Towards Emissions Trading: The Role of Environmental Management Systems in Voluntarily Disclosing Greenhouse Gas Emissions

Abstract

The Australian government ratified the Kyoto Protocol in 2007 signifying their commitments to address global warming and associated harmful climate change. Central to the Government's strategy is the proposed emissions trading scheme (AETS) now mooted to begin in 2011. Credible, transparent and efficient information is necessary to inform such a market, hence the National Greenhouse and Energy Act 2007 requires annual mandatory reporting of GHG emissions from 1 July 2008. This study examines GHG emissions disclosure practices of Australian companies as well as their motivations to voluntarily report emissions before mandatory reporting, from a legitimacy perspective. A logit regression is used to analyse the link between voluntary GHG emissions disclosure (VEmD) and: the existence of an Environmental Management System (EMS); presence of an environment committee; CEO membership of the environment committee; firm size and industry category of 271 ASX300 firms. The findings reveal that firms with an EMS in place are more likely to disclose discretionary GHG emissions data. Firms that have certified their EMS (ISO 14001) are more inclined to voluntarily GHG emissions information than firms without a certified EMS. Energy and mining firms demonstrate a higher propensity to disclose GHG emissions information than other industries. Firm size was also positively related to VEmD. Findings of this study not only emphasize the importance of an EMS as a device to manage environmental impacts of a firm's operations, but it also shows the role of an EMS in bridging the communication between firms and their relevant stakeholders.

Keywords: voluntary emissions disclosure, environmental management system, legitimacy

JEL Classification: M48, Q56