Reconstrucción general del texto

Signalling theory stems from agency theory, which focuses on agency problems arising from the information asymmetry between the principal and agent. The process of signalling is deemed to reduce the information asymmetry between the signallers and the signal- receivers. The effectiveness of the signalling process depends not only on how signallers communicate information (signal) but also on how signal-receivers interpret such signals (Connelly et al, 2011). The theory suggests that managers (signallers or insiders) have incentives to signal (providing additional disclosure over and above mandatory ones) to potential investors (signal-receivers) in anticipation of obtaining higher returns for the disclosing entities (Connelly et al, 2011; Watts and Zimmerman, 1986). However, investors are not likely to add value to firms if they fail to realise the significance of the signals in their decision-making process. Signalling theory suggests that managers will provide signals when they have incentives to disclose, when the signal is difficult to imitate, and when it is cost- effective (Toms, 2002). Pro-active disclosures of negative incidents could also be regarded as positive signals in terms of enhancing transparency and managing future risks, particularly ‘when accompanied by mentioning of measures taken to overcome these risks’ (Reimsbach and Hahn, 2015, p. 229; Hahn and Lülfs, 2014).

Figure 3.1 below illustrates that if management has made investments in projects that build up competitive advantage in the form of minimising cost, enhancing profitability, gaining competitive pre-emption and building reputation and future performance, then, in line with signalling theory, it can be argued that they clearly have compelling incentives to inform their stakeholders about their performance. It is suggested by Toms (2002, p. 261) that:

In terms of environmental disclosures, it follows that specified, quantifiable and verifiable information will be perceived to be of higher quality.

Thus, in relation to the sustainable development strategy, information about corporate environmental planning and programs, their outcomes and environmental review reports would be perceived as possessing enhanced quality. Such disclosures demonstrate better environmental responsibility and accountability than the disclosures that are merely rhetorical and descriptive.

Toms (2002) conceded that it would be very difficult for a firm that is not pursuing environmentally responsible strategies to imitate a legitimate competitor if the latter followed a signalling strategy in providing disclosures. Thus, it can be argued that high quality corporate environmental disclosure has the ability to demonstrate credibility, trustworthiness and environmental responsibility, which, in the sense that it is hard to imitate, provides a crucial link to NRBT. By serving the purpose of enhancing the reporting entity’s reputation and brand, high quality disclosures serve as an important source of competitive advantage (Welford and Frost, 2006; Freundlieb et al., 2014).

Based on the above discussion, the theoretical model provided in Figure 3.1 was developed for this project to explain company motivation for providing enhanced environmental disclosures. The model demonstrates how NRBT and signalling theory would be used to indicate the role of environmental disclosures as a strategic tool in gaining competitive advantage in today’s environmentally constrained market.

Figure 3-1: Role of NRBT and signalling theory in explaining environmental disclosures

In order to demonstrate the links between the model and corporate environmental disclosures, the Australian Government’s Renewable Energy Target (RET) scheme2 (2009) could be used as an example. This scheme sets the RET at 20 per cent of Australia’s

2 _{The Renewable Energy Target Scheme was introduced in 2001 and expanded in 2009 and 2010. It requires} electricity companies to ensure that by 2020 at least 20% of Australia’s electricity needs come from renewable sources (Department of Environment, Australian Government, 2010).

Environmental constraints due to increased community awareness and emerging environmental regulations

Motivates firm managers to implement environmental strategies

Pollution prevention: cost saving from energy and raw material saving, emission, effluents and

waste reduction and avoiding fines

Product stewardship:

new revenue from designing environmentally responsible products and processes Sustainable development: increased environmental reputation and brand image from environmental

commitment or shared vision of future

True performers of these strategies will provide specific, necessary and sufficient

information or disclosure

To demonstrate their environmental performance and to realise the merit of implementing the environmental strategies

Derive competitive advantage

Natural resource- based theory

Signalling theory New competition by product differentiation

in emerging environmental market

Increases profitability and capital efficiency

Increases growth

Increases shareholder value

electricity supply by 2020 (Department of Environment, Australian Government, 2010). This regulation not only restricts the ability of companies to use exhaustible fossil fuels, but also compels them to find alternative sources to produce energy. Reviews of the 2009 sustainability reports of Australian Gas and Light Company Limited (AGL) and Origin Energy Limited (ORG), the two major developers and distributors of gas and electricity in Australia, showed that both companies provided detailed disclosures on energy generation and emission, including capital expenditures and production capacity of their renewable investment projects. These disclosures were provided voluntarily, consisting of scientific data, the methods used to prepare such data, descriptions (narratives with numerical data) and pictures of their renewable investment projects. According to the theoretical model, the motivation to provide such disclosures cannot be explained as mere legitimation techniques; such disclosures also signal the competitiveness of the entities in terms of demonstrating their organisational ability in managing the environmental constraints imposed upon them.