CORPORATE SOCIAL ENVIRONMENTAL SUSTAINABILITY REPORTING AND FIRMS’ PERFORMANCE: A STUDY OF SELECTED FIRMS IN NIGERIA UWUIGBE, UWALOMWA ([email protected]), +2348052363513 Department of Accounting and Taxation, College of Business and Social Sciences Covenant University, Ogun State, Nigeria.

Abstract Environmental issues have emerged as a major aspect of the discussion of the problems of economic growth and development. Such issues have taken, inter alia, the form of global warming; atmospheric, soil and water pollution caused by industrial activities. However, while there is an extensive research on the role of the Global Reporting Initiative and the International Organization for Standardization (ISO) guidelines in determining corporate environmental performance indicators and the extent of disclosures in annual report in developed economies, in contrast, there is a considerable paucity of studies conducted in the context of developing economies. To this end, this research investigates the relationship between the performance of firms and the level of corporate social environmental sustainability reporting among firms in the selected industries. To achieve this, the study critically developed and utilized a disclosure index to measure the extent of sustainability disclosure made by companies in their corporate annual reports. The multiple regression analysis was used to test the research propositions in this study. The study observed that there is a significant relationship between the performance of firms and the level of corporate social environmental sustainability reporting. The paper therefore recommends that environmental disclosure themes and evidence must be established to provide foundation for improving corporate social environmental sustainability disclosures among companies in Nigeria.

Keywords:

Corporate, Environmental Issues, Social, Sustainability, Disclosures, Performance, Stakeholders, ecosystems.

I

Introduction

governments of different countries have

The acknowledgement of corporate social

started putting the environment at the top of

responsibility implies the need to recognize

their agenda by setting up regulatory,

the importance of disclosure of information

voluntary, incentive-based, informational

on companies’ activities related to such

and cooperative instruments of policy

responsibility.

geared

The

concept

of

social

towards

promoting

sustainable

accountability, which only arises if a

development (Li, 2001). This policy trend

company is social responsible (Gray et al.,

has heightened concern about corporate

1996:56), concerns both the responsibility to

social environmental disclosure theory and

undertake actions or refrain from doing so

practice worldwide.

and provide an account of such actions. The

Over the past decade, developing economies

increase in global environmental awareness

has witnessed tremendous economic and

and the campaign for sustainable economic

social changes especially in the Niger-Delta

development is redirecting the attention of

region of Nigeria were incessant social

firms towards environmental sensitivity. The

unrest among youth in the region has

quest for sustainability has caused an

become a way of life due to the high level of

emergence of many global institutions

environmental degradation and poor state of

enunciating varying norms that guide human

social infrastructure. As a result, the

interaction with the environment. More so,

business environment is also becoming more

the

about

complex and demanding. One of the

ecosystems has resulted in concerns about

emerging issues that confront modern-day

the environmental effects of production

businesses is that of corporate social

processes,

responsibility. Due to the heightened interest

expansion

of

product

knowledge

performances

and

business practices (Sahay, 2004 cited in

in

the

concept

of

corporate

social

Dutta and Bose, 2008). Since the publication

environmental reporting and what it entails,

of the Bruntdland Commission Report

much research has been done in this area,

entitled ‘Our Common Future’ in 1987 and

particularly in the developed countries. In

the Earth Summit in Rio de Janeiro in 1992,

contrast, the developing countries are slower

Literature Review and

in responding to the increased concern about

II

the issue of corporate social environmental

Development of Hypothesis

disclosures.

in

To the author’s best knowledge, there are

research, studies in this area in the

very few known documented research work

developing countries are still scarce (Abu-

on corporate social sustainability reporting

Baker & Naser, 2000; Imam, 2000 and

and firm performance in Nigeria. However,

Belal, 2001).

some research similar to that undertaken by

To this end, this study aims to extend the

this study may be found in international

body of existing literature by examining the

accounting literature. For example, Clause

relationship

performance

and Rikhardsson (2008) studied the effect of

corporate social environmental sustainability

environmental investment on investment

reporting and of listed firms’ in the

decisions.

agricultural/Agro-Allied and manufacturing

environmental

industry in Nigeria.

influences investment allocation decisions.

Despite

some

between

the

increase

The

results

suggest

information

that

disclosure

This finding would imply that companies that are apathetic to their environmental

Scope of Study

responsibility might experience eventual the

crashes on their stock price. That is, if their

social

investors are rational in considering the

environmental sustainability reporting and

future value of the firm based on its present

performance

the

state of environmental responsibility. Lars

agricultural and manufacturing industry of

and Henrik (2005) investigated the effects of

Nigerian Stock Exchange. To achieve this

environmental information on the market

objective, the corporate annual reports for

value of listed companies in Sweden using a

the period 2004-2008 was be analysed. In

residual income valuation model. The results

addition, the study considered a total of 30

show that environmental responsibility as

listed firms in the aforementioned industries.

disclosed by sampled companies has value

The choice of these industries arises based

relevance, since it is expected to affect the

on their nature of production, the level of

future earnings of the listed companies.

industrial operations and their direct impact

Their

on the environment.

companies that pollute the environment –

This

study

relationship

basically between

of

listed

investigates corporate

firms’

in

finding

has

implications

for

their future solvency may be eroded with

et al., (1999) to find no relationship between

gradual depletion in earnings. Markowitz

corporate financial performance and social

(1972) finds a positive relationship between

expenditure. The motivation for many firms

socially responsible business practices and

is that corporate social and environmental

corporate equity returns. Related studies

responsibility opens the door of corporate

conducted by Balabanis et al., (1998) and

strategy to other benefits that might accrue

Tsoutsoura (2007) using indicators such as

from

return on capital employed and return on

instance,

assets, reveal a positive relationship between

findings shows that, while some firms fail to

the social responsibility of companies and

seek competitive advantage through social

the selected indicators of performance.

responsibility, in most instances those firms

Lankoski (2009) in his doctoral dissertation

that do voluntarily decide to go beyond legal

analysed at firm level, the relationship

and social demands find that this creates

between environmental performance and

value both within the firm and from

economic performance. His data shows a

customers’

correlation

competitive value places a firm above its

between

environmental

being

socially

Burke

and

perspective.

responsible. Logsdon

This

For

(1996)

type

of

performance and economic performance.

competitors, who may find it difficult to

Mackinlay

strong

understand their success. Companies that

relationship between economic performance

struggle to remain socially responsible add

and corporate social and environmental

brand value to their products and services

investment. While some companies may

(Canon, 1994). Regulation has been found to

start reaping benefits within a short period,

ginger cooperate environmental and social

others may experience economic gain only

responsibility; for instance Porter and Linde

after a long period.

(2009) found legal regulation as a factor that

McWilliams and Siegel (2000) arrived at an

engenders corporate innovation among firms

informative finding, showing statistically

in their bid to remain environmentally

that research and development expenditure

sustainable according to regulation. It is

tends to erode the immediate financial

therefore possible that weak environmental

benefits of a company’s environmental

regulation in developing countries may

investment. It is possible that this finding

contribute to low level sustainable corporate

may have led other researchers such as Teoh

behaviour in these countries.

(1997)

finds

no

In the Nigerian content, the findings derived

of size as it impact on the level of social

from existing prior studies are mixed.

environmental disclosure. Based on these

Amaeshi et.al, (2006) explored four key

prior studies identified above, it is observed

sectors of the Nigerian economy and came

that there is a dearth of literature that

up with the findings that firms are socially

investigated corporate social environmental

constructed and their behaviour must reflect

sustainability

on the society in which they are embedded

performance within the Nigerian context.

and

thus

must

have

to

be

and

firms’

socially

responsible to the environment in which it operates.

reporting

Research Hypothesis

Also, Ngwakwe (2009) in his

study titled environmental responsibility and

Based on the mixed result provided in prior

firms’ performance in Nigeria; investigated

research coupled with the dearth of literature

the

in this area of accounting in a developing

relationship

responsibility

between practices

firms

social

and

their

country

(e.g.

Nigeria);

the

following

performance. The study while focusing only

hypothesis are stated below in there null

on the manufacturing industry concluded

form.

that a positive relationship exist between the

H1

there is no significant relationship between

social responsibility practice of firms and

the performance of firms and the level of

their performance. In addition, prior studies

corporate

by (Guobadia, 2000; Minga, 2010) also

sustainability reporting among firms in the

reported a similar finding on the state of

selected industries.

social

environmental

corporate social responsibility in Nigeria.

H2: there is no significant relationship between

Nonetheless, due to the difference in

the financial leverage of firms and the

methodology and the scope, it is difficult to

level of corporate social environmental

compare the findings of these studies. Also,

sustainability reporting among firms in the

in addition to the increasing pressure from

selected industries.

stakeholders arising from the increasing levels

of

education

and

heightened

H3: there is no significant relationship between firms’ size and the level of corporate

awareness on issues related to the social and

social

environmental

sustainability

environmental responsibility; neither of

reporting among firms in the selected

these studies attempted to address the issue

industries.

using content analysis. Also, it allows Research Methodology

III

corporate

social

disclosure

to

be

systematically classified and compared, This study basically adopts the use of

which is useful for determining trends.

corporate annual reports of companies as its

Content analysis relies on the assumption

main source of data. This is due to the fact

that the extent of disclosure can be taken as

that annual reports are readily available and

some indication of the importance of an

accessible. According to Gray, Kouhy, and

issue to the reporting entity (Krippendorf,

Lavers (1995), annual reports should be

1980). Content analysis requires objectivity

used in determing environmental disclosures

and the specification of variables so that any

because such information is produced

item may be consistently judged as falling or

regularly and will be in the public domain.

not falling into a particular category

The

(Guthrie and Mathews, 1985). Categories

annual

reports

of

the

selected

companies within the period 2004-2008

are defined

were used due to heighted interest and

requiring detailed specifications for the

increased awareness noticed within these

operational definitions and decision rules

periods. Results elicited from the annual

used.

reports will be used in determining whether

However,

the

corporate social environmental sustainability

level

sustainability

of

social

disclosure

environmental affects

the

as

this

precisely as

research

possible,

measured

the

reporting in terms of themes and evidence,

performance firms. To achieve this purpose,

using

the content analysis method of data analysis

operational definitions and framework for

was used. This is due to the fact that the

environmental

content

the most

Nonetheless, while theme was measured in

commonly used method of measuring a

the categories of environment, energy,

company’s social environmental disclosure

product, community, and employee health;

in annual reports (Ng, 1985; Milne and

evidence was measured in the categories of

Adler, 1999). In addition, this method was

monetary quantitative and non-monetary

adopted

quantitative

analysis

because

method

there

is

are

substantial

Hackston

previous literatures available on measuring

framework

corporate social environmental disclosure

Consequently,

and

Milne’s

(1996)

disclosure

disclosures. contained a

firm

index.

The 28

could

EDI

attributes. score

a

maximum of 28 points and a minimum of 0. The formula for calculating the reporting scores by using the environmental disclosure index (attributes) is expressed in a function form:

28

RS

=

Where: EDISC = Environmental Disclosure Index. SIZE

=

Size as a proxy for performance, is seen as

the logarithm of total assets. ROTA

=

Return on total assets as one of

Σdi

the proxy for performance is

i=1

defined as the profit before

Where:

interest and tax divided by

RS

= Reporting Score

total assets as at the end of the

di

= 1 if the item is reported and 0 if the

fiscal

item is not reported i

year

under

consideration.

= 1, 2, 3... 28.

DE

=

Debt to equity ratio which is also a performance proxy

Also, for the purpose of this study,

represent the nature of the

performance was be measured by return on

industry. It is defined as the

total assets (ROTA), which is profit before

total debt divided by the total

interest and tax divided by total assets. This

equity.

is preferred in this research because the

U

=

Stochastic or disturbance term.

researcher believes it is more comprehensive

t

=

Time dimension of the Variables

in measuring performance. However, for us

β0

=

Constant or Intercept.

to

β1-3

=

measure

the

relationship

between

Coefficients to be estimated or the

operating performance and environmental

Coefficients of slope parameters.

disclosure, a linear regression model will be

The expected signs of the coefficients (apriori

adopted as shown below in functional form:

expectations) are such that β1 and β3 > 0.

EDI = f (ROTA, DE, SIZE, U) -------------------------------------------------------- (1) This can be written in explicit form as:

Sample Choice

For the purpose of this study, a total of 30

EDI = β0 + β1 ROTAt + β2DEt + β3SIZEt +

listed firms from both the agriculture/agro-

U------------------------------------------ (2)

allied and the manufacturing industry were selected. The choice of these firms arises

IV.Empirical Results and Discussion

because of the nature of their operations as it affects the environment. In addition, these firms are more amenable to the regulations

Table (1) below using a multiple regression

than the extractive industries whose defiance

model as presented above shows the

of

descriptive statistics results of all the

regulations

has

caused

armed

confrontations in the Niger Delta region of

variables used in this study.

Nigeria.

Table (1):

Descriptive Statistics N

Range

Minimu

Maxim

m

um

Sum

Mean

Std Deviation

EDISC

30

31.40

41.40

72.80

1774.10

59.1367

8.64337

ROTA

30

3.1266

.0193

3.1459

28.9004

.963347

.9198370

DE

30

4.6927

.0589

4.7516

30.6493

1.021642

1.3346245

SIZE

30

4.3064

5.5342

9.8406

226.8709

7.562364

1.1667642

30

31.40

41.40

72.80

1774.10

59.1367

8.64337

Valid N (listwise)

Table (2):

Regression results and Discussion EDISC

EDISC

Pearson

ROTA 1

D/E RATIO

SIZE

.640**

.439*

.101

.000

.015

.595

30

30

30

30

.640**

1

.687**

.123

.000

.519

Correlation Sig. (2-tailed) N ROTA

Pearson

Correlation

.000 Sig. (2-tailed) N

D/E RATIO Correlation

Pearson

30

30

30

30

.439*

.687**

1

.168

.015

.000

.374

Sig. (2-tailed)

30

30

30

30

.101

.123

.168

1

.595

.519

.374

30

30

30

N SIZE

Pearson

Correlation Sig. (2-tailed) N

30

** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).

Table (3):

Mode

Model Summary

R

R

Adjuste

Std. Error of R

F

Square

d

the Estimate

Change

l

Squared

R

df1 df2 Sig. F.chang e

Change

Squared 1

.410

.342

7.01357

6.015

.410

3

26

.003

.640a

a Predictors: (Constant), SIZE, ROTA, DE Anova b

Table (4): Model

Sum of Squares

1 Regression

Residual Total

Mean Square

887.587

3

295.862

1278.943

26

49.190

2166.530

29

a Predictors: (Constant), SIZE, ROTA, DE b Dependent Variable: EDISC

Df

F 6.015

Sig. .003 a

Coefficients a

Table (5):

MODEL 1

Unstandardized

Standardized

Coefficients

Coefficients

Std. Error

Beta

B

(Constant) ROTA

52.0

8.591

60

D/E RATIO SIZE

t

6.02

Sig.

6.060

.000

1.949

.641

3.089

.005

-.037

1.353

-.006

-.027

.978

.174

1.132

.023

.154

.879

1

a: Dependent Variable: EDISC

Analysis of table (2) above using the Pearson

the regression equation is complemented by the

correlation indicates that there is a strong

Adjusted R-squared result of 34%.

positive

and

Finally, results in table (5) clearly indicate that

ROTA; and it is significant. Also, the result

from the accounting proxies adopted as a

from the table shows a positive but weak

measure for performance (ROTA, DE and

correlation between EDISC and DE which is

SIZE); there is a significant relationship

significant

the

between the performance of firms (proxied by

relationship between the size of firms and the

ROTA) and the extent of disclosure. However,

EDISC level is positive but very low and it is

the same cannot be said about the other two

not significant even at the 10% level.

variables (DE & SIZE) because they do not

Furthermore, the Coefficient of determination

represent significant explanatory factors of the

result from table (3) depicts that 41% of the

behaviour of EDISC over time. In essence they

variation noticed in EDISC is can be explained

cannot be conveniently relied upon.

correlation

only

at

between

0.05.

EDISC

However,

by ROTA, DE and SIZE; while 59% of variations in EDISC is determined by other

V Conclusion and Recommendations

factors not captured by the model. In addition, the coefficient of determination result which

Consistent with finding provided by Markowitz

indicates the percentage variation explained by

(1972) and Mackinlay (1997), this study observed that there is a significant relationship

between the performance of firms and the level

of environmental tax should be encouraged on

of corporate social environmental sustainability

the part of government to help reduce the level

reporting. However, the relationships in the

of

other two independent variables (DE and SIZE)

organisations.

as it relates with the extent of environmental

disclosure themes and evidence must be

sustainability disclosures (EDISC) are not

established

significant. The paper also observed that there

improving

are no existing corporate social environmental

sustainability disclosures among companies.

sustainability reporting standards as far as

Finally, the paper calls for standard setting

environmental disclosure is concerned in the

bodies to set guiding principles or accounting

country. Moreover, there are no mandatory

standards in order to improve the financial and

requirements

undergo

non-financial environmental disclosures of

environmental audit. The paper consequently

listed companies. For future research, it would

concludes that given the historical foundation

be remarkable to know if the quality and

of environmental regulation in Nigeria, it is

quantity of environmental disclosures in the

understandable

same period are the same in order industries

practice

is

for

companies

that

to

sustainable

relatively new in

business terms

of

greenhouse

emissions

by

Furthermore,

to

provide

corporate

these

environmental

foundation

social

for

environmental

not selected.

enforceable regulatory principles. However, responses

elicited

from

some

sampled

agricultural and manufacturing firms show that

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Appendix (1): Averaged EDISC and ROTA in 30 selected firms drawn from the Agricultural and Manufacturing Industry. S/

Stud

N

y

EDISC

ROTA

68.80

.1804

DE

SIZE

.0794

7.4345

.1646

9.5823

.1283

7.2158

.3526

6.7098

.3597

5.5342

15.11

9.8406

Cod es 1

2

3

4

5

6

A1 ELLAH LAKES PLC

A2 GROMMAC INDUSTRIES PLC

A3 LIVESTOCK FEEDS PLC

64.20

55.00

A4 OKOMU OIL PALM PLC

62.20

A5 PRESCO PLC

63.80

A6 ASHAKA CEMENT PLC

49.60

.7956

.3665

.3991

1.2050

.1023

07 7

A7 BENUE CEMENT COMPANY

49.80

.7981

PLC 8

A8 CEMENT

COMPANY

OF

63.60

A9 WEST AFRICAN PORTLAND

58.60

A10 NIGERIAN

CEMENT

51.80

A11 BERGER PAINTS PLC

60.80

8.1508

.0661

5.8254

.1122

6.3092

.3010

COMPANY PLC 11

.5205 .0683

CEMENT COMPANY PLC 10

7.5989

.1003

NORTHERN NIGERIA PLC 9

.2081

.5541

12

A12 FERDINAND OIL MILLS PLC

54.40

.4982

8.1400

1.194

8.8001

.0867

2 13

A13 7-UP BOTTLING COMPANY

53.80

.2610

PLC

45.10

7.3228

76 14

A14 FLOUR MILLS OF NIGERIA

53.00

.1744

PLC 15

16

17

A15 NESTLE NIEGRIA PLC

A16 PREMIER PAINTS PLC

A17 NIGERIAN BOTTLING

50.00

67.20

70.20

A18 NORTHERN NIGERIA FLOUR

69.40

A19 AFRICAN PAINTS (NIGERIA)

65.20

.0589

8.0403

.2311

8.0064

.4951

9.2721

.4951

9.2721

22.92

7.4466

.1597

.2280

.2280

MILLS PLC 19

5.7286

.1471

COMPANY PLC 18

.3194

.3718

PLC

66 20

21

22

A20 PREMIER BREWERIES PLC

A21 NIGERIAN BREWERIES PLC

A22 JOS INTERNATIONAL

65.60

60.60

49.20

.2585 .2692

5.9024

.4264

6.2730

1.703

7.1984

.1767

.1254

BREWERIES PLC

8 23

A23 GOLDEN GUINEA

45.00

.0604

BREWERIES PLC 24

A24 CHAMPION BREWERIES PLC

.3733 44.80

.0193

7.4669

25

A25 CHEMICAL & ALLIED

41.40

27

28

A26 IPWA PLC

A27 DN MEYER PLC

A28 NIGERIA-GERMAN

72.80

66.90

63.80

A29 INTERNATIONAL

64.20

A30 GUINNESS NIGERIS PLC

Source: Nigerian Stock Exchange (2008)

68.40

7.8463

.1924

7.6771

.0201

8.8694

.3468

8.5914

.6027

6.9691

.8717

6.6626

.2663

.0979

.3676

BREWERIES PLC 30

.0692 .4236

CHEMICALS PLC 29

7.1841

.6692

PRODUCTS PLC 26

.2092

.2038