Master of Science in International Business & Management
Measuring Environmental Corporate Social Responsibility (ECSR)
in Europe: A comparison between European and US companies
Master Thesis by Inês Antunes Febra i.febra@student.rug.nl
S3067566
Supervisor: Prof. Dr. D. H. M. Akkermans Co-assessor: Prof. Dr. M. M. Wilhelm
ABSTRACT
In a fast-moving world where global environmental changes demand more attention, the concept of ECSR has been attracting great interest.
Increased environmental awareness has led companies to integrate environmental issues into their corporate decisions and operations.
The primary purpose of this study was to apply a transparent, valid and reliable ECSR instrument to 91 European companies from the chemicals, electronics and petroleum industry sectors. If the application had fulfilled the transparency, validity and reliability criteria, the secondary purpose of this study was to make a comparison of ECSR between European and US companies.
ACKNOWLEDGMENTS
Firstly, I would like to express my gratitude to my supervisor, Prof. Dr. Akkermans, whose expertise, vast knowledge and guidance made it possible for me to work on a topic in which I am greatly interested.
I would also like to express my special gratitude to my parents for the love, drive and unwavering support they have given me. They have always encouraged me to do my best and aim high. This would not have been possible without them.
I would also like to extend my gratitude to my fellow students and friends, Tamara, Judith, Regina, Sylvia and Niclas, for their kind and motivating words and for being always there with a helping hand.
Moreover, my deepest gratitude goes out to my Portuguese friends, and in particular to Jessica, for their endless friendship despite the physical distance.
LIST OF ABBREVIATIONS
Abbreviation Description
CDP Carbon Disclosure Project
CHP Combined Heat and Power
CSR Corporate Social Responsibility
E-PRTR European Pollutant Release and Transfer Register
EC European Commission
ECSR Environmental Corporate Social Responsibility EED Energy Efficiency Directive
EFA Exploratory Factor Analysis
EMAS Eco-Management and Audit Scheme
EPA Environmental Protection Agency
EPIs Environmental Performance Indicators
EU European Union
EU ETS European Emission Trading System
GHG Greenhouse Gas
GRI Global Reporting Initiative
IPIECA International Petroleum Industry Environmental Conservation Association
ISO International Organisation for Standardisation
OECD Organisation for Economic Co-operation and Development
SEC Securities and Exchange Commission
SEM Standard Error of the Mean
TRI Toxic Release Inventory
TABLE OF CONTENTS
1. Introduction …..……….………….6
2. Literature review and hypothesis development …..……….………8
2.1 Environmental efforts as opposed to environment scepticism and anti-environment lobbying ………...………8
2.2 CSR: a review ………...…..10
2.2.1 Implicit vs explicit CSR ………...………..12
2.3 ECSR: a review ………...13
2.4 The effects of stakeholders, institutions and awareness of negative environmental externalities on ECSR ………...………..16
2.5 Corporate reporting ………...……..20
2.5.1. CSR and environmental reporting: current trends ..………..20
2.5.2. Environmental reporting: regulatory instruments ……...………..22
2.6 The government role on environmental regulations …………...……….27
3. Methodology ………..……29
3.1 Research design ………...…...…29
3.2 Sample collection ………29
3.3 Measures and variables ………...………29
3.4 Data collection ………...…….32 3.4.1 Data accuracy 4. Results ………35 4.1 Transparency ………...36 4.2 Validity ………...……...……….36 4.3 Reliability ………37 5. Discussion of results ………...……..40 5.1 Validity………40 5.2 Reliability ………43
6. Conclusions and contributions to theory ……..………...………46
1. INTRODUCTION
The world-renowned environmental activist, Vandana Shiva, once said “Nature shrinks as capital grow”(Shiva, 2005). Over the past few years, environmental issues originated by corporate activity have become more evident all around the globe. As Bansal (2005) asserted, every company has a negative impact on the surrounding natural environment. Having acknowledged this fact, governments have been exerting greater pressure on corporate behaviour, by enacting rigorous environmental regulations, and other regulatory entities, such as the UN and OECD, have been actively promoting environmental awareness through various initiatives (Jenkins, 2005, Vogel, 2005: 6). As a result, companies are today more conscious of their negative impact on the environment and are increasingly engaged in environmental practices with the aim of ameliorating it (Thien, 2015; Welford, Chan, & Man, 2007). According to KPMG (2013), 87% of the world’s largest 250 companies recognise in their corporate reports the existence of certain environmental and social mega forces negatively impacting their businesses.
We live in a fast-paced world that is “undergoing unprecedented environmental and social changes” (KPMG, 2013: 10), which forces companies to adopt responsible practices to better address issues stemming from these alterations. In line with this, CSR arises as a highly relevant practice that greatly influences how companies conduct their businesses. This concept has significantly changed social and environmental corporate practices in US and Europe (Vogel, 2005: 3). CSR “has become one of the standard business practices of our time” (Tennant, 2015).
Given the “growing role of environmental sustainability” across companies from different industries (Babiak & Trendafilova, 2010), this study aims to deepen the understanding about the environmental dimension of CSR and to contribute to the growing body of ECSR literature. This will be done by closely investigating the extent to which European and US companies acknowledge the importance of integrating environmental matters in their business operations and by exploring their degree of involvement in ECSR practices.
recently become a topic of great interest due to the recent presidential election of Donald Trump, a politician who does not believe in the linkage between climate change and human activity (Harrington, 2016).
Despite extant literature and growing interest on understanding environmental corporate performance, a transparent, valid and reliable measure of environmental responsibility for European companies is lacking. Thus, the present work attempts to bridge this gap, by applying to European companies the only existing ECSR measure based on publicly available data that is both valid and reliable.
The ECSR instrument that is going to be used in this study is drawn from the “activity- and outcome-based measure of environmental responsibility”, previously developed by Rahman and Post (2012: 317). Since this measurement tool was initially designed based on US companies, it will be adapted to the European context of firms. Subsequently, its prevalence in terms of transparency, validity and reliability is expected to be found. Additionally, as a further contribution, this research also intends to compare the degree of ECSR between the largest European and US companies from the petroleum industry. It is key to understand to what extent large firms are involved in ECSR, given their “global scope and influence” (Vogel, 2005: 8). A comparison in terms of ECSR in the US and Europe is of particular interest because they are both two capitalistic societies dominated by powerful corporations that put significant pressure on the natural environment (Shah, 2001). In line with this, this comparison study will address the following question that, to the best of my knowledge, remains unanswered: Are European companies more environmentally responsible than US companies?
2. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT
2.1 Environmental efforts as opposed to environment scepticism and anti-environment lobbying
Together with China, the US is one of the worst polluters in the world. Back in 2000, representing only 4% of the world’s population, it accounted for 25% of the world carbon dioxide emissions (BBC News, 2000). Today, “the average American produces three times the amount of carbon emissions as a person in France” (YaleEnvironment360, 2009). Given these facts, one would expect an extremely active role in tackling climate change and environmental damage perpetrated by American authorities and corporate members. However, the US has attracted severe criticism for having refused to adhere to the Kyoto Protocol. This international agreement, settled in 1997, sets specific binding emission reduction aims to be achieved by the participating parties. By signing this treaty, countries, in particular industrialized and developed nations, are mandated to cut their GHG emissions (CNN, 2016). Although both the EU and the US signed this protocol in 1998, the latter opted for dropping it in 2001 (CNN, 2016).
The Kyoto Protocol came into effect in 2005 in Europe (UNFCCC, 2014) and the EU has managed to decrease nearly 20% of its GHG since the 1990s, having considerably overachieved its first commitment period target (2008-2012). As a matter of fact, EU GHG emissions “continue to follow the downward trend” (European Commission, 2016a), thus, being right on track to achieve its target for the second commitment period target (2013-2020).
appointing another climate sceptic, Scott Pruitt, to be the leader of the EPA, have already led to controversy and much criticism (Milman, 2016b).
The results of the US presidential elections may suggest that there is a high rate of environmental scepticism among American citizens. In line with this, various authors have recently claimed that the US exhibits a strong presence of environmental scepticism, especially when it comes to climate change due to human activity (Painter & Ashe, 2012; Roppolo, 2014; Warrick, 2015). Furthermore, an important term that should be linked to environmental scepticism is anti-environment corporate lobbying, i.e. the act of exerting influence on “policy formulation and decision-making with a view to obtaining some designated result from government authorities and elected representative” that goes against environment protection (Zibold, 2013: 1).
The interference of US companies on environmental regulations and climate policy has become more prevalent during the last few years, as they are given the right to participate “in national discussions on laws and regulations that might affect their industry” (UCS, 2012: 3). However, this freedom for corporate interference enables situations where companies invest heavily in lobbying and advertising campaigns. This is in order to convince regulatory authorities and lawmakers that certain environmental legislations restrict “the free market”, negatively impacting the economic growth in America (Loewenberg, 2003). Examples of US corporations that have been significantly involved in lobbying against climate initiatives and legislation are, for instance, Exxon Mobil Corporation, ConocoPhilips and Caterpillar Inc (UCS, 2012). These companies are some of the largest US corporations, who have used their strong influence and financial power to “block action on climate change” and “discredit climate science, despite public commitments to sustainable and green values” (Goldenberg, 2012). Thus, these powerful US corporations made use of the practice of greenwashing to come across as environmentally responsible organisations focused on reducing their negative impact on the environment.
changing the performance accordingly to improve results” (Hotten, 2015) and comply with federal emission levels. This was a serious law infraction that resulted in the release of air pollutants well above the limit allowed by US legislation (Gates, Ewing, Russell, & Watkins, 2016). Corporate lobbying has blocked EU action on this matter in the past. Back in 2007, the EU introduced legislation that would mandate testing for NOx emissions on the roads, rather than in laboratories. Nevertheless, due to lobbying from the automotive industry, the implementation of this legislation was delayed for 10 years; these rules are only meant to be enforced by the end of 2017 “at the earliest” (Oliver et al., 2015). Moreover, this scandal has revealed the importance of having appropriate environment-related legislation in place by all countries. Instead of shouldering the blame, the German authorities defended themselves by claiming that they “only had a mandate to oversee the current EU framework on NOx emissions through laboratory tests, and could not conduct their own on-the-road monitoring” (Oliver et al., 2015).
Despite this scandal, anti-environment corporate lobbying is, nevertheless, more limited in Europe. When it comes to interference on environmental legislation, “senior government officials are usually more highly regarded than are corporate executives” (Loewenberg, 2003). As David Vogel stated, ''in this new generation of environmental issues the E.U. is moving quite aggressively, while U.S. policy is stalemated'' (as cited in Loewenberg, 2003).
2.2 CSR: a review
The concept of CSR first appeared in the industrialisation era of the US at the dawn of the 20th century (Zhao, Song, & Chen, 2016). Nevertheless, it rapidly “garnered heightened attention in Europe” with the formation of the EU (Forte, 2013). In 2001, the Sustainable Development Strategy for Europe was ratified and states that “social cohesion, environmental protection, and economic growth must coexist” (European Commission, 2016a).
to CSR. They take critical environmental issues into their global business operations and have been increasingly using CSR as a pragmatic instrument to address them (Rashid, Khalid, & Rahman, 2014).
However, CSR is prone to change over time and has a “location-specific context” (Welford et al., 2007: 52). This means its implementation and understanding vary according to the geographical location and industry sector; it is, therefore, an “evolving” concept, rather than a static one (Lee & Carroll, 2011:116). In line with this, businesses based on different countries have distinct “levels of dedication to being perceived as socially responsible” (Maignan & Ralston, 2002: 4).
The EC describes CSR as a concept through which companies voluntarily act towards a “better society and a cleaner environment” (European Commission, 2001: 4). As a corporate practice, CSR comprises a set of “clearly articulated and communicated policies and practices of companies that reflect business responsibility for some of the wider societal good” (Matten and Moon, 2008: 405). Thus, CSR is said to establish a close link between business and society, which implies going “beyond business-as-usual and solely profit-centred business activities” (Thien, 2015: 84). Furthermore, David Vogel refers to CSR as a “business virtue”, claiming that it consists of “practices that improve the workplace and benefit society in ways that go above and beyond what companies are legally required to do” (Vogel, 2005: 2).
As CSR is becoming better understood and widely accepted, companies are increasingly embedding social responsible practices into their core business strategies (Danko, Goldberg, Goldberg, & Grant, 2008). This practice demands companies to find the right balance between economic performance and social and environmental performance (Williamson, Lynch-wood, & Ramsay, 2006).
environment and sustainable development as a key pillar of CSR. Unlike prior studies that have focused on the broad concept of CSR and investigated its trends across Europe and the US (Dam & Scholtens, 2008; Forte, 2013; Hartman, Rubin, & Dhanda, 2007; Tschopp, 2005), this study will explore the ECSR dimension among European and US companies.
However, before going into further details about ECSR, it is worth noting that the degree to which companies are involved in CSR can vary considerably from place to place. In line with this, Matten and Moon (2008) introduced two types of CSR - Explicit and Implicit – that will be elaborated in the next section.
2.2.1 Implicit vs explicit CSR
European and US companies embrace corporate sustainability and CSR practices in distinct ways and the differences are quite visible. Contrary to European companies, many US companies have been highly committed to social responsibilities by their own choice. They see social responsibility, i.e.an act of “giving back” to the surrounding communities, as one of their corporate obligations. Thus, CSR “is not addressed as a regulatory compliance issue but rather from a social and moral choice perspective” (TriplePundit, 2016). Furthermore, US companies are not as highly pressured by the government to adopt CSR practices (Danko et al., 2008) as European companies are.
CSR is a concept relatively new in Europe, which has only recently “begun to adopt the language and practice of CSR” (Matten and Moon, 2008: 404). Furthermore, it is not entirely up to the European company itself to decide whether to engage in CSR or not. “European corporations are sometimes mandated to perform a socially active role” (Danko et al., 2008: 45). Thus, while European countries and pan-European entities enforce certain regulatory actions on companies, voluntary CSR practices and actions are preferred in the US (Baughn, Bodie, & McIntosh, 2007).
is communicated differently through “codified norms, rules, and laws”, US companies that have an explicit approach to CSR “use the language of CSR in communicating their policies and practices to their stakeholders” (Matten & Moon, 2008: 410).
Although explicit and implicit CSR practices might be comparable, the intent behind them is distinct. While explicit CSR activities result from a joint decision, being carried out voluntarily and deliberately by companies (Matten & Moon, 2008), implicit CSR practices are a “response to the corporate environment” (Danko et al., 2008: 46). Hence, implicit CSR practices are seen as mandatory organizational practices that should be collectively adopted by companies. They are regarded as a set of values, norms and rules that companies should follow in order to “address stakeholder issues and that define proper obligations of corporate actors in collective” terms (Matten and Moon, 2008: 409). By contrast, explicit CSR consists of organizational practices carried out by companies having in view societal interests (Matten & Moon, 2008). This type of CSR entails programs, policies and strategies that result from deliberate corporate consensus. As it combines “social and business value”, is related to issues that are considered “part of the social responsibility of the company” (Danko et al., 2008: 46).
This way, the choice of engaging in CSR is merely voluntary, being down to each US organisation.
Lastly, it is also important to highlight that explicit and implicit CSR have different drives. While explicit CSR is “motivated by the perceived expectations of different stakeholders of the corporation”, implicit CSR is “motivated by the societal consensus on the legitimate expectations of the roles and contributions of all major groups in society, including corporations” (Matten and Moon, 2008: 410).
2.3 ECSR: a review
As only a handful scientists deny the existence of negative environmental externalities originated by intense industrial activity, the need “to improve our understanding of how firms behave environmentally” is becoming increasingly and widely recognised (Williamson, Lynch-wood and Ramsay, 2006: 139).
theoretical and empirical research per se has been quite limited. There are only a few studies that attempted to properly conceptualize, operationalize and measure this construct (Clarkson, Li, Richardson, & Vasvari, 2008; Ilinitch, Soderstrom, & E. Thomas, 1998; Jose & Lee, 2007; Lyon & Maxwell, 2008; Rahman & Post, 2012) or to distinguish it from social CSR (Baughn et al., 2007). In keeping with my research aim, I highlight four academic papers as being particularly relevant in measuring ECSR (see Appendix A). As Rahman and Post (2012) made a valuable and comprehensive contribution to the ECSR field by developing a transparent, reliable and valid ECSR measurement tool, their ECSR instrument serves as the groundwork for this study.
As reported by Vogel (2005:110), corporate environmental responsibility is not a clear-cut concept. Although there are different ECSR views and concepts, I highlight two definitions that I consider sufficiently concise and clear given the context of this study. Firstly, following Rashid et al. (2015), companies practise ECSR when they take into consideration the environment in their business practices and in their collaboration with the various stakeholders, without putting their economic performance at risk. As recently appointed by the authors, environmental concerns go well beyond the trade of eco-friendly products and services; they are inherently linked to the “underlying corporate culture, policy and practices that are unpinned by the holistic concern for the environment” (Rashid et al., 2015: 504). Secondly, ECSR was also described as voluntary environmentally friendly activities that go “beyond compliance, the private provision of public goods, or voluntarily internalizing externalities” (Lyon & Maxwell, 2008: 2)
2011: 208). Moreover, the authors also showed that companies belonging to the chemicals industry tend to disclose a higher number of ECSR governance mechanisms than electronics companies. Their results are interestingly in line with my research study, which allows to see if chemicals, electronics and petroleum companies in Europe disclose indeed more information related to ECSR credibility, governance and/or environmental performance indicators.
Furthermore, Walls, Berrone, and Phan (2012) explored a potential connection between corporate governance and environmental performance. Their results showed that the existence of environmental committees is positively correlated with environmental performance. Thus, companies engaging in environmental practices can benefit from having these committees because they “support firms’ environmental strengths by providing expertise and resources via board members” (Walls et al., 2012: 902). In addition, these committees can also minimize environmental issues by making board members aware of their importance. These findings are relevant for this study because the data collected will take into consideration if European companies have a department of pollution and/or if a senior management position for environment exists.
Other authors have also focused their research on environmental activities as practices encouraged by the multitude of stakeholders involved in business. Kassinis and Vafeas (2006) explored the link between stakeholder pressures and environmental outcomes, namely toxic releases by firms, at the plant level. Their results showed that stakeholders pressures influence positively pollution outcomes, and therefore, organisational environmental performance. Similarly, Guerci, Longoni and Luzzini (2016) stated that environmental performance can be enhanced by effectively answering to environmental-related pressures from stakeholders since it enables the development of core internal and external resources.
and Van Velthoven (2005) showed that, although the majority of European countries regards environmental reporting as a value-creating strategy, the quality of the content disclosed differs significantly across firms because is not strictly regulated and scrutinized. Furthermore, Hughes, Anderson, and Golden (2001) examined the relationship between environmental reporting and environmental performance among 51 US companies and showed that, curiously, the companies that disclosed more environmental data were the ones with a worst performance.
The aforementioned findings about environmental reporting are particularly germane for this research aim because the data highly relies on environmental information disclosed by companies.
2.4 The effects of stakeholders, institutions and awareness of negative environmental externalities on ECSR
It is important to understand the reasons why ECSR is increasingly becoming a widespread business practice and why companies across the world differ in their activities and behaviours towards the environment.
The negative impact on third parties (e.g. stakeholders) caused by companies has becoming progressively more evident after years and years of global intense industrial activity. One should not ignore that economic transactions, a major part of everyone’s life, have adverse consequences for the environment and, consequently, for the society as a whole. There are negative spillovers that stem from the production and consumption of goods and services.
of air pollutants emitted by companies. Nonetheless, although the governmental authorities in the US and Europe have regulatory mechanisms in place to limit the carbon pollution that results from intense industrial activity, this problem still occurs and at a large scale.
The blunt truth is that environmental damage as a result of human activity is not only a reality in these two continents, but all around the globe. Thanks to globalisation, “negative externalities in the form of environmental degradation are observed not only in the country where a product is consumed, but also in the countries where resources are extracted and processed” (Cohen & Winn, 2007: 40). Thus, the increased ECSR of companies reflects their effort to minimize the negative externalities on the environment and society.
There is a wide variety of stakeholder groups that influence corporate decisions (Guerci et al., 2016) and, due to the impact of their activities (Fadun, 2014), companies have responsibilities towards them.
Due to the global increased concerns about corporate environmental policies and issues, stakeholders are increasingly exerting scrutiny and pressure on companies to become more environmentally responsible (Jose & Lee, 2007; Orlitzky, Siegel, & Waldman, 2011; Ramanathan, Poomkaew, & Nath, 2014). This significantly affects both the nature of environmental practices adopted and their respective outcomes (Maignan & Ferrell, 2004). As a response to the increased concerns from stakeholders, many companies are already taking visible actions towards a more sustainable environment. For instance, companies in continental Europe are “voluntarily increasing the extent of their environmental disclosure in their annual report” (Cormier, Magnan, & Van Velthoven, 2005: 3)
Ferrell, 2004). In line with this, the stakeholder theory, in which this thesis is grounded, posits that “organisational survival and success” depends on the attainment of economic and non-economic (e.g. corporate social performance) goals, which is done by satisfying stakeholders needs (Rashid et al., 2015: 708). In order to succeed as both business units and an environmentally responsibly entities, it is crucial that companies make their best effort to adopt responsible practices that meet their stakeholders’ demands and expectations at environmental, financial and social levels; especially because primary stakeholders (i.e. company employees, suppliers and customers) are “an integral part of the production and consumption cycle where waste is generated” (Jose & Lee, 2007: 315).With that being said, CSR, in which ECSR is included, arises as a critical topic that “seeks to address the concerns of most of its stakeholders” (Hartman et al., 2007: 375). It “represents the duty to meet or exceed stakeholder norms defining desirable business behaviours” (Maignan & Ferrell, 2004: 6).
There is a multitude of actors facilitating and/or hampering the implementation of CSR activities and policies within organisations (Aguilera, Rupp, Williams and Ganapathi, 2007). Consequently, once different actors have different views, interests and concerns as a result of the institutional context where they are inserted in, the pressures to adopt certain practices, particularly environmental actions, that they exert on companies varies across regions.
order to gain legitimacy, companies need to comply with these pressures, the so-called “rules of the game” (North, 1990) that both restrict and enable certain corporate practices. They entail not only “the formal organization of government and corporations but also norms, incentives, and rules” (Matten & Moon, 2008: 406).
Isomorphic pressures are a factor that explains why explicit CSR is becoming a widespread practice in Europe (Danko et al., 2008). They create and diffuse “a common set of values, norms and rules” that are then implemented and followed by various companies (Delmas & Toffel, 2004: 211). As a result of these pressures, “standardized and rationalized practices in organizations across industries and national boundaries” are visible (Matten & Moon, 2008: 411). Companies tend to act responsibly “when normative standards, widely accepted by society, support such behaviors” (Babiak & Trendafilova, 2010: 13) and they are always subjected to institutional isomorphic pressures, regardless of their location. Thus, following the Institutional Theory, as posited by DiMaggio and Powell (1983), there is evidence to claim that the extent to which firms are committed to ECSR differs between Europe and the US due to their distinct institutional contexts. In other words, European and US companies are expected to differ in terms of ECSR “due to a variety of long- standing, historically entrenched institutions” (Matten & Moon, 2008: 406) that strongly influence their motivation and drive when it comes to “adopting socially responsible behaviors” (Babiak & Trendafilova, 2010: 13). Their ECSR commitment and organisational success are contingent on their ability to conform to the rules of the game and become isomorphic with the surrounding institutional environment.
Environmental reporting, a relevant practice given this study aim, is a great example of an environmental practice that companies take to answer to stakeholders demands (Amran et al., 2015) and to isomorphic pressures. It is a corporate activity determined “within an institution that provides stability and meaning to a firm’s particular course of action” (Cormier et al., 2005: 12). In this context, the results of this study are expected to show the degree of engagement in ECSR by European companies and reflect differences in terms of the quality and quantity of corporate environment disclosure.
sound measure, since it was designed based on American companies, it might not be applicable to companies located in other geographical areas. Their ECSR instrument was developed within a specific sample size that comprises a set of companies that possess certain characteristics and resources and that are embedded in an institutional environment that greatly determines their behaviour. Hence, due to this reason, I need to test if Rahman and Post’s (2012) ECSR measurement tool is still a transparent, valid and reliable measure when applied to European companies, which generally operate in a different way from US firms as suggested by DiMaggio and Powell (1983).
2.5. Corporate reporting
2.5.1. CSR and environmental reporting: current trends
The scope of CSR activities, such as non-financial reporting, differs across nations (Baughn et al., 2007; Dam & Scholtens, 2008). Moreover, the practice of CSR reporting reveals which aspects - environmental, social and/or financial - are most valued by companies. For instance, PwC (2011) showed that while 45% of European companies prioritize the addressing of environmental issues, focused towards environmental issues, only 26% of American companies are focused on them.
performance and goals (Tschopp, 2005).
Similarly to what happens with financial reporting, if firms were more open and transparent when it comes to the environmental practices they engage in, both their competitiveness and efficiency could be potentially enhanced (Delmas & Blass, 2010).
Environmental reporting is considered as an important CSR practice that is becoming increasingly more common among companies (Morhardt, Baird, & Freeman, 2002; Jose & Lee, 2007) and across every industry. In this context, aiming to disseminate the international harmonization and standardization of “corporate nonfinancial reporting” (Vogel, 2005: 69), the GRI developed a set of guidelines for sustainability reporting back in 2000. These guidelines intend to promote “responsible decision-making in businesses which affect the environment” (Guenther, Hoppe, & Poser, 2007). They are, currently, the most popular and commonly used reporting guidelines (KPMG, 2015) and, as a matter of fact, 82% of the 250 largest companies of the world adheres to this type of guidelines (KPMG, 2013). Subsequently, regarding environmental reporting, companies’ adherence to these guidelines is significantly encouraged and promoted by both European (e.g. CSR Europe) and American (e.g. CERES) organisations.
It is important to note that although more and more companies are disclosing environmental information in their reports, this is still not a practice fully embraced by every company. Tschopp (2005) investigated the differences in how the governments and companies of the US and the EU embrace this practice and showed that EU countries clearly outpace the US in terms of environmental reporting. Similarly, Hartman et al. (2007) also stated that environmental reporting is a more common corporate practice in Western Europe than in the US. In line with this, Jose and Lee (2007) suggested that the reason why US companies are not keeping the pace of European companies when it comes to environmental disclosures is their less strict regulatory requirements. Thus, it seems reasonable to assume that national regulatory entities, such as governments, play a major role in addressing this issue, which, subsequently, explains the considerable environmental reporting trends across European countries.
information reported differs across companies and geographical regions. Regarding the general quality of CSR reporting, European companies are the ones that score the highest (KPMG, 2013). Concerning the type of CSR information, it is a common practice for European companies to report on carbon emissions, disclosing in their annual reports the targets they set for carbon reductions and publishing the progress (i.e. how far or close they are to reach those targets) (KPMG, 2015). By contrast, for US firms this is a topic that they are least likely to report on. They are more likely to highlight their commitment to CSR principles and codes of ethics instead (KPMG, 2015).
Finally, it is also worth noting that as previous studies suggested, environmental reporting is higher in some industries than in others. Jose and Lee (2007) showed that, when compared to other industries, environmental reporting is a more common practice among Chemicals and Electronics firms. Additionally, Guenther et al. (2007) stated that environmental reporting is also higher in the Petroleum industry.
2.5.2 Environmental reporting: regulatory instruments
Table 1 Main Regulatory Instruments for Environmental Reporting
EU tools US tools Reporting
EMAS No equivalent instrument Environmental performance (in general terms)
EU ETS Climate Risk Disclosure;
Mandatory Greenhouse Gas Reporting Rule
Environmental Performance regarding GHG emissions.
EU Accounts Modernisation Directive
Sarbanes-Oxley Act Environmental Performance (Financial performance is also included)
E-PRTR TRI Environmental performance
regarding releases of off-site transfers (hazardous waste included) and of pollutants and specific substances into the soil, water, air
EED No equivalent instrument Environmental performance
regarding energy consumption EU’s directive on disclosure
of non-financial information 2014/95/EU
No equivalent instrument Environmental performance regarding use of renewable/non-renewable energy, GHG emissions, water consumption and air pollution
When it comes to Europe, there are several regulating instruments related to the reporting of sustainability information and some EU member states have additionally imposed legal requirements on the disclosure of non-financial information. However, the adoption of legal standards is oftentimes up to the company itself and the disclosure of non-financial data, in particular of environmental information, is strictly obligatory in limited cases (CSES, 2011). Thus, even though European companies, especially the ones that are public and of large size, are highly encouraged to include environmental information in their corporate reports, they are relatively free to do so (European Commission, 2016b).
The EC has enacted three relevant environmental directives (2003/51/EC, 2012/27/EU and 2014/95/EU) that require companies to disclose non-financial information and it has also introduced several instruments oriented towards environmental protection.
report and improve their environmental performance” (van Wensen, Broer, Klein, & Knopf, 2011: 53). This instrument was revised in 2010, originating EMAS III, and it now requires companies to report environmental information based on six key performance indicators: energy efficiency, material efficiency, water, waste, biodiversity and emissions. According to EMAS III, companies “should make periodic environmental statements publicly available” and report their environmental performance on the indicators aforementioned (van Wensen et al., 2011). Additionally, it is in Europe where the “first and biggest international scheme for the trading of greenhouse gas emission allowances” was introduced: EU ETS (van Wensen et al., 2011: 53). This tool is unique in terms of “comparability and transparency” and it was created in 2005 with the aim of fighting climate change and minimizing the GHG emissions from industry sectors in a costly effective manner (European Commission, 2016). The ETS is present in all EU Member States, imposing a limit on the carbon emissions “from more than 11,000 heavy energy-using installations” and covering almost half of the EU’s GHGs (European Commission, 2016). Another relevant environmental regulation is the E-PRTR that was introduced in 2006. It stipulates that companies involved in certain activities have to disclose their emissions of pollutants and specific substances and it is “the European-wide register of industrial and non-industrial releases into air, water and land, as well as off-site transfers of waste water and waste” (van Wensen et al., 2011: 52).
Another relevant directive in Europe is the directive 2014/95/EU that mandates large companies shall publish a non-financial statement comprising environmental information related to “current and foreseeable impacts of the undertaking's operations on the environment” as well as to “the use of renewable and/or non-renewable energy, greenhouse gas emissions, water use and air pollution” (European Commission, 2016). The disclosure of non-financial information is required on a “comply or explain basis” and this legislation is not directly applicable to companies in the US (Taylor, Reed, & McNaughton, 2015). It is estimated that approximately 6,000 large European companies will be subject to this type of reporting for the financial years that start in 2017 (Tennant, 2016).
When it comes to the US, the two following bodies stand out in terms of spreading environmental awareness and imposing strict regulations on sustainability reporting: SEC and EPA.
SEC exerts a close monitoring on American publicly listed companies and foreign companies, which are mandated to disclose “information related to environmental risks or legal proceedings on environmental matters”. Companies in the US are also required to publish their annual reports on their websites so they can be easily accessed by everyone (SEC, 2014). In 2002 and after numerous corporate scandals, the US Congress passed the Sarbanes-Oxley Act that sets out rules, with which public companies must comply. According to these rules enforced by SEC, senior managers should ensure that there are mechanisms in place “to transmit environmental information to the top, that environmental disclosures comply with periodic and annual reporting requirements and that environmental liabilities are accurately reflected in the financials in accordance with generally accepted accounting principles” (Hansen, 2008: 17). However, SEC has been subject to criticism “for not taking on a broader role and responsibility for sustainability disclosure” (van Wensen et al., 2011: 66). It seems like the requirements imposed are oriented towards the smooth functioning of capital markets and investors protection, rather than towards ECSR.
Furthermore, EPA also introduced two regulations on environmental reporting– TRI and Mandatory Greenhouse Gas Reporting Rule - as described below.
wide number of companies, i.e. they need to have at least 10 full-time employees, belong to a specific industry sector that generate or use a listed toxic chemical in quantities that are equal or superior to the threshold imposed in that given year. Furthermore, EPA also enacted the Mandatory Greenhouse Gas Reporting Rule in 2009. Under this regulation, all companies in the US that emit large quantities of GHGs are required to disclose their emissions. This rule allows to see which companies are the largest sources of GHGs and promotes the introduction of policies and initiatives that reduce air emissions and fight climate change (Delaware.gov, n.d.).
Another relevant regulation that sets out corporate guidelines for environmental disclosure is the 2006 Global Framework for Climate Risk Disclosure. This initiative launched by CERES and by the CDP requires companies not only to report their total GHS emissions but also to “perform a strategic analysis of climate risk and emissions management, assess the physical risks of climate change, and analyse the risks of regulation at the state, local, and national level” (Wagner, 2009: 154). These requirements are applicable to several contexts of reporting, such as financial reports and voluntary CSR reports that comprise environmental aspects as defined by the GRI guidelines. However, as stated by Creel (2010), the environmental legal standards are stricter outside the US. The EC has recently been having an active role on promoting the adoption of environmental reporting practices among companies in Europe. This has been done through the imposition of mandatory guidelines and directives related to environmental disclosures by companies.
While Europe has been taking a more proactive role towards environmental protection, having more regulations in place to avoid further environmental harm, the US has been more passive, imposing regulations and measures as a response to problems (Loewenberg, 2003). As a result of this passive behaviour, American environmental policies have been receiving heavily criticized (Tschopp, 2005) for their lack of enforcement and effectiveness.
2.6 The government role and environmental regulations
As pointed out by Kolk (2003), companies’ degree of commitment in addressing environmental concerns is directly related to the regulatory requirements imposed by governments. Governments, in Europe and in the US, have been encouraging companies to engage in environmental practices in order to reduce their negative impact on the natural environment (e.g. high emission of greenhouse gas to the atmosphere). However, if we go considerably back in time, the reality was different.
As John Dryzek et al. stated, during about three decades (1969-1990), the US was the global leader in environmental policy, being then followed by various countries that imitated their policies and initiatives (as cited in Vogel, 2012: 3). In the early 1970s, the US assumed the role of a leader and worked closely with the EU member countries in the creation of environment-related agreements (Vogel, 2012: 6). However, the current reality is somewhat reversed. According to Bruyninckx (2015), when it comes to environmental regulations, Europe is today the global leader. The author stated that, during the last four decades, “Europe has developed the most comprehensive, ambitious and binding environmental legislation existing anywhere today”. Furthermore, Vogel has also argued that in fact, it was just until the 1990s that US companies were more heavily regulated in terms of “health, safety, and environmental risks” than European companies.
percentage of corporate funds allocated to environmental impacts is also higher in Europe (PWC, 2011).
With this being said, it looks like the US is “lagging behind many European countries that have made great strides” in the direction of a more environmentally sustainable world (Tschopp, 2005: 58). Hence, in line with previous research, there is considerable anecdotal evidence to believe that European companies are more engaged in ECSR than US companies and, thus, the following testable hypothesis is advanced: Hypothesis: European companies score higher in ECSR than US companies.
3. METHODOLOGY
3.1 Research design
The current study builds on the previous work from Rahman and Post (2012). These authors developed the first ECSR measurement tool that relies solely on data that is freely and publicly available online. They designed this ECSR measure based on the 112 largest American companies from the Chemicals, Electronics and Petroleum industries. Rahman and Post (2012) proposed a composite metric operationalisation of ECSR based on the content analysis index developed by Clarkson et. al. (2008).
Rahman and Post’s (2012) ECSR measure will be applied to European companies, focusing only on three ECSR dimensions that were tested and proven to be valid and reliable. These three dimensions comprising 22 items are: ECSR-Governance, ECSR-Credibility and ECSR-Environmental Performance Indicators (see Appendix C).
If the application of the ECSR instrument in Europe proves to be equally valid and reliable, the hypothesis will then be addressed by comparing the ECSR scores of the European petroleum included in the sample to the US petroleum firms included in Rahman and Post’s sample.
3.2 Sample selection
The sample comprises the largest European companies from the Chemicals, Electronics and Petroleum industries, as ranked by the Financial Times from 2007 to 2015, inclusive. It includes 28 Chemicals firms, 21 Electronic firms and 46 Petroleum firms. From this total of 95 firms in total, two petroleum firm and one chemicals firm were removed because, in the timeframe of collection of data, they merged with other three firms that were also part of the initial set of companies. In addition, another petroleum firm was also removed from the original sample due to its recent acquisition by an Asian corporation being, therefore, no longer a European company. Subsequently, the final sample of this study comprises 91 European companies.
3.3 Measures and variables
Independent Variable: Companies’ involvement in ECSR initiatives and practices to minimize their environmental. In order to measure this variable, I accessed the Orbis database (Bureau Van Dijk, 2016), corporate websites (i.e. companies, environmental organisations and initiatives), an excel file with the GRI reports list of companies, codes of conduct and corporate reports (i.e. annual reports, sustainability and environmental reports, CSR reports). For the information needed, I checked the companies’ adherence to GRI reporting guidelines and to the ISO14001 environmental standard, their participation in environmental organisations and initiatives, as well as the reports and environmental information they disclose to the public. The corporate reports that were analysed were the ones most recently published (in the majority of cases pertaining to the year 2015).
Dependent Variables: Governance, Credibility and ECSR-Environmental Performance Indicators. As Clarkson et al. (2008) noted, the first ECSR category of governance pertains to information disclosed about the governance structure and management systems that a firm has in place towards environmental protection. To give an illustrative example, firms that have a system that rewards executives based on the achievement of certain environmental goals or that are certified to the environmental standard ISO 14001 will let their stakeholders know of such environmental efforts.
environmentally-conscious business partners and customers.
These three ECSR categories capture “hard” data that firms disclose as evidence of their environmental commitments. This demonstrates to institutional actors the extent to which they are environmentally responsible entities (Behram, 2015; Clarkson et al., 2008).
Total ECSR Score. After assigning a specific score to each one of the items and for all companies, a total score will be computed for Governance, ECSR-Credibility and ECSR-Environmental Performance indicators. Subsequently, based on these three scores, a cumulative final ECSR-score will be obtained for each company. Hence, the higher the three types of ECSR-scores, the higher the total ECSR score. Consequently, the more environmentally responsible the company is in their practices.
Having a scoring system that uses a dichotomous dummy variable seems appropriate as it has been used in several studies that carried out a content analysis ( de Villiers, Naiker, & van Staden, 2011;Gubbi & Elango, 2016) Semenova & Hassel, 2015).
Control Variables: Size, Industry and Location. This study will consider firm size (i.e. large), industry type (i.e. Chemicals, Electronics, Petroleum) and geographical location (i.e. Europe) as control variables. As cited in Jose and Lee (2007), these variables account for the most relevant factors affecting voluntary environmental reporting.
Industry type. Investigating three types of industry provides a better and more accurate idea of the importance placed in ECSR by European companies. These three industries are believed to have a relatively high negative impact on the natural environment (Birkey, Michelon, Patten, & Sankara, 2016; Hart, 1995; Ilinitch et al., 1998), and thus it becomes important to understand how they perform in terms of their commitment towards ECSR.
The choice of petroleum firms for the comparison between Europe and the US was motivated by the argument of Birkey et al., who stated that this is an environmentally sensitive industry and it is therefore “deemed to have more negative impacts on the environment” (Birkey et al., 2016: 147). This industry discloses a significant environmental information, which is crucial given the aim of this study. As cited in Guenther et al. (2007), extractive industries register the highest environmental reporting rate. Moreover, the industry of petroleum has “more established norms than others on environmental reporting” (Rahman & Post, 2012: 317), which makes it an appropriate sector to analyse in more detail.
Geographical Location. The choice of Europe for my sample of companies is motivated by the evidence of intense business activity, high rate of environmental reporting and great efforts in addressing environmental issues.
3.4 Data collection
assigned a binary variable (i.e. 0 or 1) to reflect whether the company meets the specific criterion or not. For instance, to investigate if the companies are involved in global or national initiatives to improve their environmental practices (item 8 of the ECSR-credibility category), I will identify five environmental organisations and look for the companies’ names in their respective websites (see Appendix C and D). If the companies participate in the specific environmental initiatives, then they receive 1 point and 0, otherwise. After collecting all the necessary data, statistical analyses will be performed using the SPSS software program to test for both reliability and validity.
3.4.1 Data accuracy
The results of this study are based on the assumption that the scores obtained for the various European companies reflect their degree of ECSR. Below I describe methods for circumventing issues that influence the accuracy of scores.
Different sources used
The application of Rahman and Post’s (2012) instrument in Europe must allow for comparisons between European and US companies and should be based on equivalent sources of information. As a way of coping with the issue that many of the sources that the authors used are not applicable to European companies, I found sources that are as similar as possible to theirs. Naturally, this led to changes in the items’ descriptions. Also, some of the items were changed for clarity reasons. For example, Governance item 4 “Does a Department of pollution and/or senior management position for environment exist?” was changed to “Does a Department of pollution and/or senior management position related to environmental protection exist?”. Nevertheless, these changes had no impact in the content that was looked for and, therefore, the 22 items used in this study capture the same environmental-related data as the ones used by Rahman and Post (2012).The differences in the items, sources, keywords and scoring method used can be found in detail in Appendix D.
Different regulations and guidelines for environmental reporting
Due to different instruments and corporate governance codes establishing reporting guidelines, one can expect that the type, quality and extent to which environmental-related information is disclosed varies across companies in Europe and US.
an extensive content analysis of the information disclosed by the 91 European companies of my sample and scored them twice in terms of Governance, ECSR-Credibility and ECSR-Environmental Performance Indicators.
Possible different way of scoring
4. RESULTS
The results showed that the companies that adhere to GRI reporting guidelines (approximately 79.1%) score higher in terms of ECSR-Environmental Performance Indicators than the companies that do not follow these guidelines. Concerning the retest scores, descriptive statistics for the total sample, for each separate industry and for the 22 items concerned are shown in Table 2 below (see Appendix B for the individual scores specific to each one of the companies).
Table 2: Descriptive Statistics
N Std dev Mean Minimum Maximum
Total Sample of companies 91
4.1 Transparency
By applying Rahman and Post’s (2012) ECSR measure in Europe, its transparency was not compromised since this instrument still relied on data disclosed in corporate websites, in company reports, in codes of conduct and in other documents found online. Everyone can easily access the information that I used in this study, since it can be retrieved from online and publicly available sources.
4.2 Validity
Following Rencher (2002), a EFA was conducted to test for discriminant validity of the ECSR instrument.
Before running the EFA, the suitability of the 22 items was assessed by calculating KMO and Bartlett tests. The results of both tests confirmed their suitability. The KMO statistics value (KMO= .82) was significant and well above the recommended .50 level (Kaiser, 1974). The Bartlett’s test of sphericity was also significant (p < .001).
For the EFA, Principal Component Analysis with varimax rotation was firstly used. The results identified 22 linear variables, in which six of them capture more than two thirds (63.82%) of the original information. More importantly, three of these six items explain nearly half of the total variance (≈47.72%).
The rotated results (shown in the rotated component matrix) identified five items that load significantly on two factors (i.e. Credibility1, Credibility5, EnvPerformance1, EnvPerformance2, EnvPerformance5 and Governance5) items (see Appendix E). As these significant cross-loadings suggest problems of discriminant validity (Hair, Ringle, & Sarstedt, 2011), they were removed and the EFA was conducted again. The deletion of these items originated another cross-loading – Governance4 item - which, after being equally removed, subsequently led to other three cross-loadings (i.e. Credibility11, Credibility3, EnvPerformance4). They were also removed and the total variance explained by three items increased to 57.86%.
held together and appeared to be measuring the same construct.
To further test for discriminant validity, a Principal Component Analysis with direct oblimin rotation was used. In terms of total variance explained, the results were the same.
The Pattern Matrix (rotated results) showed that Governance3 loads significantly on component 2 and 6 and that EnvironmentalPerformance2 loads highly on components 1 and 4 (see Appendix F). Thus, as an attempt to improve the discriminant validity of the subscales, they were removed and the EFA was repeated. Consequently, this led to an additional cross-loading - EnvPerformance5 - which was also removed.
With the removal of the total of three items (in two phases), 60.84% of the total variance is now explained by four items. Three of these four items explain 48.79% of the total variance. Although the deletion of the variables led to a “cleaner” factor structure with no cross-loadings, there is still no evidence of discriminant validity. Governance, Credibility and EnvPerformance that were assumed to be measuring different constructs, loaded high on the same construct.
That being said, The Principal Component Analysis with both varimax and direct oblimin rotations did not test favourably for discriminant validity. None of the rotation methods showed maximum dispersion of loadings within factors (Campbell & Fiske, 1959). Thus, the lack of discriminant validity indicates that the ECSR instrument applied to Europe has redundant items. Several items that were assumed to be unrelated are actually measuring the same ECSR category.
4.3 Reliability
In order to examine the test-retest reliability, the entire sample of companies was scored twice, with nearly a 1-week time interval for all of them. This method was used to evaluate the consistency of my results with the passage of time.
consequently shows that my scores proved to be consistent over time. Additionally, the paired sample t-test has also provided the SEM, a value that allows to quantify the precision and accuracy of my ECSR scores (Weir, 2005). As low values of SEM indicate high score accuracy, I can assume that the closer to zero it is, the more accurate are my scores. Since my SEM was .05, as displayed in Table 3, the scores that I obtained, given the measures taken into account in this study, reveal a high reliability and precision.
Table 3: Results of Paired Sample T-Test
N Mean R SEM Sig. (2-tailed)
TotalECSRtest-TotalECSRretest
91 - 0,033 0,996 0,05 0,470
* p > .05
Nevertheless, as there are other factors that might influence the accuracy of my scores this reliability test is not considered as sufficient. Consequently, the internal consistency of my ECSR measure was also tested by calculating the Cronbach’s alpha for the 22 items within the ECSR categories. This reliability test is appropriate as it shows how closely the 22 items are related as a group.
Cronbach’s alpha value for the five Governance items was .50, for the eleven Credibility items was .76 and for the six Environmental Performance items was .84. I removed item 3 of the ECSR-Governance category in order to have an acceptable Cronbach’s alpha value (see Appendix G). These values fall within satisfactory levels, testing favourably for internal consistency reliability.
5. DISCUSSION OF RESULTS
In order for the ECSR instrument to be of value and of use in Europe, it must be both valid and reliable. These two qualities of an instrument are independent of each other (Carmines & Zeller, 1979) and they will be examined in the two sections below.
5.1 Validity
To assess the discriminant validity of the ECSR instrument, an EFA was conducted in SPSS to see if there are items that appear to be measuring the same construct. Discriminant validity refers to the degree to which the items in different subscales are distinct and, therefore, measure different constructs (Hair et al., 2011). Thus, testing for discriminant validity shows the extent to which the ECSR categories (i.e. ECSR-Governance, ECSR-Credibility and ECSR-Environmental Performance Indicators) that are supposed to be unrelated are actually unrelated.
To start exploring the dataset, Principal Component Analysis was chosen as the extraction method and orthogonal rotation (i.e. varimax method) was used. This type of rotation is appropriate because it allows the factors to correlate, instead of assuming that the factors are uncorrelated, which is an unrealistic assumption.
The rotated results provided by the Rotated Component Matrix and the unrotated results shown in the Component Matrix were analysed (see Appendix E). Both matrices showed that Governance, Credibility and EnvPerformance items load high on various factors when they should supposedly be measuring only one factor (i.e. only one ECSR category). For example, the rotated results showed that while the governance2 item loads highly on component 1, the governance 1 and 5 items load highly on component 4. As they are part of the same set of variables, they should only be measuring one factor that is not measured by any other variables.
EnvPerformance items that correlate highly with this same Component 1. This situation is not ideal because items that hold together are measuring the same construct, rather than different constructs. In line with this, the strong correlation that is most obviously seen among the Credibility and EnvPerformance items indicates that they are measuring the same thing.
The measurement items are supposed to have a weak correlation with all the constructs except for the one to which they are theoretically linked (Gefen & Straub, 2005). Thus, as an attempt of improving the discriminant validity, all the cross-loadings, which are items that load highly (≥ .32) on two or more factors (Costello & Osborne, 2005), were removed (Hair et al., 2011). The deletion of all the cross-loadings (i.e. Credibility1, Credibility5, EnvPerformance1, EnvPerformance2, EnvPerformance4, EnvPerformance5, Governance4, Governance5, Credibility11, Credibility3) did not show evidence of discriminant validity. The correlations between constructs are not low as one would expect in the presence of discriminant validity (Steenkamp & van Trijp, 1991).
To further investigate whether discriminant validity was indeed absent from the ECSR instrument, principal component analysis with oblique rotation (i.e. direct oblimin method) was also used. This type of rotation does not allow factors to correlate, assuming that they are uncorrelated (assumption relaxed in the varimax method).
As shown in Appendix F, for the rotated solution, the pattern matrix contains the item loadings, whilst the structure matrix shows the correlations between the factors and the items. If the factors are uncorrelated, the two matrices should have been the same, which was not the case.
The Pattern Matrix was closely analysed for the existence of cross-loading and seemingly to what was done with the Varimax method, they were removed (i.e. Governance3, EnvPerformance2, EnvPerformance5). The deletion of the three items did not show evidence of discriminant validity.
in terms of number of items, Rahman and Post’s (2012) measurement tool is not valid when applied to European chemicals, electronics and petroleum companies. The 5 Governance items, 11 Credibility items and 6 EnvPerformance items do not measure what they purport to measure. As a result, the ECSR instrument does not hold favourably for discriminant validity.
As the research aim was not to develop a new ECSR measure but to apply it to European companies and test its validity and reliability, I employed the three ECSR categories and items used by the Rahman and Post (2012). However, since my sample was smaller and the geographical context was different, the ECSR dimensions and items may not all be appropriate and relevant, which consequently affects the quality of my measure in terms of validity. If my sample of companies was larger, my ECSR would have a higher chance of being valid. Furthermore, companies situated in Europe may not engage with as many environmental organisations as US companies. Thus, if this is the case, the credibility items are not all relevant.
I was not able to test all the dimensions and items, as Rahman and Post (2012) did, due to two main reasons: lack of information about the dimensions and items they used and limited amount of time. However, since my results did not confirm the existence of validity, a possible way of ensuring statistically more significant results is to use a more comprehensive ECSR instrument that possibly includes other dimensions. As advanced by Clarkson et. al (2008) and Rahman and Post (2012) there are six ECSR dimensions: governance structure and management systems with six items; credibility with fifteen items; environmental performance indicators with six items; environmental vision and strategy with one item; environmental spending with four items and internal environmental initiative items with three items. They should be tested for validity to see which ones are relevant and appropriate to assess the ECSR of European companies.
from continent to continent, but also within the same continent. While environmental disclosure in corporate reports is a mandatory and common practice for companies in Norway and Sweden, companies in Germany are required to have a Corporate Governance Code, where information about their environmental policies and actions is disclosed (Baughn et al., 2007). As companies in Europe follow reporting rules accordingly to the country in which they are based, the way environmental data is disclosed differs as well as the degree to which it can be easily accessed. Thus, I acknowledge that I might have wrongly assigned a “0” to some of the items when analysing certain companies. However, not because that specific information was not disclosed but simply because it was not divulged where I assumed it would be and where American companies list it (i.e. annual and environmental-related reports and corporate websites). Subsequently, if the scores of certain items are not correctly assigned to companies, one cannot expect them to measure the ECSR level that they are supposed to measure.
Another factor that might have influenced the validity of the credibility items was the choice of different initiatives and organisations designed to promote greater environmental awareness and improve corporate environmental practices.
Even though I tried to identify environmental initiatives and organisations that are oriented towards the same goals, they are not the same as the ones used by Rahman and Post (2012). Hence, their degree of effectiveness, popularity and consequent adherence from European companies varies. The fact that some of them do not count on the participation of a considerable number of European companies (e.g. EUROPEN) indicates that their choice was not the most adequate one. Consequently, the ability of the credibility items to measure the companies in terms of ECSR-Credibility and ensure valid results is undermined.
5.2. Reliability
