Circunstancias típicas

In order to identify the quality of disclosures, this project adopted a novel approach. In previous studies, arbitrary sets of criteria have been established based on the information content or the nature of the disclosure, to analyse the inherent quality of that disclosure. For example, studies have used criteria such as no disclosure, general description, specific disclosure, monetary or quantitative disclosure (Cormier and Magnan, 2003; Wiseman, 1982; Toms, 2002; Beck et al., 2010). In this project, a set of quality criteria was prepared based on an overview of the quality criteria presented in the accounting and environmental reporting frameworks and guidelines of the IASB, the CDSB and the GRI.

The reasons for using these reporting frameworks and guidelines are threefold. First, the observed commonalities across these guidelines indicate that there is more agreement than disagreement regarding the qualitative attributes of disclosure. As asserted in Freundlieb et al. (2014), despite the different backgrounds (such as accounting or environmental) of the frameworks and guidelines, the stated quality criteria are found to be quite similar. For example, although CDSB has an environmental focus, it relies on the ‘experience’ of the members of the IASB to confirm the attributes of quality of disclosures. Thus CDSB has ‘adapted IASB’s qualitative characteristics for application to climate change-related disclosures’ (CDSB, 2009, p.20). Second, these frameworks and guidelines tend to incorporate various stakeholders’ (including report readers) inputs, which add a sense that these attributes are important. Third, report preparers tend to follow these guidelines when preparing reports. An overview of the quality criteria described in these frameworks and guidelines is presented in Table 4.3.

Table 4.3: List of quality attributes addressed by different guidelines and frameworks Attributes of quality Explanatory attributes The Frame work (IASB) CCRF (CDSB) G3 (GRI) Relevance √ √ √ Materiality √ √ √

Representational faithfulness/reliability Verifiability √ √

Completeness √ √ Neutrality √ Accuracy √ Comparability √ √ √ Understandability √ √ √ Timeliness √ √ √

Out of the six criteria shown in Table 4.3, five were selected to analyse the quality of environmental disclosures. These are: relevance, materiality, representational faithfulness, comparability and understandability. Timeliness of disclosure is identified as an enhancing qualitative characteristic of disclosures in IASB Framework. If there is an undue delay in disclosing information it may lose its capacity to influence decision-making. IASB Framework regarded timeliness as an additional aspect of relevance. Hence, instead of analysing separately, timeliness is considered under relevance in this project. Further, CDSB’s (2009) interpretation of timeliness suggests that, environmental impacts of certain organisational activities can be long lasting. Hence, environmental information related to such activities may continue to be timely for longer periods as some users may continue to consider such information when making decisions. Further clarification of the quality criteria used in this project is presented below.

Relevance

For the purpose of this study, the criterion relevance refers to the ability of a disclosure to provide information in relation to the environmental impacts of an entity’s operation and the entity’s capability to manage such impacts. Such a notion extends the scope of relevance beyond the information needs of financial stakeholders (such as investors and creditors). It draws upon the interrelatedness and dependencies of organisational factors with the ongoing depletion of the amount and quality of the natural resources of the planet.

This view is also supported by the International Integrated Reporting Framework (IIRF) developed by the International Integrated Reporting Council (IIRC, 2013 p.16) under the notion of ‘connectivity of information’. Therefore, information about the environmental disclosure categories and sub-categories included in the extended list of disclosure categories and sub-categories (Appendix 1) were considered relevant for the purpose of analysis.

Materiality

Information is material if its omission, misstatement or misinterpretation could affect users who rely on such information to make decisions (IASB Framework 2010). However, it is acknowledged that ‘it is not possible to specify a uniform quantitative threshold at which a particular type of information becomes material’ (CDSB, 2012, p.16). Instead, it is recognised that materiality is ‘an entity-specific aspect of relevance and therefore, it will be different for each organisation’ (CDSB, 2012, p.16). However, CDSB (2012, p.17) suggests that ‘materiality by size’ would be met if information is reported as absolute and normalised measurement units; whereas, ‘materiality by nature’ would represent reporting of significant events and risks associated with the environmental impact of entities’ operations.

Representational faithfulness

Information is representationally faithful when it represents the activity or action of the organisation without any bias; otherwise it becomes misleading and falls short in terms of quality (IASB Framework, 2010). This criterion represents a number of sub-attributes, namely, verifiability, completeness, neutrality and accuracy.

Completeness of information refers to the inclusion of all necessary descriptions (IASB Framework, 2010) comprising information about the size, nature and scope of likely impacts (GRI, 2006) of organisational activities for assessing the environmental performance of a reporting organisation. While the notion of ‘free from error’ with regard to the descriptive disclosures would be determined by the degree of clarity and detail information, for quantitative information, on the other hand, it may depend on the specific methods used to gather, compile and analyse data.

For the purpose of analysis, the notion of verifiability is considered to be a substitute for representational faithfulness in this study. It is assumed that if information is provided in a verifiable manner, an independent third party would be able to investigate the completeness and accuracy of the reported information. A disclosure is considered to be verifiable if any of the following criteria is met:

a) The disclosure should be quantified in units, where applicable, and it needs to be associated with a method of calculation or basis of assumption and preparation. b) There should be a reference in the annual report that a company is required to

provide environmental disclosure in compliance with a specific Act or protocol (for example, the Energy Efficiency Opportunity Act 2006). In that case, the company would be assumed to follow the calculation methods or bases prescribed under such Acts or protocols.

c) An independent third-party verification report should exist with specific reference to whether the disclosures on a sub-category are covered under the verification process.

Tied to the notion of representational faithfulness, it is suggested in the literature that ‘specific’, ‘quantifiable’ and ‘verifiable’ disclosures are deemed to have higher quality than disclosures of ‘general policy statements’ (Toms, 2002; Al-Tuwaijiri et al., 2004; Hammond and Miles, 2004; Clarkson et al. 2008). Toms (2002) stressed that numerical environmental disclosure would be considered high quality, assuming that preparation of such disclosures requires scientific measurement systems and procedures. The author further emphasised that firms that do not have any underlying measurement system are not able to imitate such disclosures, whereas they might easily provide general rhetoric on their environmental policy and commitment. Clarkson et al. (2008, p. 309) also implied that information provided in a quantifiable and verifiable manner represents ‘hard’ and ‘objective’ reflections of organisational performance. They asserted that organisations are less likely to make false claims with numbers given the possibility of being caught by an ‘informed stakeholder’. The authors provided ‘anecdotal evidence’ in favour of their assertion, as follows:

Greenpeace issued a press release on October 14, 1994 accusing MacMillan Bloedel of deliberately lying to the public by claiming that, in 25 years, the company had been convicted of only 15 environmental offenses. Greenpeace identified 26 convictions in the last four years (p. 309).

Comparability

According to IASB Framework (2010) comparability is the quality of information that enables users to understand and detect similarities in, and differences between, two sets of items. Information about an entity represents usefulness to users if they can compare it with similar information about other entities or about the same entity for other periods. Therefore, in this project, comparability is evaluated on the basis of whether information is presented in the form of ratios, comparative tables, charts or graphs, or even in narratives where comparison by year or by industry average is mentioned.

Understandability

According to IASB Framework (2010), understandability is the quality of information that enables users who have a reasonable knowledge of business and economic activities and financial reporting, as well as the ability to study information with reasonable diligence, to comprehend its meaning. It is emphasised that understandability is enhanced when information is classified, characterised and presented clearly and concisely. According to the GRI (2006), the use of graphics, comprehensive data tables and charts could enhance the understandability of disclosures. For example, company performance regarding energy use would be better understood if that usage is reported in terms of energy sources, like purchased energy, energy generated from gas, coal and other sources. Classified information on waste disposal, on the basis of toxic/non-toxic, would be more helpful in ascertaining a company’s waste disposal performance. Therefore, understandability was sought in this investigation by ascertaining whether reported information was presented in a classified manner and/or using charts or tables.

A set of quality criteria was established based on the commonalities observed among the quality attributes suggested by the GRI, CDSB and IASB. In ascertaining the quality attributes, a number of frameworks and principles were omitted, such as that of the World Business Council for Sustainable Development (WBCSD), the International Organization for

Standardization (ISO) and the Bellagio Principles for Sustainability Assessment. Such an omission might be perceived as a limitation in setting out the quality criteria. However, the WBCSD is regarded as more ‘general and recommendatory’ compared to the GRI and, while the ISO refers to a procedure for environmental communication, it does not provide any ‘concrete suggestion regarding content or key performance indicators’ (Freundlieb et al., 2014, p. 23). Further, the Bellagio Principles do not yet constitute a separate framework; instead, they are used to evaluate existing frameworks (Fonseca et al., 2014).

4.6 Chapter summary

In this chapter, an overview and rationale for using a number of reporting frameworks and guidelines for ascertaining the quality of environmental disclosures is provided. Table 4.2 exhibits that some of the disclosure themes, such as, identifying business impacts on environment, risks and opportunities, setting performance targets, energy use and emission disclosures are commonly found among the G3 guidelines, GCDF, the CCRF and Code 2000. A review of the quality attributes suggested in the IASB, CDSB and GRI revealed five quality criteria, and these were used for examining the quality of environmental disclosures. The quality criteria are relevance, materiality, representational faithfulness, comparability and understandability. The discussion provided in Section 4.5 demonstrated that these criteria would be met if disclosures convey ‘specific’ and ‘quantifiable’ information substantiated with a ‘calculation method’ or a protocol reference and ‘comparative data’. Such a discussion served as a basis for developing a coding tool for analysing the quality of environmental disclosures which is described in Chapter 5.