5) emissions, (6) effluents & waste, (7) products & services, (8) compliance, (9) transport, (10) overall, (11) supplier environmental assessment, and (12) environmental grievance mechanism. The first nine aspects are in accordance with the nine sub-dimensions of environmental sustainability identified in previous research (Arena & Ciceri, 2009). The last three are specifically drafted by the Global Reporting Initiative. Each of the twelve aspects contain numerous amount of codes and accompanying indicators. For example, ‗materials‘ has two codes EN1 and EN2, whereby EN1 indicates ‗materials used by weight or volume‘ and EN2 stands for the ‗percentage of materials used that are recycled input materials‘ (Global Initiative Reporting, 2014). The codes have been adopted from research conducted by Fonseca, McAllister and Fitzpatrick (2014) who did a research on the application of the Global Reporting Initiative G3 guideline. The ‗new‘ codes (3 to 7, 15 to 18, 21, 26, 27, 32 to 34) and indicators as proposed by the Global Reporting Initiative are derived from the latest guideline, namely the G4 (Global Reporting Initiative, 2014). All in all, there are 34 codes - and subsequently 34 indicators - for environmental performance. These indicators are individually subdivided in a, b, c, but this subdivision will not be taken into account in this research because they do not add value to the aim of this research. Some scholars mention health and safety as environmental indicators as well (Gray, Kouhy, & Lavers, 1995). However, the Global Reporting Guideline (2014) divides these aspects under the category ‗social‘ and not under environmental; for this research the present research does not include these aspects. Each indicator in the codebook was recorded as a dummy variable,
27 where 1 indicates that the information is disclosed and 0 indicates that the information is not disclosed.
Positive, negative and neutral indicators. Following the research of Han and Lülfs (2014), this research divided all the 34 indicators of environmental performance as proposed by the GRI into three categories: positive, negative and neutral. In this way the third hypothesis can be tested (see appendix III).
Results
The extent to which oil companies report on environmental information has been measured. Firstly the type of environmental disclosure will be discussed, followed by the influence of size and profitability on the amount of environmental disclosure. Finally, the application of the GRI environmental indicators, the overall tone in relation with these indicators and the use of third-party assurance will be discussed.
Type of disclosure: sustainability versus annual reports. The results indicate that the information on corporate environmental performance is mainly provided in the sustainability reports of companies. Of the 32 companies, 50% disclose their environmental information in both their annual and sustainability reports. However - when provided information in both the reports - most of the information can be found in the sustainability report. Those companies who provided the environmental information mainly in the non-financial sustainability reports count for 44%; the remaining 6% are oil companies that use their financial report as an all-encompassing report for both financial and nonfinancial information. Thus, the hypothesis that oil companies disclose more environmental information in their sustainability report, is partly supported. The results are shown in Figure 1.
28
Figure 1 Type of environmental disclosure
Company size and size of environmental disclosure. In order to test whether there is a connection between the size of a company (M = 189208,66; SD = 169538,037), measured according to the total amount of assets, and the amount of words (M = 4342,50; SD = 3211,32) used to describe their environmental practices, a Pearson correlation coefficient has been carried out. However, there is no significant relationship between size of environmental disclosure and company size (r =.11; p =.542). This means that the total assets of a company do not indicate the amount of the environmental information provided by the oil companies. Thus hypothesis 2, that stated that there is a positive relationship between the size on a company and the amount of environmental information disclosed, is not supported.
Company’s profitability and size of environmental disclosure. Also for profitability a Pearson correlation coefficient has been carried out to determine the way company‘s ‗profitability‘ and the ‗amount of environmental disclosure‘ are related. In this way, hypothesis 3 has been measured. However, the results indicate that there is no significant relationship between company profitability and the amount of environmental disclosure (r = -0,18; p = .323). For example, Bharat Petroleum India had a revenue of 44.582 billion dollars and an size of 3942 words to describe their environmental performance. However, China
29 National Petroleum Corporation who had a revenue of 352.338 billion dollar, used almost the same amount of words to communicate their environmental practices, namely 3998 words. Meaning that the more profitable a company is, does not imply that the more environmental disclosure is detected. Hypothesis 3, which states that there is a positive relationship between the profitability of a company and the amount of environmental information disclosed in the reports, has thus to be rejected.
When examining if the proposition that companies do not fully apply the GRI is also true for oil companies, the following results have been found. The research question associated with this is: ―To what extend are the GRI environmental indicators applied by oil companies?‖
Use of different guidelines. First of all, the use of Global Reporting Initiative guidelines (G3.1, G4 or none) has been tested with an One-Way-ANOVA to find significant differences between the three groups and the amount of environmental content congruent with GRI indicators (F = 6,23; p = .006). As the results indicates there is a significant difference between the appliance of a guideline and those who did not use the GRI guideline. Moreover, there is a significant relationship between the use of the G3.1 guideline and no use of one of the GRI guidelines (t = 3,95; p < .003). However, there is no significant relationship between the appliance of the G4 guideline and those who did not use a guideline (t = 1,93; p = .072). Furthermore, an independent T-test (Levine‘s T-Test) has been conducted to asses possible differences between the use of the G3.1 and G4 guideline. The results show that there is no significant difference between the use of the G3.1 and the G4 guidelines (t = 1,32; p = .204). Meaning that although, there are differences between the indicators as proposed by the G3.1 and the G4, these differences are not reflected in the content of the environmental disclosures of oil and gas companies. See Figure 2 for the diffusion of the use of G3.1 and G4 guideline.
30 Figure 2 The diffusion of the GRI guidelines
General score of oil industry on environmental indicators. In general, the 32 oil companies, applied 58% of the environmental indicators (M = 19,75; SD = 7,69). More specifically, in some of the environmental disclosures almost all the environmental indicators were presented. For example, Indian Oil Corporation engineered 32 environmental indicators out of the 34 indicators as proposed by the GRI. Also, Suncor Energy applied 30 indicators in their environmental disclosure, followed by Rosneft, ConocoPhilips and Reliance Industries with almost 82% of the indicators used in their environmental reporting. However, their were also some companies that scored low on the application of the environmental indicators. For example, Valero Energy, who only applied 8,8% of the environmental indicators. Other oil companies with a low score were China National Petroleum Corporation with 17,64%, Lukoil and Saudi Aramco with both 26,46% of the environmental indictors. An overview can be found in Table 2.
Diffusion of the environmental indicators. With regard to the diffusion of the environmental indicators it applies that the lower the mean per indicator, the less the indicator occurred in the environmental disclosure. ‗Transport‘ (M = 0,25; SD = 0,44), ‗Suppliers Environmental Assessment‘ (M = 0,19; SD = 0,31) and ‗Environmental Grievance Mechanisms‘ (M = 0,22; SD = 0,42) scored low indicating that these aspects were not often mentioned in the environmental reports. Aspects which did score high in the assessment were
31 ‗Emissions‘ (M = 0,77; SD = 0,25), ‗Energy‘ (M = 0,68; SD = 0,32), and ‗Water‘. Also the aspect ‗Overall‘ scored high (M = 0,66; SD = 0,48), meaning that oil companies in most of the cases mentioned the total environmental protection expenditures and investments.
To be more particular, the indicators that were the least mentioned in the environmental disclosures of oil companies are ‗percentage of new suppliers that were screened using environmental criteria‘ (M = 0,16; SD = 0,37), ‗percentage of products sold and their packaging materials that are reclaimed by category‘ (M = 0,22; SD = 0,42), ‗significant actual and potential negative environmental impacts in the supply chain and actions taken‘ (M = 0,22; SD = 0,42), and ‗number of grievances about environmental impacts filed, addressed, and resolved through formal grievance mechanisms‘ (M = 0,22; SD = 0,42).
The indicators that where most mentioned in the environmental disclosures of oil companies are ‗reduction of greenhouse gas (GHG) emissions‘ (M = 0,91; SD = 0,30), ‗energy consumption within the organization‘ (M = 0,88; SD = 0,34), and ‗direct greenhouse gas (GHG) emissions‘ (M = 0,88; SD = 0,34). This is in accordance with the most often called aspects, that were previously mentioned, such as ‗emissions‘ and ‗energy‘.
Overall tone. With regard to the environmental information provided by the oil companies, 56,3% of the oil companies had a positive overall tone. The other 43,8% had a neutral tone in their environmental disclosure. There was no evidence of companies reporting negative about their sustainability practices. An Chi Square Test has been carried out to examine this relationship. Although the environmental disclosure more often possess a positive overall tone in comparison with a negative and neutral overall tone, the differences were not significant (X² (2, N = 32) = 4.55, p <.05). Therefore, the fourth hypothesis which stated that the majority of the oil companies use an positive overall tone in their environmental disclosures, is not supported.
32 Positive, negative, and neutral indicators. The indicators were divided in positive, negative and neutral content (see Table 1). With regard to the positive indicators (M = 0,60; SD = 0,23), they were more mentioned than neutral indicators (M = 0,59; SD = 0,25), followed by negative indicators (M = 0,57; SD = 0,25). However, the differences are small and the results were not significant. A T-Test for Independent Differences between the positive and negative indicators has been conducted (t = 0,92; p = .366). The results show that there is no significant difference between positive and negative indicators. Meaning that the fifth hypothesis, which states that companies operating in the oil and gas industry highlight more positive environmental practices than negative practices in their environmental disclosure, is not supported.
Use of third party assurance. Of the 32 companies examined, 31% had no third party assurance (M = 0,51; SD = 0,17) and 69% did had a third party assurance (M = 0,66; SD = 0,20). Moreover, there is a significant relationship (t = -3,63; p < .05) between the reporting of third party assurance and the application of one of the guidelines (G3.1 or G4). Meaning that oil companies who apply one of the guidelines correctly, often have a third party assurance.
An independent sample T-Test was conducted to compare the application of environmental indicators for those companies with and those without third party assurance. There was a significant difference between those companies with third party assurance (M = 22,45; SD = 6,92) and those who did not have third party assurance (M = 13,80; SD = 5,88); (t (30) = -3,425; p < .05). These results suggest that the amount of indicators applied in the environmental disclosures of oil companies, has an effect on third party assurance. Hence, the sixth hypothesis, that stated that there is a difference between oil companies with third-party assurance and those without third-party with regard to the application of environmental indicators, is supported. Thus, when companies turn to third party assurance which determines
33 that the company has reported on the indicators correctly, value can be added to the environmental disclosure of these companies.
Conclusion
Communication is an often-overlooked component of both CSR practice and CSR research (Ziek, 2009). This is also reflected in the fact that companies do not properly use the guidelines provided for reporting on these practices. Building on this foundation, the present study focused on the application of one of the most important guidelines for sustainability reporting, the Global Reporting Initiative standard. The research was aimed at examining whether this guideline – with the emphasis on the latest guideline (G4) – was also poorly implemented in the environmental disclosures of oil and gas companies. Especially since these companies are operating in an environmentally sensitive industry and therefore exposed to high amounts of attention from various stakeholders. Expressing in all different kind of expectations on how the company should behave. Moreover, oil companies are well-known for their high levels of environmental disclosure which makes it plausible to suggest that these companies would apply the GRI guideline. Therefore, the primary aim of this research was to get insights on the application of the Global Reporting Initiative standards in the environmental disclosures of oil companies. In this way, this research wanted to find an answer to the question ―To what extent are the environmental disclosures of oil companies congruent with the environmental indicators as proposed by the Global Reporting Initiative?‖ However, before this could be examined it was of great importance to determine the extent and scope of environmental disclosure in the oil and gas industry.
Firstly, de extent to which oil companies report on environment information has been measured. The results showed that 50 percent of the 32 oil companies from the Fortune‘s
34 Global 500 list, presented the information on environmental performance in both the annual and sustainability reports. Yet, 44 percent of the companies provided this information in the sustainability report. There were only a few that used the annual report as a report for both financial and environmental information, and did not have an extra report. Previous research on the environmental disclosures of companies found that both profitability and size influence the amount of environmental disclosure. However, this research found no evidence to support these statements.
In order to determine the extent to which oil companies apply the GRI standard, the environmental disclosures, has been analyzed and assessed in accordance with the GRI G4 guidelines. However, this study found that oil companies apply 58% of the 34 environmental indicators. To be more specific, off the twelve environmental aspects, the performance on emissions, energy and water were among the most popular aspects to report on. Less often mentioned aspects were the environmental impacts of transporting products, materials and other goods, and the number of grievances with regard to environmental impacts. Also the percentage of new suppliers that were screened using environmental criteria, and actual and potential, negative environmental impacts, were not often reflected in the environmental disclosures. Besides, the percentage of products sold and their reclaimed package materials were not often mentioned. Furthermore, previously conducted research found that companies highlight more positive environmental practices than negative practices. However, - even though the majority did report in a more positive fashion, there was no significant evidence for this. Even after dividing the indicators in a positive, negative and neutral group, there was no significant result indicating that oil companies tend to communicate more about positive performance indicators. This study revealed that oil companies, who apply one of the G3.1 or G4 guidelines, often have a third party assurance. Which of the guidelines used, did not seem to matter for the extent the environmental indicators were applied. Moreover, third
