Environmental accounting disclosures of Australian oil and gas companies

Transcription

1 University of Wollongong Research Online University of Wollongong Thesis Collection University of Wollongong Thesis Collections 2012 Environmental accounting disclosures of Australian oil and gas companies Eltaib Elzarrouk Eltaib University of Wollongong Recommended Citation Eltaib, Eltaib Elzarrouk, Environmental accounting disclosures of Australian oil and gas companies, Master of Accounting - Research thesis, School of Accounting and Finance, University of Wollongong, Research Online is the open access institutional repository for the University of Wollongong. For further information contact the UOW Library: research-pubs@uow.edu.au

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3 UNIVERSITY OF WOLLONGONG Environmental accounting disclosures of Australian oil and gas companies A thesis submitted in fulfilment of the requirements for the award of the degree of Master of Accounting (Research) From the University of Wollongong By Eltaib Elzarrouk Eltaib School of Accounting and Finance 2012 i

4 Thesis certification I, Eltaib Elzarrouk Eltaib, declare that this thesis, submitted in fulfilment of the requirements for the award of Master of Accountancy by Research, in the school of Accounting and Finance, University of Wollongong, is wholly my own work unless otherwise referenced or acknowledged. The document has not been submitted for qualifications at any other academic institution. Eltaib Elzarrouk Eltaib ii

5 Contents Thesis certification... ii Contents... iii List of tables... viii List of Figures... x List of the Abbreviations... xii Abstract... xiii Acknowledgment... xv Chapter 1. Introduction Background Theoretical framework Research Methodology Thesis structure Conclusion Chapter 2. Literature review A general overview of environmental accounting The pattern of corporate environmental disclosure Mandatory disclosure Voluntary disclosure Ongoing research in environmental accounting literature iii

6 2.4. Empirical research in environmental disclosure Environmental disclosure in Australia Conclusion Chapter 3. Theoretical framework Brief Introduction General discussion of legitimacy theory Social contract Social expectations Corporate reports and communicating legitimation tactics Environmental disclosure as a response to the public expectations Implication of legitimacy theory in environmental accounting research Conclusion Chapter 4. Research design Brief introduction of extractive industry Sample selection: Content analysis: Unit of analysis Coding frame Coding categories Coding the level of information Coding the type of information iv

7 Disclosure measurement Conclusion Chapter 5. Application of content analysis Woodside Petroleum Company Origin Energy Santos Oil Search WorleyParsons Karoon Gas Australia Aurora oil and Gas Beach petroleum AWE Eastern Star Gas Conclusion Chapter 6. Conclusion Conclusions about the research question The key focus of the environmental disclosures The level of detail and the type of information (financial and non-financial) The applicability of legitimacy theory The association between the size and the corporate environmental disclosure v

8 6.2. The contribution of the study to the body of knowledge Contribution to the academic literature in the area of environmental disclosure Contribution to the methodology Limitations of the study Limitations of sample selection Limitations of data collection Future research Final word Reference list Appendixes Appendix 1: Environmental Performance Indicators of Sustainability Reporting Guidelines (GRI) Appendix 2: content analysis categories used by beck et al. (2010) Appendix 3: Content analysis categories used by Hackston, D. and Milne, M. J. (1996) Appendix 4: Analysis of individual year Woodside Petroleum Company Limited (WPL) Origin Energy Company Limited (ORG) Santos Company Limited (STO) Oil Search Company Limited (OSH) Worleyparsons Company Limited (WOR) vi

9 6. Karoon Gas Australia Company Limited (KAR) Aurora Oil & Gas Company Limited (AUT) Beach Petroleum Company limited (BPT) AWE Company Limited (AWE) Eastern Star Gas Company Limited (ESG) vii

10 List of tables Table 4.1: Companies list Table 4.2: The Categories of Content analysis Table 4.3: The level of information or detail of the disclosure Table 4.4 Type of information Table 5.1: Environmental disclosure of Woodside Petroleum ( ) Table 5.2: level of details of disclosure (LDS) of Woodside Petroleum Company Table 5.3: Type of disclosed information (Financial- Nonfinancial) of Woodside Petroleum Company Table 5.4: Environmental disclosure of Origin Energy ( ) Table 5.5: Level of details of disclosure (LDS) of Origin Energy Table 5.6: Type of disclosed information (Financial- Nonfinancial) of Origin energy Table 5.7: Environmental disclosure of Santos ( ) Table 5.8: Level of details of disclosure (LDS) of Santos Table 5.9: Type of disclosed information (Financial- Nonfinancial) of Santos Table 5.10: Environmental disclosure of Oil Search ( ) Table 5.11: Level of details of disclosure (LDS) of Oil Search Table 5.12: Type of disclosed information (Financial- Nonfinancial) of Oil Search. 121 Table 5.13: Environmental disclosure of WorleyParsons ( ) Table 5.14: Level of details of disclosure (LDS) of WorleyParsons Table 5.15: Type of disclosed information (Financial- Nonfinancial) of WorleyParsons Table 5.16: Environmental disclosure of Karoon Gas Australia ( ) Table 5.17: Level of details of disclosure (LDS) of Karoon Gas Australia viii

11 Table 5.18: Type of disclosed information (Financial- Nonfinancial) of Karoon Gas Australia Table 5.19: Environmental disclosure of Aurora oil and Gas ( ) Table 5.20: Level of details of disclosure (LDS) of Aurora oil and Gas Table 5.21: Type of disclosed information (Financial- Nonfinancial) of Aurora oil and Gas Table 5.22: Environmental disclosure of Beach Petroleum ( ) Table 5.23: Level of details of disclosure (LDS) of Beach petroleum Table 5.24: Type of disclosed information (Financial- Nonfinancial) of Beach petroleum Table 5.25: Environmental disclosure of AWE ( ) Table 5.26: Level of details of disclosure (LDS) of AWE Table 5.27: Type of disclosed information (Financial- Nonfinancial) of AWE Table 5.28: Environmental disclosure of Eastern Star Gas ( ) Table 5.29: Level of details of disclosure (LDS) of Eastern Star Gas Table 5.30: Type of disclosed information (Financial- Nonfinancial) of Eastern Star Gas ix

12 List of Figures Figure 5.1 Environmental disclosure of Woodside Petroleum ( ) Figure 5.2 Level of detail of disclosure (LDS) of Woodside Petroleum Company Figure 5.3 Type of disclosed information (Financial- Nonfinancial) of Woodside Petroleum Company Figure 5.4 Environmental disclosure of Origin Energy ( ) Figure 5.5 Level of detail of disclosure (LDS) of Origin Energy Figure 5.6 Type of disclosed information (Financial- Nonfinancial) of Origin energy Figure 5.7 Environmental disclosure of Santos ( ) Figure 5.8 Level of detail of disclosure (LDS) of Santos Figure 5.9 Type of disclosed information (Financial- Nonfinancial) of Santos Figure 5.10 Environmental disclosure of Oil Search ( ) Figure 5.11 Level of detail of disclosure (LDS) of Oil Search Figure 5.12 Type of disclosed information (Financial- Nonfinancial) of Oil Search 122 Figure 5.13 Environmental disclosure of WorleyParsons ( ) Figure 5.14 Level of detail of disclosure (LDS) of WorleyParsons Figure 5.15 Type of disclosed information (Financial- Nonfinancial) of WorleyParsons Figure 5.16 Environmental disclosure of Karoon Gas Australia ( ) Figure 5.17 Level of detail of disclosure (LDS) of Karoon Gas Australia Figure 5.18 Type of disclosed information (Financial- Nonfinancial) of Karoon Gas Australia Figure Environmental disclosure of Aurora oil and Gas ( ) Figure 5.20 Level of detail of disclosure (LDS) of Aurora oil and Gas x

13 Figure 5.21 Type of disclosed information (Financial- Nonfinancial) of Aurora oil and Gas Figure 5.22 Environmental disclosure of Beach petroleum ( ) Figure 5.23 Level of details of disclosure (LDS) of Beach petroleum Figure 5.24 Type of disclosed information (Financial- Nonfinancial) of Beach petroleum Figure 5.25 Environmental disclosure of AWE ( ) Figure 5.26 Level of detail of disclosure (LDS) of AWE Figure 5.27 Type of disclosed information (Financial- Nonfinancial) of AWE Figure 5.28 Environmental disclosure of Eastern Star Gas ( ) Figure 5.29 Level of detail of disclosure (LDS) of Eastern Star Gas Figure 5.30 Type of disclosed information (Financial- Nonfinancial) of Eastern Star Gas xi

14 List of the Abbreviations ASX: Australian Stock Exchange AUT: Aurora Oil & Gas Company Limited AWE: AWE Company Limited BPT: Beach Petroleum Company Limited CEP: Council for Economic Priorities CFOs: Chief Finance Officers ESG: Eastern Star Gas Company Limited CSR: Corporate social responsibility ECEP: European Community s Environmental Policy GRI: Sustainability Reporting Guidelines KAR: Karoon Gas Australia Company Limited LDS: Level of details of disclosure NGOs: Environmental Non-Government Organizations NPI: the National Pollutant Inventory ORG: Origin Energy Company Limited OSH: Oil Search Company Limited SEAL: the Social and Environmental Accounting Literature STO: Santos Company Limited WOR: WorleyParsons Company Limited WPL: Woodside Petroleum Company Limited xii

15 Abstract Environmental accounting has become an attractive area of research; in particular, research on environmental disclosure has received increased focus in the accounting discipline. This thesis investigates and explores the environmental accounting disclosures of Australian oil and gas companies by analysing and examining corporate reports. An interpretative approach to social science research is applied in this study using the research method of interpretative content analysis. The study is conducted on the 10 largest Australian oil and gas companies listed in ASX, and the data is extracted from the Annual Reports and other stand-alone sustainability reports of the selected companies over the period The findings show that corporate environmental disclosure trend of the studied companies fluctuated during the study period ( ). However, since 2007, corporate environmental disclosure of most of the selected companies has improved. In addition, the findings indicate that most of the disclosed information is considered to be general environmental information and classified under two main categories; firstly, the category of general environmental disclosure and secondly the category of biodiversity and land. Furthermore, the findings support the applicability of legitimacy theory, through analysing the corporate environmental disclosures; a large volume of these disclosures were of favourable environmental information. The findings also show that most of the disclosed environmental information is non-financial information, disclosed in pure narrative. Although, this study has limitations, it provides indications on the corporate environmental disclosures made by Australian Oil and Gas companies. The study xiii

16 also introduces some areas of future research such as: 1) a study to determine the influence that change of the Federal Government from Liberal Government to Labour Government may have on the environmental disclosures practice. 2) A similar study to examine the influence of applying Carbon Emissions Pricing by the Australian government on the environmental disclosures. xiv

17 Acknowledgment Completing this thesis has been a long journey. I am grateful to Allah who blessed me the opportunity to complete this thesis. In this journey, there are some individuals who have contributed in this thesis and support me even by single word. I would like to express my thanks to all of them. Firstly, I would like to register my sincere appreciations to each one of my supervisors: Graham Bowrey, Shirley Xu and Dr. Sudhir Lodh. They have been very helpful for me in writing this thesis; they provided for me invaluable expertise, guidance and friendship. Also, I would like to thank my colleagues from HDR students and all members both Academic and Administrative staff of the School of Accounting and Finance in the University of Wollongong for their support. Also, my sincere appreciations go to my family in Libya. Especially, my father, mother, brothers, sisters, sisters in law, nieces and nephew for their endless support and encouragement that they have given to me through my study journey. Lastly, I would like to thank my friends in Australia and Libya for their support and friendship. xv

18 Chapter 1. Introduction This thesis investigates and explores the environmental accounting disclosures of Australian oil and gas companies by analysing and examining corporate reports. An interpretative content analysis is applied in this study to analyse annual reports and other stand-alone sustainability reports. The study is conducted on the 10 largest Australian oil and gas companies listed on the Australian stock exchange (ASX), in the time period between This chapter, which outlines the elements of this thesis, begins with a discussion of the background of the area of research. In this section, the importance of the environment and the increasing public concern about the environmental impact of organisational activities are presented. Included in this section is a general discussion of environmental accounting and its benefits. This section highlights some challenges and problems in environmental accounting and the need for more academic research in the area of environmental accounting, in particular, environmental disclosure. The research objectives and motivation are presented, and this is followed by the research question. The second section of this chapter presents a brief overview of the theoretical framework of this research and the theory applied in this research legitimacy theory. The third section provides an introduction to the methodological framework of the research including discussion on the research method of content analysis. The final section of this chapter presents the overall structure of the thesis. 1

19 1.1. Background In recent years, environmental issues have become a major social focus and an issue of increasing public concern (Beck et al. 2010; Gray & Bebbington, 2001; Lamberton, 2005; Milne & Gray, 2007). This concern has given rise to a greater impetus for the disclosure of the environmental and social impacts of modern corporations (Guthrie & Farneti, 2008; Lamberton, 2005), especially as these disclosures are seen by some to have a commercial imperative (Spence, 2007). Before the 1960s, environmental issues did not attract much attention from either modern big organisations or governments (Dunlap, 1997). However, during the 1960s the public became increasingly interested and focused on environmental issues such as pollution and resource consumption (Dunlap, 1997). The interest was driven in part by concerns about the impact of pollution on individuals in society. This interest is reflected, for example, by the improvements made to the European Community s Environmental Policy (ECEP) in the 1970s. These improvements reflected the European Community concerns about the quality of peoples lives and improving life expectancy. This improvement is outlined in the adoption of several principles in relation to the environment such as pollution and the action that could be implemented to prevent this pollution and protect the environment (Hildebrand, 1997). Since the 1960s there have been several changes in society including rapid advances in the information technology sector and the education of customers and consumers (McClosky & Smith, 1997), which have contributed to the environment becoming a more significant societal issue. The public s concern for the environment 2

20 and the impact of companies on the environment has been discussed for a number of decades, particularly in reference to countries such as Great Britain, Germany, Netherlands, North America, New Zealand and Australia (Dunlap, 1997; Gray et al. 1996; Hildebrand, 1997). For example, research conducted by Simintiras et al. (1997) in the 1990s found that 73% of UK consumers were concerned about the environment (p.415). It is viewed that human activities are acknowledged as having the greatest impact on society and the environment. An example of this is that many scientists have argued that human activities are the major cause of global warming and environmental damage (Unerman et al. 2007). In response to these concerns, companies and organisations, especially multinational businesses, have been attempting to seriously take into account their environmental and social impacts (Unerman et al. 2007). Deloitte (2011) examined the motivation for environmental disclosures of New Zealand companies and revealed that the main motivations are public concern and stakeholder rights. In addition, environmental sustainable development has become more common within companies and organisations. The concept of sustainability encourages organisations to enhance business activities that are environmentally and socially sustainable (Unerman et al. 2007). This increased concern about the environment is reflected in the increase of social accountability which includes responsibility to undertake a particular action and responsibility to provide an account for this action (Gray, et al. 1996). Sustainability and environmental reporting has resulted in additional organisational disclosures to provide a sufficient description of social and environmental impacts of an 3

21 organisation s operations (Gray et al. 1996; Guthrie & Farneti, 2008). Furthermore, there is a view that organisations continually attempt to develop their social and environmental reporting which in turn influences their environmental performance. This action is seen as a response to community, government and other stakeholders concerns about organisational environmental performance (Beck et al. 2010; Parker, 2000a). Although, in the past, organisations were focused upon the competitiveness of the business sector and financial benefits without giving great attention to the environmental problems caused by their activities (McCloskey & Smith, 1997), in recent times businesses and organisations have acknowledged an imperative to improve their operations and products in relation to environmental friendly practices to gain competitive advantages (Prothero & McDonagh, 1992; Spence, 2007). According to McCloskey and Smith (1997), this appears to be due to components of society, including investors, creditors, government and consumers, who are becoming more interested in environmental issues. This has placed pressure on the organisations to alleviate the adverse consequences of their activities on the environment (McCloskey & Smith, 1997). To assist managers in organisations make better business decisions while acknowledging the impact of their organisation on society and the environment, accounting information should include the relevant environmental information. Not only does accounting play a key role in the internal operations of an organisation, it also plays an enormous role to externally demonstrate social and environmental responsibility (Lodhia, 2003). Accounting is relevant to external stakeholders in 4

22 providing sufficient information about issues including social responsibility, sustainability and accountability. The focus on environmental issues within an organisation is a responsibility of all departments within the organisation. The departments are responsible for providing financial performance information and departments concerned with the environmental impact of the organisation should provide valuable information for all decision makers (Cho et al. 2007). In this sense, there is another role played by companies using corporate reports and sustainability reports rather than just compliance with legislation, companies could also use the reports to improve their reputation and legitimacy within society. By improving corporate reputation, companies could create sustainable growth of company (Rattanaphaphtham & Kunsrison, 2011). Deegan and Rankin (1996) found companies tend to disclose the positive and favourable environmental information to present a positive image and improve their reputation among the community that in which they operate. So companies could imply a greenwash which means that companies seek to gain a social licence to operate through presenting positive image. Spence (2007) highlighted that corporate social and environmental reporting practices are driven by business case. The business case for corporate social and environmental reporting appears to be multifarious within each firm for example; it could be the reputation management or stakeholder management. Adams (2002) infers that different organisational processes affect the way in which companies report social and environmental information. Discourse may be formed by excluding certain realities and including others. For example, financial statements exclude the social and environmental impacts of company s activity insofar as they 5

23 cannot be captured in financial terms, thereby allowing these environmental impacts to continue and be acceptable in the name of economic rationality Spence (2007). In the case of extractive industry particularly oil and gas sector, companies extract natural sources including crude oil and natural gas (Edino et al. 2010). This depletion of natural sources could affect the company s reputation, so companies might be less transparent. Companies could be encouraged to provide discourse which overlooks impacts or discloses using rhetorical spin (Beck et al. 2010). Consequently, it is essential for all departments, which are responsible for accounting reports to take into account environmental costs to ensure compatibility between the organisations competitiveness and the financial benefit, as well as to consider sustainable environmental issues (Parker, 2000a). Organisational financial return is linked with environmental responsibility and accountability to all stakeholders including community, government and shareholders. Environmental accounting has been defined by Gray et al. (1987, p. ix) as the process of communicating the social and environmental effects of organisations economic actions to particular interest groups within society and to society at large. As such it involves extending the accountability of organisations (particularly companies), beyond the traditional role of providing a financial account to the owners of capital, in particular, shareholders. Such an extension is predicated upon the assumption that companies do have wider responsibilities than simply to make money for their shareholders (Gray et al. 1987, p. ix) Consistently with the increase in public concern of environmental issues, environmental accounting practice has received attention from the scholars in the area of accounting research. Since the early 1970s, a number of academic researchers have studied environmental accounting in different countries from 6

24 different perspectives. Much of this research was dominated by studies focused on environmental disclosures (see, for example, Ahmed & Mousa, 2010; Andrew et al. 1989; Baxi & Ray, 2009; Beattie et al. 2004; Beck et al. 2010; Belal, 2000; Bewley & Li, 2000; Campbell, 2004; Deegan & Gordon, 1996; Disu & Gray, 1998; Gray, 1993; Guthrie & Abeysekera, 2006; Guthrie & Mathews, 1985; Hackston & Milne, 1996; Harte & Owen, 1991; Hegde et al. 1997; Rockness, 1985; Teoh & Thong, 1984; Ullmann, 1985; Zeghal & Ahmed, 1990). This increase in the number of environmental accounting studies is reflected in several academic journals providing special issues (see, for instance, Accounting Auditing & Accountability Journal, 1991; Accounting Forum, 1995; European Accounting Review, 2000 and Journal of Corporate Citizenship, 2004). Since the early 1970s, this wealthy history of environmental accounting research has made a great contribution in the field of social and environmental accounting either in the theoretical framework, methodology or research issues. Considerable work has been done by Mathews (1997), who provided a comprehensive literature of environmental accounting research over twenty-five years and highlighted the main contributions to the field of research. The current literature on environmental disclosure has been classified by Berthelot et al. (2003) in three categories: the first category is the managerial decisions to disclose environmental information; the second category is value relevance of corporate environmental disclosure and finally the reliability of corporate environmental disclosure. A small number of these studies examine the quality of environmental disclosure (Rattanaphaphtham & Kunsrison, 2011). In particular, in Australia, organisations and companies have disclosed environmental information for many years, but the focus was more on the quantity of 7

25 disclosure instead of the quality of the environmental information that had been disclosed (Kent & Chan, 2003). Deegan and Gordon (1996) stated that although Australian companies have released environmental information for many years, a lot of criticism has been raised regarding the quality of this environmental information. This may be because companies focus on the quantity of the information rather than the quality. The quality of the environmental information disclosure can be seen as a key value for companies. Many benefits could be provided if the company releases high quality environmental information (Rattanaphaphtham & Kunsrison, 2011). For example, competitive advantage has been identified as one of the benefits that can be associated with the disclosure of corporate environmental information (Kent & Chan, 2003; Meek, Roberts & Gray, 1995). This is consistent with Rattanaphaphtham and Kunsrison (2011) who found that positive opinion of customers, community support and employees satisfaction could be gained by disclosure of information about environmental events. There are a number of significant issues in relation to environmental accounting. One of these issues is capturing all the information, both financial and non-financial, which relates to the environmental problems (Steadman et al. 1995). Lee (2007) also states that environmental damage is presented as one of the problematic concerns for the company itself, specifically for oil and gas companies. Lee (2007) concluded that the most problematic risks in the extractive industry are those associated with the environmental impacts of the company s operations. Capturing all the information that is associated with the environmental impacts and conveying it to stakeholders 8

26 present a very challenging task for all companies around the world. Rattanaphaphtham and Kunsrison (2011) state that the quality of disclosure of environmental information might affect the interpretation of stakeholders and enhance investor confidence. There is further evidence (see, for example, Deegan & Rankin, 1996; Deloitte, 2011; Spence, 2007) which demonstrates that companies disclose and release just the good news about their environmental performance and they ignore the bad news and their impacts on the environment. Deegan and Rankin (1996) examined the environmental reporting practices of 20 Australian companies and they found most of the companies disclose just the positive, favourable environmental information to improve their image and reputation. The motivation of this research is related to the increase in public concern about the businesses activities and the impact of these activities on the environment. The current research agenda is attempting to achieve several objectives. The first objective is to examine and explore the corporate environmental disclosures of Australian companies in the extractive industry sector. Secondly, it is to identify the categories used by these companies to disclose environmental information. Finally, the corporate environmental disclosures of these organisations will be analysed using interpretative content analysis. The research question of this study is framed as follows: To what extent do Australian oil and gas companies disclose their environmental impacts (both positive and negative) in annual reports and sustainability reports? 9

27 To address this research question, the extractive industry is chosen as an industry with positive and negative impacts. A sample of the top 10 capitilisation is selected from the Oil and Gas sector in Australia. The justification for selecting this sector is environmental sensitivity. The appropriate companies or samples to study the corporate environmental disclosure are the companies more likely to be governed by legislation on environmental issues; and hence, more likely to be required to report on environmental performance (Frost, 2007). According to Deegan and Gordon (1996) the more environmentally sensitive industry is, the greater the attention that will be received from the environmental lobby groups (including environmental organisations, associations, the media and governments). The extractive industry (which includes the Oil and Gas sector) is universally considered as one of the most environmentally sensitive industries (see, for instance, Deegan & Gordon, 1996; Frost, 1999; Frost, 2007; Hackston & Milne, 1996; Patten, 1992). In their paper, Deegan and Gordon (1996) studied the environmental disclosure practices of Australian companies in different industries; they also investigated the environmental sensitivity of these industries. Deegan and Gordon (1996) concluded that the Oil and Gas industry is one of the five most environmentally sensitive industries, and it is more likely to respond to any environmental event. This view is similar to what Patten (1992) found in his article, that after the Exxon Valdez disaster of 1989, the Oil and Gas companies in the US started to disclose more environmental information and the corporate environmental disclosures improved considerably. In Australia there are currently 41 companies listed on the Australian Stock Exchange (ASX) under the Oil and Gas Sector. The research data will be based on the largest 10 companies, based on market capitalisation over the period

28 This sample of convenience is appropriate as the size of the company plays a vital role in regard to environmental disclosure. A number of academics have argued that there is a clear relationship between environmental disclosure and the size of the company ( Hackston & Milne, 1996; Patten, 1991). Also, Deegan and Gordon (1996), in their paper, have found that in the industries that are considered highly environmentally sensitive (including the Oil and Gas industry) there is a positive correlation between the size of the company and the environmental disclosure. In addition, Deegan and Gordon (1996) state that large companies are more likely to provide more voluntary environmental disclosures. The time period of was selected as it contemporises the study and allows the researcher to gain access to recent and relevant data. This time period also includes a period of two years before and after a change of government in Federal Parliament. This change could have an effect on the environmental reporting practice of organisations because both sides of the government might have different levels of concern about the environment. The data for this research will be extracted from the annual reports and other corporate stand-alone reports of the selected organisations. This approach is consistent with a number of previous empirical studies in the area of environmental disclosures (see, for instance, Campbell, 2003; Clarkson et al. 2008; Cormier et al. 2005; Cowan & Gadenne, 2005; Harte & Owen, 1991; Hackston & Milne, 1996; Buhr, 1998; Patten, 1991; Patten & Crampton, 2004; Wilmshurst & Frost, 2000). These corporate reports are accessible through the website of the Australian Stock Exchange (ASX). 11

29 1.2. Theoretical framework Several political economy theories, including legitimacy theory and stakeholder theory (ethical and managerial branches), have been used in research on social and environmental reporting since the 1970s (Unerman et al. 2007). Stakeholder theory attempts to explain why companies publish social and environmental disclosures by suggesting all stakeholders have the right to information about the organisation including its impact on the environment, employment and community sponsorship (Deegan, 2000). In particular, the ethical branch of stakeholder theory imputes the possibility that companies which develop sound environmental reporting practices do so for reasons that are disconnected from the mandated goal of the company to act in the shareholders best interests (Deegan, 2000). Spence (2007) suggested that corporate social and environmental reporting practices are derived from some sort of commercial imperative, articulated around the notion of the business case (p. 864). This research, however will explore organisational environmental disclosure practices, with specific reference to Australian companies in the extractive industry sector using legitimacy theory. It is viewed that the organisation discloses environmental information to manage and improve its image and gain the trust of the community. Legitimacy theory is recognised to be a system oriented theory like stakeholder theory; within system oriented theory, organisations assume to have influences and be influenced by the society in which it operates (Deegan, 2002). Legitimacy is seen as one of the resources that an organisation is dependent upon for survival (Dowling & Pfeffer, 1975; O Donovan, 2002). Legitimacy theory suggests that if managers see 12

30 the supply of certain resource (legitimacy) as significant to the organisation, they will ensure the continual supply of this resource (Deegan, 2009) Research Methodology The public concern about environmental issues in recent years is reporting (Bebbington & Gray, 2001; Beck et al. 2010; Lamberton, 2005; Milne & Gray, 2007) through Annual Reports and Sustainability Reports to convey environmental performance information to stakeholders (Campbell, 2004; Campbell & Abdul Rahman, 2010; Cowan & Gadenne, 2005). It has been noted that previous studies sought to extract the data from Annual Reports and other stand-alone reports (see, for example, Buhr, 1998; Campbell, 2003; Cowan & Gadenne, 2005; Hackston & Milne, 1996; Harte & Owen, 1991; Patten, 1991; Patten & Crampton, 2004; Wilmshurst & Frost, 2000). In these studies, different methodological approaches have been adopted to study and analyse the corporate reports. The more common approaches in analysing corporate reports are from the positivist and interpretative approaches in accounting. According to Beck et al. (2010, p. 208), positivist approaches capture and describe a surrogate assumed to convey meaning and reporting intent, so the main focus of the studies according to this approach is on frequency and volume. The interpretative approach, on the other hand, seeks to understand and capture meaning through dividing the narrative into its parts and then describing the content of each component part (Beck et al. 2010; Cormier & Gordon, 2001; Milne et al. 2003; Wiseman, 1982). Interpretative studies aim to understand what is communicated? (Beck et al. 2010). One of the goals of this research is to explore the 13

31 trend of environmental disclosures by organisations in the extractive industry sector. This will be undertaken by adopting an interpretative approach of social science. The method used to analysis the research data, annual reports and stand-alone sustainability reports, is content analysis, which will be applied from an interpretative perspective. The use of content analysis will be guided by the approach used by Hackston and Milne, (1996) and Beck et al. (2010), as the approach utilised by these authors is consistent with the research agenda of this study Thesis structure This thesis comprises six chapters. The following is an outline of each of the chapters provided. Chapter two discusses the related literature of this research as background. This chapter is classified into five sections; the first section provides a brief overview of the concept of environmental accounting. The second section explores the pattern of corporate environmental disclosure and provides definitions of environmental disclosure. This section also includes discussion on the two types of corporate disclosure: mandatory disclosures and voluntary disclosures. The third section explores the development of research in environmental accounting literature including outlining the main trends of the environmental accounting research journey since the early 1970s. The fourth section provides a review of empirical studies undertaken in relation to environmental disclosure. The final section of this chapter reviews some of environmental disclosure studies that have been done in Australia. 14

32 Chapter three focuses on the theoretical framework of this research. This chapter provides a brief discussion on the theories which have been used in previous corporate environmental disclosure research. From this discussion legitimacy theory is identified as an appropriate theory to be used in this research to explain corporate environmental disclosures. Furthermore, this chapter explains the role of corporate reports as legitimation tricks and how environmental disclosures could be driven by perceived need to respond to public expectations. Chapter four provides discussion on an extractive industry as a researched organisation, and then discusses the research methodology. This research starts with providing a brief discussion of the extractive industry, the main focus of this research being the oil and gas industry. This chapter outlines and explains the main criteria used to select the sample used in this study. Chapter four includes discussion of content analysis. This discussion covers key components of content analysis including details regarding the unit of analysis, coding frame and categories, and disclosure measurement. Chapter five contains an empirical discussion of the corporate environmental disclosure data. In this chapter, interpretative content analysis is applied to analyse the corporate reports of the selected companies to explore their corporate environmental disclosures. In the content analysis, sentences are used as a unit of analysis to capture the environmental disclosures and these sentences are grouped into identified categories and sub-categories that will be used to analyse the annual and stand-alone reports. In this chapter, the result of content analysis is presented for each company separately using tables and charts to provide clarity of the data 15

33 collected and the chosen grouping. The results are presented in three groups. The first group presents the volume of corporate environmental disclosure for each environmental category used in the analysis. The second group classifies the corporate environmental disclosure of the company into three levels of details; level 1 (disclosure presented as a narrative), level 2 (disclosure presented quantitatively) and level 3 (disclosure is presented both via narrative and quantitatively). The third group, which presents the financial and non-financial information, is further classified into two groupings based on whether the information disclosed is financial information or non-financial information. Chapter six is the conclusion of the study. This chapter includes a review of the empirical work in chapter five, contributions of this study to the literature of environmental disclosure as well as future research directions. The final section of this chapter discusses some of the limitations of this study Conclusion Public concern and awareness about environmental issues has increased since the 1970s (Prothero & McDonagh, 1992; Simintiras et al. 1997). As a response to these concerns, companies have been attempting to seriously take into account their environmental and social impacts (Unerman et al. 2007). This increased concern of the environment is reflected in the increase of social accountability, sustainability and environmental reporting and has resulted in an increasing number of companies have disclosed information related to social and environmental impacts of their operations (Gray et al. 1996; Guthrie & Farneti, 2008; Rattanaphaphtham & Kunsrison, 2011). Furthermore, there is a view that organisations continually attempt 16

34 to develop their social and environmental reporting because companies beliefs that disclosure of environmental information is a key value of company (Rattanaphaphtham & Kunsrison, 2011). This action is seen as a response to community, government and stakeholders who are concerned about organisational environmental performance (Beck et al. 2010; Parker, 2000a). Consistent with the increase of public concern of environmental issues, environmental accounting practice becomes an area of interest for the scholars in the field of accounting research. The common question rises up among several studies, is about the real motivation of behind the environmental disclosure. Academic researchers sought to study environmental accounting from different perspectives and also from different countries (developed and developing countries) including Australia (see, for example, Andrew et al. 1989; Campbell, 2004; Disu & Gray, 1998; Gray, 1993; Guthrie & Mathews, 1985; Harte & Owen, 1991; Hegde et al. 1997; Rockness, 1985; Ullmann, 1985). A predominant number of these studies focused on environmental disclosures (see, for example, Ahmed & Mousa, 2010; Andrew et al. 1989; Beattie et al. 2004; Beck et al. 2010; Campbell, 2004; Deegan & Gordon, 1996; Gray, 1993; Guthrie & Abeysekera, 2006; Guthrie & Mathews, 1985; Hackston & Milne, 1996; Harte & Owen, 1991; Rockness, 1985; Ullmann, 1985). A number of academics are critical of the extent to which environmental disclosure reports render company transparent, instead suggesting that environmental disclosure reports are driven more by other concerns (Rattanaphaphtham & Kunsrison, 2011; Spence, 2007). Spence (2007) highlighted some of these factors and described them as a business case. However, legitimacy appears to be the major concern of companies, companies disclose environmental information in order 17

35 to improve their reputation among the community and gain legitimacy from the society in which they operate. This research will adopt the legitimacy theory to explore and interpret the environmental disclosures of Australian oil and gas companies. 18

36 Chapter 2. Literature review In the previous chapter, a general background of this research was provided; it discussed the importance of the environment and public concern about the environment. Also, the last chapter contained a general discussion about environmental accounting and its benefits then highlighted some challenges and problems in environmental accounting and the need for more research in this area, in particular of environmental disclosure. The introduced theoretical framework and the methodology used in this research were introduced. The social and environmental accounting literature has been shaped from a community of researchers in the exploration of social and environmental disclosures and the types of social and environmental information captured (Campble et al. 2006). In this regard, Clarkson et al. (2008) categorized the existing literature in environmental accounting research into three broad groups. One of these groups is the exploring and investigating environmental disclosure and its relation with the environmental performance. It is been stated by Clarkson et al. (2008) that one of the ongoing research issue in environmental accounting is that which related to corporate environmental disclosures. Thus this chapter will attempt to provide a brief overview of the literature on environmental accounting which could be viewed as a general umbrella of the literature of environmental disclosures. In this chapter, related literature will be reviewed in order to outline the background of the fundamentals of this research. The related literature is classified into five parts. The first part of the literature review is a general overview of environmental accounting. It discusses environmental accounting in general and provides a brief 19

37 overview of the concept of environmental accounting. The second part is the pattern of corporate environmental disclosure. This part provides some definitions of environmental disclosure and discusses the two types of corporate disclosure (mandatory disclosures and voluntary disclosure). Thirdly, the development of research in environmental accounting literature is outlined and this part highlights the main development of the environmental accounting research journey since the early 1970s. The fourth part gives a review of empirical studies and findings on environmental disclosure research. The final part narrows the scope specifically to the Australian context to review some of studies that have been undertaken in Australia A general overview of environmental accounting There have been a number of academic conferences and accounting professionals highlighting the concern about environmental problems and the damage that is caused by the industrial sector (Bhate, 2001; Everett, 2004). The environment has also received attention in non-academic conferences, such as The London and Pittsburg Summits of the G20 Leaders (2009) and The United Nations Special Summit on the Environment, held on 22 September 2009 (Firoz & Ansari, 2010), which focussed on the link between environment and finance. Environmental accounting has received universal consideration in the most important journals in the field of accounting such as Accounting, Auditing & Accountability Journal; Accounting, Organizations, & Society; Accounting & the Public Interest; Critical Perspectives on Accounting; and European Accounting Review (Alewine, 2010). Most of these have discussed corporate environmental disclosures (Ahmad & 20

38 Mousa, 2010). Academic researchers have discussed environmental accounting and published a number of papers from different approaches (as outlined by Burrell and Morgan (1979), i.e. functionalist, interpretative and critical approach) 1. For better understanding of environmental accounting there is a necessity to provide definitions of environmental accounting from different points of view. A number of scholars have defined environmental accounting from different perspectives. Rogers and Kristof (2003) have highlighted some of the concepts of environmental accounting following on from prior researchers and studies. One of these definitions is that environmental accounting is used to express a group of activities. An example of these activities, as Rogers and Kristof (2003) mentioned, is an income statement. Environmental accounting, according to this concept means accounting for the value of natural resources gained or lost relative to gross domestic product (Rogers & Kristof, 2003, p. 21). By this rationale, environmental accounting might be used to recognise the financially material environmental liabilities of a company. However, Rogers and Kristof (2003) in their article have defined the term of environmental accounting as a subset of activity based costing. It isolates overhead costs and identifies the activities that cause them, and then pulls them out of overhead by allocating them to products based on usage (Rogers & Kristof 2003, p21). Similarly, Stanko et al. (2006, p21) have portrayed environmental accounting as the identification, measurement, and allocation of environmental costs, the integration of these environmental costs into business decisions, and the subsequent 1 In this research, it will not be demonstrated which studies are functionalist, interpretative or critical. 21

39 communication of the information to a company's stakeholders". Berr and Friend (2006, p549) have defined environmental accounting as the identification, allocation and analysis of material streams and their related money flows by using environmental accounting systems to provide insight in environmental impacts and associated financial effects. These definitions deliver a common understanding about the conceptual nature of environmental accounting. Significantly, the underlying fundament is that it has been important to distinguish accounting for the environment and use this information in decision-making both internally and externally. These definitions imply a powerful role for accountants in relation to environmental reporting. In subsequent paragraphs, this aspect of a constructible reality becomes a pivotal part of this research 2. More generally, Rahahleh (2011) gave a definition of accounting in relation to the environmental perspectives which is a science looking on how the environmental aspects affect the conventional accounting system and whether it is an effective tool to measure and evaluate the environmental aspects of facilities (p. 127). Rahahleh (2011) states that the main focus of this definition is that it distinguishes between environmental accounting and the traditional accounting system. Also he discusses the effective role that environmental accounting plays within the traditional accounting system. It also includes the process of selecting variables, standards and procedures for measuring the social performance of the organisation and the disclosure of the results to the involved parties in the community, whether such parties were within or outside the facility (Rahahleh 2011, p. 127). This role is 2 The idea of a constructible reality, referred to in the philosophical field of ontology or being (Chua, 1986), known as social constructionism, is expanded on under the sub-heading Methodology and is now widely associated with a growing base of academic researchers in accounting. (see, for instance, Chua, 1986; Dillard, 1991; Morgan, 1988; Tinker et al. 1982). 22