Implementation of the Environmental Disclosure Requirement in Australian Service Industry

The issue of environmental conservation has been a primary subject in many countries across the world. Concerns raised in respect to the subject often stem from the negative effects environmental pollution has demonstrated worldwide. Over the previous decades, a wealth of literature has surfaced from the social accounting sector, indicating a continuous growth in the extent of social disclosure appearing in corporate annual reports. Specifically, the level of environmental disclosures has consistently increased compared to past decades. In Australia, for instance, service industries are increasingly adopting the idea of disclosing information regarding their operations to comply with environmental preservation acts defined by the Environmental Protection Agency, ensuring that the environment maintains its purity. In response to the rising incidence in the service industry, various theories have been advanced to explain why such companies voluntarily disclose such information.

To provide the requirements that Australian service industries need to implement for their environmental disclosures, it bears mentioning that the service industry consists of companies that earn their revenue through offering intangible products and services to their clients. Exemplars of such companies include retail companies, transport companies, and mining industries, among others. Given the broad scope of service industries, it is impossible to provide the requirement for the implementation of environmental disclosure for all company types in the industry. However, a single sector within the service industry—such as the mining industry—will be considered as a case study in this research (O’Donovan, 2002). It is crucial to note that the environmental disclosure activities employed by the mining industry (as a representative of the service industry in Australia) are often self-laudatory.

The self-laudatory trait displayed by service industries in Australia implies that business enterprises in the region tend to promote the favorable aspects of their environmental presentation while downplaying the less desirable aspects. Notwithstanding that many service companies are uneasy about disclosing their environmentally damaging operating practices, a study conducted on service industries between 1980 and 1991 indicated a significant increase over time. Various factors have been linked to an apparent upswing in societal concern regarding environmental disputes. A research study utilizing a questionnaire was conducted with the aim of identifying the necessary parameters for implementing environmental disclosures in the community.

According to O’Donovan (2002), before detailing the necessary implementation procedures for environmental disclosures, it is important to note that the extent of improvement observed in service companies disclosing their environmentally damaging operations is directly related to the concern environmental lobbyist groups have about the environmental performance of business entities within a particular field. The primary reason the mining industry attracts such attention is because studies have shown that the mining sector discloses more data than other businesses classified as service industries. The response shown by service industries in disclosing their activities to Australians is likely due to the fact that these industries compose a significant percentage of Australia’s industries. While the service industries have shown a positive response in disclosing their activities to the community, it is unclear what exact information the companies reveal.

Having developed insight into the facts of service industries and environmental disclosures, the essay can provide detailed information concerning the legal requirement of implementing environmental disclosure. The commitment demonstrated by the service industries in disclosing their activities is driven by the urge to prove their concern for ensuring a safe environment. However, it should be noted that this disclosure is not influenced by a desire for environmental consciousness, but rather by the resultant benefits the service companies gain from incorporating the disclosure into their annual accounts. Before implementing a disclosure, service companies or any other type of company should consider several issues. According to Trotman & Bradley (1981), a link exists between the levels of communal disclosure and different aspects or innovations.

The most beneficial factors put forward by the two authors in implementing environmental disclosures are the size of the firm, systemic risk associated with the implementation of the environmental disclosures, and the administration’s decision perspective. Of the noted factors, Trotman and Bradley found that systemic risk and size factor positively affect the level of disclosure. Examining the identified features, the risk associated with disclosing a company’s information might have negative implications. For instance, by exposing critical information concerning a company’s activities, it may lead to the closure of the company in question. Despite outlining the factors mentioned above, the authors did not distinguish the various types of environmental disclosures. From the facts presented in the latter sections of the essay, it’s clear service industries need to consider certain factors before releasing information about their operations to the public.

The factors to consider outline the requirements for the implementation process within such companies. The most crucial requirement that companies should consider and ensure is promptly followed is whether the company has met the standards set by the Environmental Protection Agency. If the service companies have not complied with the agency’s requirements, they should ensure all standards are met to prevent closure by the government branch responsible for environmental protection. Secondly, the media to be used to disseminate the disclosures should be chosen wisely. Thus, it’s a requirement that a company ensures the media utilized reaches a large number of interested parties. To alleviate political pressure and community concern, environmental disclosures should be disseminated in an honest manner (Deegan, 2002).

The requirement of making environmental disclosures in an honest manner implies that organizations should relay all their practices to the community. In summary, Australian corporations are reluctant to disclose information on environmental issues, and service companies that do disclose their environmental issues often reveal only the positive information. The primary reason these industries are hesitant to disclose their information is that they bear both positive and adverse effects on the community. The following section discusses the negative and positive implications for society. Companies or corporations in the Australian services industry are notably lagging behind other developed countries on issues pertaining to environmental happenings. Consequently, there is always a significant difference that exists amongst the content of their corporate conservation strategies and their consequent environmental policies and disclosure in their annual information or report. This is one of many reasons why there is a pressing need for implementation of various environmental disclosure requirements to guide companies in the service industry towards the right direction in the present and future (Deegan & Gordon, 2012).

Companies need to be enlightened on issues regarding environmental disclosure, since many seem to only report on environmental matters internally where they place a low priority on providing useful environmental data to outside parties, which should not be the case. Awareness of the requirement of implementation of environmental disclosure in the Australian service industry helps those companies in politically sensitive sectors to be able to provide the most positive disclosure outcomes. Therefore, it is important to note that environmental disclosure is potentially one of the means that can alleviate political pressure and community concern as a whole. In fact, most Australian corporations are generally reluctant to disclose information on environmental concerns and if they do, they mostly report on the positive information. Despite the existence of incentives such as reputation effects and the potential for litigation to release controversial news rather than positive ones, these incentives in most situations seem strong enough to cause the disclosure of EPA trials or other related environmental data and their unpopularity publicity.

According to Tilt, (2012), in contrast, the recent surge in such disclosures over a given period shows a growing consciousness of corporate social responsibilities in the country. Following recent research conducted in Australia by the likes of Rankin and Deegan, they advocate the importance and role of legitimacy theory in explaining the extent and nature of public and environmental facts disclosure in some of the annual reports. Most argue that the way various organizations operate and report is influenced to a large extent by the social values of the society in which they exist. Thus, adopting a legitimate viewpoint, various companies utilize specific social disclosures to validate their existence. This means that corporations will disclose information to legitimize their current operations that are happening in a particular society (Ford & Verreynne, 2014). The company is expected to adhere to the guidelines of this contract, clearly demonstrating that these terms are not static.

In the event of a breach of these guidelines, due to an inability to validate its ongoing procedure, the agreement may be rescinded. These breaches typically come in various forms, ranging from embargoing merchandise to discontinuing labor, investments, and supplies, while also augmenting levies. Eventually, penalties imposed by the government, as a result of lobbying by constituents, come into play. Changes in these terms impair the disclosure practices and protocols of companies operating within society. In terms of the environmental disclosure requirement’s implementation, the Environmental Protection Authority in Australia frequently lacks adequate notification in most annual reports. Hence, if deemed necessary, there should be patterns put in place to regulate this for better outcomes in the future.

Considering current evidence, it’s challenging to envision how disclosure, overseen by a not-for-profit regime, would be more favorable. This is especially considering that voluntary disclosure is under-effective when it comes to providing sufficient notification of adverse environmental impact information. It also fails to allow other financial statement users to adequately differentiate between weak, moderate, and favorable environmental performances. As noted, inherent uncertainty about the materiality of environmental liabilities and the absence of a formal reporting requirement leaves many firms with leeway concerning the nature and extent of environmental disclosure. Additionally, parties viewed as external to the firm distribute information relating to firm environmental performance through venues like EPA Prosecutions. This has always resulted in increased public awareness of information that was previously considered part of a manager’s private reserve in many firms.

As a result of these situations, there is often an incentive to increase the environmental disclosure of many firms in the Australian service industry. Detailed explanations of the factors that affect the overall level of voluntary environmental disclosure have shown reduced environmental performance. These studies have found that voluntary environmental disclosure is negatively correlated with the extent of various private costs and positively correlated with firm size within the service industry. Basically, the smaller the proprietary cost, as indicated by the level of product market competition in the service industry, the larger the volume of voluntary environmental disclosures tends to be.

Various researchers argue that environmental disclosure, in its current form, is essentially a method of allowing firm managers to convey a specific message to financial stakeholders. The crucial point is that managers engage in impression management, persuading governments, commercial stakeholders and, to a lesser extent, environmentalists, that the firm is a responsible corporate citizen. As a result, many firm managers choose which environmental facts and information to report, which often determines what data they are willing to disclose to the public. This occasionally leads to downplaying or misrepresenting the negative environmental performances and impacts of their firms in the service industry. In conclusion, most companies tried by the Environmental Protection Authority disclose only minimally, typically focusing on self-protection or the dissemination of negative environmental facts.

Thus, there is a need for improvement in the environmental sector among many firms, as there has been no improvement in environmental disclosure—a fact argued earlier by researchers such as Ranking and Deegan. According to Tilt (2007), detailed facts and evidence reveal that the issue of environmental disclosure is actually very low; hence, action is warranted. This is because many firms’ submissions on matters relating to environmental disclosure are often incorrect. Ideally, voluntary disclosure should provide adequate notification of the prosecutions, a point also discussed herein. Moreover, voluntary reporting does not cover the poor performance of many firms with regards to releasing information with a negative bias. Australian service industry firms should be encouraged to implement the various requirements of environmental disclosure as this would ensure the future success of various parties involved in the country.

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References

Deegan, C., & Gordon, B. (2012). A study of the environmental disclosure practices of Australian corporations. Accounting and business research, 26(3), 187-199.
Tilt, C. A. (2012). The content and disclosure of Australian corporate environmental policies. Accounting, Auditing & Accountability Journal, 14(2), 190-212.
Ford, J. A., Steen, J., & Verreynne, M. L. (2014). How environmental regulations affect innovation in the Australian oil and gas industry: going beyond the Porter Hypothesis. Journal of Cleaner Production, 84, 204-213.
Tilt, C. A. (2007). Environmental policies of major companies: Australian evidence. The British Accounting Review, 29(4), 367-394.
Trotman, K. T., & Bradley, G. W. (1981). Associations between social responsibility disclosure and characteristics of companies. Accounting, organizations and society, 6(4), 355-362.
O’Donovan, G. (2002). Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory. Accounting, Auditing & Accountability Journal, 15(3), 344-371.
Deegan, C. (2012). Introduction: The legitimising effect of social and environmental disclosures’ theoretical foundation. Accounting, Auditing & Accountability Journal, 15(3), 282-311.

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