Study Urges Firms to Be More Transparent with Their Environmental Practices

A paper entitled Sustainability Accounting, Management and Policy Journal and published by Michel Magnan, an accountancy professor at the John Molson School of School of Business, showed that companies that adopt a more transparent stand on environmental policies tend to be better economic performers than those that are averse to such disclosure.

The study looked into the environmental practice and management policies of 78 firms in the United States that work in environmentally sensitive industries from 1997 to 2010. It divided the companies into two groups based on their yearly disclosure reports and annual regulatory filings.

The first group was classified as “high performer” firms, where their environmental performance was scored positively against government regulations based on pollution guidelines, emissions data, and other similar standards. On the other hand, “low performer” firms were those that scored poorly on these metrics.

These two groups also tend have different levels of disclosure to their stakeholders. High performers will readily provide more information in verifiable and quantitative terms. Conversely, low performers will try to manage impressions by delivering vague and unspecific information to their stakeholders.

The open approach of high performing firms made it easier for them to build trust and public good will, which can translate to better economic dividends down the line.

The study noted that there was a growing pressure for companies to be more transparent with it comes to their environmental performance. Firms that move toward this direction can expect their governance model to pay off in the end since they are operating in good faith due to their transparency.

Companies that tend to cover up their environmental performances may be able to rectify any damages in the short term, but they can expect long term consequences to hit them harder when information like this becomes public.

Environmental Policy in the US

The official environmental policy of the United States was signed under the US National Environmental Act by President Richard Nixon in 1970. It established a comprehensive environmental policy that was followed up by several environmental laws and supporting a campaign of environmental friendliness in the coming decade that regulated air and water pollution.

The US was the first country to enact an environmental impact statement (EIS) that looks into the impact of proposed federal actions on the environment. As a result, other nations adopted similar provisions that followed the EIS process of the US.

(via Concordia University)

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