Ruth Solomons, Suzette Viviers, Nadia Mans-Kemp and Lisa Woker contend that an unfavourable environmental reputation could spell disaster for a company's sales and input and financing costs.
In an age where a company’s environmental reputation can be shattered in an instant, transparency and sound communication are key. There is a growing body of international literature highlighting the link between environmental disclosure and environmental reputation. Most studies report a positive relationship between these two variables, suggesting that companies that fall short on environmental reporting are likely to be perceived in a negative light by stakeholders. A negative environmental reputation could lead to lower sales as well as higher input and financing costs.
Given that limited research has been conducted on this topic in South Africa, we sourced environmental disclosure scores (E-disclosure scores) from the Bloomberg database for 130 JSE-listed companies over the period 2009 to 2016. The data provider summarises data from annual/integrated reports, corporate social responsibility reports and company websites. Bloomberg also conducts proprietary surveys to source specific information directly from companies.
We measured positive environmental reputation by considering whether or not a company received any of the following forms of public recognition for its green efforts: the Sunday Times Green Award; the Imvelo Award, the Eco-Logic Award or the Wildlife and Environment Society of South Africa Award; Global Reporting Initiative compliance; the Climate Change Leadership Award; the Climate Change Leadership Award Special Mention; favourable mentions by local environmental groups; and the Carbon Disclosure Project A-list rating.
Negative environmental reputation was based on whether or not a company was publicly condemned on environmental grounds. We paid specific attention to criticism and judgments by the Centre for Environmental Rights and the Federation for Sustainable Environment, mentions in the Department of Environmental Affairs’ national compliance and enforcement report, criticism by Greenpeace, Earthlife Africa and Groundwork , Earthlife Africa protest or picketing, issues raised by the South Durban Community Environmental Alliance, and environmental fines.
We analysed 746 observations across all economic industries. The mining industry featured prominently, given its contribution to economic growth and job creation. It is estimated that this industry added 4.6% to gross domestic product in 2017 and employed close to 500 000 workers. The industry is also interesting from an environmental reputation point of view, as it is often associated with water and air pollution and the destruction of biodiversity.
Our findings suggest that, although more companies disclosed details on their environmental policies and practices, disclosure appears to be taking place at a slow pace. Overall, the sampled companies only increased their E-disclosure scores by 13.64% from 2009 to 2016. The average E-disclosure score over the period was a mere 25 out of 100. The low average E-disclosure score was unexpected, as JSE-listed companies have been obliged to publish more details on environmental matters in their integrated reports since 2011. Mining companies, for example, managed to increase their average E-disclosure score from 25.39 out of 100 in 2009 to 33.77 out of 100 in 2016. This finding is particularly disconcerting, given increased pressure from shareholders and stakeholders for greater transparency in this respect.
A statistically significant negative relationship was reported between E-disclosure score and a negative environmental reputation. This suggests that the sampled companies with a high E-disclosure score generally had a low negative environmental reputation. Stated differently, companies with higher levels of environmental transparency were viewed less negatively by stakeholders. This significant finding also held for the mining industry. The noteworthy negative relationship implies that mining companies that increased the reporting of their environmental policies and practices received less criticism from stakeholders.
JSE-listed companies are strongly encouraged to improve their E-disclosure scores. In doing so, they could reduce some of the adverse effects associated with a negative environmental reputation. Warren Buffett aptly stated that “it takes 20 years to build a reputation and five minutes to ruin it”. Further, media tycoon Rupert Murdoch has stated: “Our reputation is more important than the last hundred-million dollars”. Given their substantial environmental impact, companies should take environmental management and reporting more seriously.
- Solomons, Professor Viviers and Dr Mans-Kemp are academics in the Department of Business Management at Stellenbosch University, while Woker was a postgraduate student in the department in 2017