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Pacific Accounting Review

An analysis of Australian company carbon emission disclosures
Bo Bae Choi Doowon Lee Jim Psaros
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Bo Bae Choi Doowon Lee Jim Psaros, (2013),"An analysis of Australian company carbon emission
disclosures", Pacific Accounting Review, Vol. 25 Iss 1 pp. 58 - 79
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PAR
25,1 An analysis of Australian
company carbon emission
disclosures
58
Bo Bae Choi, Doowon Lee and Jim Psaros
Newcastle Business School, University of Newcastle, Newcastle, Australia

Abstract
Purpose – This study aims to report the extent of voluntary carbon emission disclosures by major
Australian companies during the years 2006 to 2008. This paper provides contemporary data and
explanations about carbon emissions reporting in Australia. Additionally, the paper aims to determine
the variables that explain the extent of carbon disclosures.
Design/methodology/approach – The carbon disclosure score is measured directly from
individual companies’ annual reports and sustainability reports. A checklist is established to
determine the breadth and depth of the information related to climate change and carbon emissions
incorporated in these publicly available reports.
Findings – The overall carbon disclosure score has increased significantly over the authors’ research
period. Furthermore, regression results show that larger firms with higher visibility tend to make more
comprehensive carbon disclosures. Overall, the authors’ results indicate that the legislation of the
National Greenhouse and Energy Reporting Act (the NGER Act) in 2007 may have enhanced
the voluntary carbon emission disclosures in 2008, even though the NGER Act was not operative until
the 2009 financial year. From a theoretical perspective, the findings of the paper are consistent with
legitimacy theory.
Originality/value – Previous studies examining environmental disclosures in Australia are based
on a time period prior to widespread public discussion and interest in climate change and carbon
emissions. By investigating voluntary disclosures made by large Australian companies around the
time that the mandatory emission reporting scheme was introduced, this paper investigates whether
the prominence of discussion and impending operation of the mandatory environmental disclosures
have led to a greater extent of voluntary carbon disclosures. The findings can help regulators draft
appropriate legislation that targets industries and specific practices where disclosure is of greatest
importance to relevant stakeholders. In addition, an understanding of who and why entities disclose
carbon gas emission information can arm green groups and other stakeholders with an appropriate
level of understanding about the motivation for such disclosures.
Keywords Carbon emissions, NGER Act, Voluntary disclosures, Carbon, Emission, Disclosure,
Information disclosure, Australia
Paper type Research paper

1. Introduction
Global warming has become an increasingly important political and business issue for
most countries. There have been strong calls from environmental, business and
political leaders to respond to the myriad of challenges that the threat of global
warming brings. One part of the challenge is the need for entities to understand and
communicate their contribution to global warming resulting from carbon emissions.
Pacific Accounting Review Presumably, the rationale for this understanding is that greater awareness of the scope
Vol. 25 No. 1, 2013
pp. 58-79 of the problem will likely lead to more environmentally responsible decision-making.
q Emerald Group Publishing Limited
0114-0582
Most Western countries, including Australia, have chosen to tread carefully in
DOI 10.1108/01140581311318968 mandating environmental disclosures, including carbon emissions reporting.
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The general theme has been to encourage entities to make environmental disclosures, Carbon emission
but not to mandate them. disclosures
In many respects, while the reporting of carbon emissions is a relatively new concept,
the broader issue of environmental disclosure has been investigated in many different
national contexts and over many years. For example, in a US context, Hogner (1982)
analyses the social performance information of a major US steel company in its annual
report. In the UK, Gray et al. (1995) examine the social disclosure policies of UK firms. 59
In a German context, Cormier et al. (2005) review the environmental disclosures of large
companies. In Spain, Larrinaga et al. (2002) examine Spanish environmental disclosure
standards. In Ireland, O’Dwyer et al. (2005) study users’ needs in sustainability reporting. In
Australia, there is a long history of literature examining and analysing the environmental
reporting practices of companies (Trotman and Bradley, 1981; Deegan et al., 1995; Burritt
and Welch, 1997; Brown and Deegan, 1998; Christopher et al., 1998; Tilt and Symes, 1999;
Frost and Wilmshurst, 2000).
More recently, studies such as Frost (2007), Simnett and Nugent (2007) and Cowan
and Deegan (2011) examine the environmental and carbon emission disclosures of
selected Australian companies. For example, Simnett and Nugent (2007) find that during
2005, only 139 of 1,485 Australian firms voluntarily disclose information on carbon
emissions in either their financial report or sustainability report. Cowan and Deegan
(2011) find that the establishment of the National Pollutant Inventory (NPI) increased
voluntary emission disclosures by 25 Australian firms from 1998 to 2000 but conclude
that the quality of the disclosures is questionable. While previous studies provide
various explanations of Australian companies’ emission reporting practices, they
are based on a period prior to the recent widespread public discussion and interest in
climate change and carbon emissions. Since the introduction in mid-2007 of a mandatory
reporting system, The National Greenhouse and Energy Reporting Act (the NGER Act),
there has been a significant increase in public awareness of climate change and carbon
emissions. Such changes in social and regulatory environments provide an opportunity
to investigate how Australian companies have reacted to those changes.
This paper examines the practices of Australian companies in reporting their carbon
emissions and policies related to such emissions during the years 2006-2008. The paper
has two key aims. The first is to report the extent of voluntary carbon emission
disclosures by major Australian companies for the years 2006-2008, inclusive[1].
The second is to investigate the variables that explain the extent of carbon emission
disclosures. Therefore, the contribution of the paper is to provide contemporary data
and explanations about voluntary carbon disclosures by Australian companies. During
our research period, there was intensive discussion of the introduction of a mandatory
carbon emission reporting scheme but no increase in regulations. By investigating
voluntary disclosures made by large Australian companies, this paper investigates
whether the prominence of discussion and impending operation of the mandatory
emission disclosures may have led to increased voluntary disclosures.
To measure the extent of carbon disclosures, we develop a checklist based on the
information request sheets provided by the carbon disclosure project (CDP). The CDP is
an independent non-profit organisation holding the largest volume of climate change
information in the world, from more than 3,000 organisations in 60 countries.
The provision of data to the CDP is made on a voluntary basis. Some Australian listed
public companies chose to make such voluntary disclosures to the CDP, but most
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PAR did not[2]. We examine the disclosures of the largest 100 Australian companies based on
25,1 published annual reports and sustainability reports. Our findings suggest that the
number of Australian companies providing voluntary carbon disclosures has increased
substantially from 2006 to 2008. In addition, the overall extent of information on carbon
emissions and climate change improved in the following areas: the assessments of risks
and opportunities provided by climate change, the detailed disclosures of carbon
60 emissions, the quantification of energy consumption from different sources, the strategies
to reduce carbon emissions, and the proper accountability for climate change strategies.
We find that firm size, the level of carbon emissions, and quality of corporate governance
are key explanatory variables for determining the extent of voluntary carbon disclosures.
Firms in emission intensive industries including energy, transportation, materials, and
utilities, also show a high disclosure score. These findings are consistent with legitimacy
and organisational visibility theory. We also find a significant increase in the extent of
voluntary carbon disclosures in 2007 and 2008. Our results suggest that the introduction
of the NGER Act in September 2007 may have enhanced voluntary carbon emission
disclosures in the 2007 and 2008 financial years, even though the NGER Act did not
require companies to report carbon emission disclosures until the 2009 financial year.
In aggregate, the findings of the paper help to understand which Australian entities
disclose information pertaining to carbon emissions and why they disclose it. The
findings can help regulators develop legislation that targets industries and specific
practices where disclosure is of greatest importance to stakeholders.
Our paper proceeds as follows. Section 2 reviews the current regulations related to
Australian environmental reporting and then develops hypotheses. Section 3 describes
the research design of the paper. The results of our analysis are contained in Section 4.
Finally, Section 5 provides concluding comments for the paper.

2. Literature review and hypotheses

2.1 Review of australian legislation on environmental reporting
Frost (2007) provides an overview of the major influences on Australian environmental
reporting. He notes that while Australian regulators have not been active in introducing
mandatory environmental reporting within the corporate annual report, there are several
guidelines on the voluntary inclusion of environmental information in the annual report.
These guidelines have been developed by Australian Governmental bodies (NSW
Environment Protection Authority, 1997; Victoria Public Accounts and Estimates
Committee, 1998, 1999; Commonwealth of Australia, 2000) and by industry groups
(see the Minerals Council of Australia’s (2000) Code for Environmental Management).
These guidelines facilitated voluntary disclosures of environmental information, but as
noted by Frost (2007), the disclosures were not subject to independent audit or the
scrutiny of the Australian Securities and Investments Commission.
From a regulatory perspective, relevant but arguably ineffective legislation is
contained in Section 299(1)(f) of the Corporations Act 2001. The section was introduced
into the legislation in 1998 and mandates some level of environmental reporting.
The section requires companies to include in their annual Directors’ Report information
about operations and activities. Additionally, the section states:
[. . .] if the entity’s operations are subject to any particular and significant environmental
regulation under a law of the Commonwealth or of a State or Territory, [the Directors’ Report
must] give details of the entity’s performance in relation to environmental regulation.
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The introduction of this legislation was intended to increase relevant environmental Carbon emission
disclosures. Furthermore, noncompliance with the section is a contravention of s. 344(1) disclosures
of the Corporations Act and directors may be banned from managing a company
and/or fined a maximum of $220,000. Notably, the section has not been well received by
Australian legal practitioners. For example, members of Freehills, a major Australian
law firm, described Section 299(1)(f) of the Corporations Act 2001 (Cth) as “vague and
ineffectual”[3]. 61
Similarly, another major Australian Law firm, Blake Dawson, noted the following:
The Corporations Act does not provide any guidance as to the nature of an environmental
regulation which would meet the “particular and significant” materiality threshold under
Section 299(1)(f), or the aspects of the entity’s performance which may need to be disclosed.
ASIC prepared some guidelines on the interpretation of this provision (see Regulatory Guide
68), but they are very general in nature[4].
There are additional sections of the Corporations Act that implicitly require companies
to make environmental disclosures. For example, Sections 295-297 of the Corporations
Act mandate the disclosure of environmental information in the company’s financial
report but only to the extent that it affects the company’s financial position and
performance. Significantly, this mandate does not create a requirement to disclose
nonfinancial environmental information. Furthermore, Section 299A(1) requires the
Directors’ Report to contain information that members of the company would:
[. . .] reasonably require to make an informed assessment of the operations of the entity
reported on, the entity’s financial position, and the entity’s business strategies and its
prospects for future financial years.
The Explanatory Memorandum to the Bill 2003 states that Section 299A was drafted in
broad terms and when considering the issues to be addressed in their review, directors
should regard best practice guidance such as that prepared and published by the Group
of 100 Inc. (G100). Significantly, the G100’s Guide to Review of Operations and Financial
Condition notes that the review of the company’s operations and performance in the
Directors’ Report should include multiple perspectives, such as “sustainability
measures including social and environmental performance measures”.
A more recent development in mandatory environmental reporting is the
introduction of the NGER Act, which was introduced on 15 August 2007 and passed
in parliament one month later. The NGER Act requires a corporation exceeding certain
emission and energy usage thresholds to report its greenhouse gas emissions and
energy use starting in the 2008-2009 financial year. The passage of this mandatory
reporting system has provided a national framework for corporate reporting and
a unified channel for the distribution of information about greenhouse gas emissions
and energy use and production.
Eight months before the introduction of the NGER Act, the Prime Ministerial Task
Group Report on Emissions Trading (the Task Group) was established to “advise on
the nature and design of a workable global emissions trading system (ETS) in which
Australia would be able to participate”. One month before the submission of its final
reports, the Council of Australian Governments (COAG) agreed to establish
a mandatory reporting system. The COAG is the top intergovernmental forum,
which is composed of the Prime Minister, State Premiers, Territory Chief Ministers,
and the President of the Australian Local Government Association. The general
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PAR purpose of the COAG is to initiate, develop and guide the implementation of significant
25,1 policy reforms. The final report of the Task Group recommended the introduction of
market-based approaches for carbon trading. Additionally, the report stressed the
importance of an integrated reporting system as a foundation of the carbon emissions
trading scheme.
As noted previously, the NGER Act will compel Australian companies to report
62 annually on greenhouse gas emissions, energy production and energy consumption at
certain thresholds. Companies will be required to report when an individual facility or
a company in aggregate produces annual amounts of carbon dioxide above set limits or
consumes or produces energy above set limits. In particular, under the NGER Act, the
reporting threshold for corporations is 125 kt or 500 TJ per annum for the 2008-2009
financial year, 87.5 kt or 350 TJ per annum for the 2009-2010 financial year, 50 kt or
200 TJ per annum for the 2010-2011 financial year and thereafter[5]. Companies are
required to classify their emissions under one of three categories: Scopes 1-3. Scopes
1 and 2 emissions must be reported. Companies may optionally report Scope 3 emissions.
The following descriptions of the different categories are provided for clarification:
.
Scope 1: direct green house gas (GHG) emissions. Direct GHG emissions occur
from sources that are owned or controlled by the company – for example,
emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.
and emissions from chemical production in owned or controlled process
equipment.
.
Scope 2: electricity indirect GHG emissions. Scope 2 accounts for GHG emissions
from the generation of purchased electricity consumed by the company.
Purchased electricity is defined as electricity that is purchased or otherwise
brought into the organisational boundary of the company. Scope 2 emissions
physically occur at the facility in which electricity is generated.
.
Scope 3: other indirect GHG emissions. Scope 3 is an optional reporting category
that allows for the treatment of all other indirect emissions. Scope 3 emissions are
a consequence of the activities of the company but occur from sources not owned
or controlled by the company. Some examples of Scope 3 activities are the
extraction and production of purchased materials, the transportation of
purchased fuels and the use of sold products and services.

The most recent and momentous development that may have a significant impact on
the actions and reporting of carbon emissions is the Australian Federal Government’s
formal declaration of a plan to introduce a “carbon tax”. On 10 July 2011, Prime
Minister Julia Gillard announced the Australian Government’s plan titled “Securing
a clean energy future – the Australian Government’s Climate Change Plan”[6]. Many
elements of the plan are well beyond the scope of this paper; however, the intent of the
plan is to introduce a fixed carbon price of $23 per tonne. The proposed legislation, the
Clean Energy Bill 2011, passed both the lower house and the senate in November 2011.
Under the bill, the top 500 polluting companies will be taxed on carbon emissions
starting from July 2012. Because a carbon tax has been formally enacted as legislation,
it will have a significant impact on the monitoring and reporting of carbon emissions
by Australian entities. First, from a governance perspective, senior executives
and directors of corporations will need to ensure that stakeholders are kept informed
and there are clear lines of responsibility for the monitoring and accurate reporting of
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carbon emissions. Second, senior executives and directors of corporations will need to Carbon emission
consider whether the carbon tax will lead to impairment of one or more assets. Under disclosures
the new regulations, carbon emissions reporting will remain an important and
contentious issue.

2.2 Hypotheses development

Although the reporting of carbon emissions is a relatively new concept, there is a 63
strong body of accounting literature which considers theoretical explanations for
entities’ decisions to make social and environmental disclosures (for summaries see
Gray et al., 1995; Deegan, 2002). One widely accepted theory consistent with social and
environmental disclosures is legitimacy theory. It posits that corporate disclosures are
made in reaction to environmental pressure (economic, social, and political) and in
order to legitimise corporate existence and behaviours (Guthrie and Parker, 1989).
Lindblom (1994, p. 2) defines “legitimacy” as:
[. . .] a condition or status which exists when an entity’s value system is congruent with the
value system of the large social system of which the entity is a part.
In the sense that legitimacy theory considers interactions between organisations and
society at large, it can be linked to the concept of a “social contract”. Mathews (1993)
argues that a social contract would exist between organisations and individual society
members provided that society offers organisations with legal rights and authority to
access “resources” such as natural or human resources. Since those resources are
essential for their survival, organisations must continuously seek to comply with the
expectations of the community (consistent with the social contract) to ensure their
operations remain legitimate.
As noted by Lindblom (1994) legitimacy is a dynamic concept which changes in time
and place. Changing community expectations may view what was once perceived
acceptable to be no longer legitimate. Thus, there can be a disparity (called the legitimacy
gap) between the public expectations about how organisations should behave and the
perception on how organisations do act. To remain legitimate, organisations will adopt
strategies to eliminate the gap, for example, by changing the perceptions of the “relevant
publics” through social disclosures (Lindblom, 1994; Gray et al., 1995).
Previous studies on corporate environmental disclosures have identified various
situations that are likely to have created a legitimacy gap. Patten (1992) focuses on the
Exxon Valdez disaster in Alaska in 1989 and shows an increase in environmental
disclosures by North American oil companies after the crisis. Deegan and Rankin (1996)
examine the environmental disclosures by Australian firms which were successfully
prosecuted for breaches of environmental protection laws. They show that the prosecuted
firms disclose more environmental information in their annual reports in the year of
prosecution. De Villiers and Van Staden (2011a, b) also find that firms use different
channels of communication depending on the characteristics of events. They conclude
that firms with poor environmental reputations tend to disclose more environmental
information in their annual reports, but firms with short-term crises prefer to
communicate through their web sites. To date, a vast amount of research has been
conducted to examine the empirical link between legitimacy theory and environmental
disclosures, however, the findings are not uniform. Many studies’ findings are consistent
with the link between legitimacy theory and environmental disclosures (Hogner, 1982;
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PAR Patten, 1992; Gray et al., 1995; Deegan and Rankin, 1996; Buhr, 1998; Savage et al., 2000;
25,1 O’Donovan, 2002), some studies provide “limited” support (Wilmshurst and Frost, 2000),
whereas others provide no support (Guthrie and Parker, 1989).
Conducted within a legitimacy theory framework, our research focuses on the
financial years 2006-2008. During this time period, the NGER Act was not operative for
companies, as the act became legislation in September 2007 and did not require
64 mandatory disclosures for companies until the 2009 financial year. Although the NGER
Act was not yet in effect, discussion of mandatory carbon reporting, an emissions
trading scheme, and other environmental issues was at a premium during the period.
Consequently, while there was no increase in legal regulations during this period, it is
likely that the prominence of discussion and impending operation of the NGER Act
would have led to greater public awareness of the economic and social impacts of global
warming and carbon emissions. Such awareness and public expectation about corporate
policies for carbon emission management would have broadened the legitimacy gap
during our research period. To respond to this environmental pressure, it is expected
that corporate managers would be motivated to provide more carbon disclosures, even
before the actual requirement for mandatory reporting. This line of thinking leads to the
following hypothesis:
H1. The extent of voluntary carbon disclosures is expected to increase during our
research period.
However, not all companies will provide enhanced disclosures and respond to
changing community concern regarding carbon emissions. To find determinants for
voluntary carbon reporting, our paper examines the following variables: the nature of
the entity (whether it is emissions intensive or not), its size, and financial condition.
Previous studies document that environmental visibility plays an important role in
determining corporate environmental responsiveness (Miles, 1987; Ingram and Simons,
1995; Bowen, 2000). The industries associated with particularly visible environmental
issues such as the risk of oil spills, land contamination, and global warming tend to
attract more attention from regulatory bodies, the public, and the media. This can lead to
close public scrutiny or regulatory intervention when high-profile environmental issues
emerge (Ingram and Simons, 1995; Henriques and Sadorsky, 1999; Bowen, 2000). Thus,
companies in environmentally visible industries have strong incentives to proactively
and promptly react to social and political pressure (Bowen, 2000) and provide more
voluntary environmental disclosures in order to maintain their legitimacy (Brammer
and Pavelin, 2006).
To measure the issue of environmental visibility we consider firms operating in
emissions intensive industries. Previous studies document industries with a high
environmental impact, including the metals, resources, paper and pulp, power
generation, water, and chemicals, are associated with high environmental visibility and
show greater responsiveness to environmental issues (Bowen, 2000; Sharma, 1997;
Hoffman, 1999; Brammer and Pavelin, 2006). In an Australian research setting, the
resource industries including metals, oil and gas, and diversified resources, are often
regarded as politically sensitive and firms in those industries are reported to provide
more voluntary disclosures (McKinnon and Dalimunthe, 1993; Collett and Hrasky,
2005). For our study, we focus on emissions intensive industries, and the conjecture that
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firms in those industries will react more directly to the increased environmental Carbon emission
pressures and provide more voluntary carbon emission disclosures: disclosures
H2. The extent of voluntary carbon emission disclosures will be greater in firms
operating in emissions intensive industries.
Our definition of emissions intensive industries follows the guidelines by the EU
emissions trading directive. The energy intensive sectors covered by the EU ETS are 65
steel, mineral, cement, and glass industries, pulp and paper manufacturers, and energy
sectors including oil refineries and power generators (European Commission, 2003).
Recently, the airlines and non-ferrous metal industries have also been included in the
EU ETS (European Commission, 2009). Most of these energy intensive industries have
been highly regulated by the Australian Commonwealth and the State and Territory
Governments regarding the use of energy and production of carbon emissions even
before the NGER Act. Thus, one might presume that it would not require much
additional cost or effort for these companies to make voluntary disclosures as they
might already be providing GHG emission information to regulatory bodies.
However, it should be noted that under the NGER Act, reporting obligations apply
not only to firms in emissions intensive industries (Scope 1) but also to those firms that
are indirectly responsible for large GHG emissions resulting from their electricity
consumption (Scope 2). In other words, firms in industries that were conventionally
considered less sensitive to carbon emissions, such as banking, property development,
and retailing can still be required to make mandatory reports under the new reporting
regulations. Thus, it is important to examine the total emission level of individual
firms. Based on this line of thinking, we posit the following hypothesis:
H3. The extent of voluntary carbon emission disclosures will be greater in firms
with high levels of carbon emissions.
Another common explanatory variable employed by previous studies to explain
voluntary environmental reporting is firm size (Brammer and Pavelin, 2006). The size of a
firm is often used as a proxy for organisational visibility (Henriques and Sadorsky, 1999;
Bowen, 1999; Sharma and Nguan, 1999) because it is thought that larger companies are
exposed to greater pressure from environmental issues due to their high visibility and
thus are likely to show enhanced environmental responsiveness. In support of this
argument, Brammer and Pavelin (2006) provide empirical evidence that large UK firms
are more driven to provide quality voluntary disclosures to gain legitimacy. In our
research setting, we posit that firms with high organisational visibility are expected to
provide more voluntary carbon disclosures. This is reflected in hypothesis 4:
H4. The extent of voluntary carbon emission disclosures will be greater in firms
with high organisational visibility.
Making additional disclosures are often costly because of the resources required for
identifying, collecting, and publishing the relevant information (Brammer and Pavelin,
2006). The costs of providing voluntary disclosures also include potential losses from
the adverse use of the information by outside parties (such as competitors or pressure
groups) against the reporting entities (Li et al., 1997; Cormier and Magnan, 1999;
Brammer and Pavelin, 2006). However, firms in good financial condition will be able to
afford extra human or financial resources required for voluntary reporting and better
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PAR resist the external pressures. Cormier and Magnan (1999) argue that firms in good
25,1 financial condition are more likely to voluntarily disclose environmental information,
even if the information is not necessarily favourable for the firms, compared to those in
poor financial condition. For firms with poor financial performance, the disclosure of
future environmental liabilities or new regulations means extra costs, leading to
concerns from their debt holders, suppliers and customers about firm performance.
66 In contrast, firms with high profitability disclosing the same information can signal that
they are well equipped to act upon the environmental pressure effectively and are
willing to resolve the problem quickly. Accordingly, we expect firms in good financial
condition to be more involved in voluntary carbon reporting. Therefore, we test the
following hypotheses:
H5. The extent of voluntary carbon emission disclosures will be greater in firms
with high profitability.
H6. The extent of voluntary carbon emission disclosures will be greater in firms
with low financial distress.
Finally, we consider the impact of the organisational structure on voluntary carbon
disclosures. Haniffa and Cooke (2002) argue that disclosure is a function of the
composition of boards since it is the board of directors that controls and decides on
the information to be disclosed in annual reports. Galbreath (2010) also reports that the
board composition influences corporate practices addressing issues on climate change.
In an Australian context, Rankin et al. (2011) show that corporate governance quality
is positively associated with the credibility of GHG reporting. Following the previous
studies, we posit that firms with better corporate governance are more likely to provide
comprehensive carbon disclosures:
H7. The extent of voluntary carbon emission disclosures will be greater in firms
with better corporate governance.

3. Research design
3.1 Sample and carbon emission scores
The aim of the paper is to report the extent of carbon emission disclosures by major
Australian companies for the years 2006-2008, inclusive, and to investigate the variables
that explain these disclosures. The time period of 2006-2008 is selected as it provides an
interesting transitional period during which discussion on carbon emission increased
substantially, and legislation of carbon emission disclosure was imminent.
The largest 100 companies listed on the Australian Securities Exchange as of June 2009
are selected based on their market capitalisation. To evaluate each company, information
provided in the annual report and sustainability reports (or equivalent) relating to
carbon emissions and climate changes is analysed[7]. We examine annual reports and
sustainability reports as contained on company web sites, as our belief is that this would be
the most likely place that stakeholders and parties interested in environmental disclosure
would seek and obtain information. De Villiers and Van Staden’s (2011a) study is
supportive of this view. They performed a survey of shareholders in Australia, the UK and
the USA, in part to determine where they would prefer companies to disclose
environmental information. In all three countries, shareholders prefer compulsory
environmental disclosure in annual reports, as well as disclosure on web sites, whereas
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separate environmental reports are less popular as a disclosure medium. Consequently, we Carbon emission
believe that by examining annual reports and, to a lesser extent, sustainability reports we disclosures
are well placed to determine the vast majority of the voluntary carbon emission disclosures
that are made by companies within our sample.
In categorising the data, we establish a “checklist” to determine the extent of voluntary
disclosures linked to climate change and carbon emissions incorporated in these publicly
available reports. The checklist is constructed based on the factors identified in the 67
Information Request sheets by the CDP. We determine five broad categories relevant to
climate change and carbon emissions as follows: climate change risks and opportunities
(CC), greenhouse gas emissions accounting (GHG), energy consumption accounting (EC),
greenhouse gas reduction (RC), and cost and carbon emission accountability (ACC)[8].
Within these five categories we identify 18 specific items. We do not attempt to assign
relative weightings to the items. Accordingly, each item is weighted equally[9]. The
categories and individual items are listed in Table I. The maximum score a company can
achieve is 18 and is granted when a company discloses information relating to all
18 environmental items indicated in Table I.

1 – Climate change: risks and CC1 – assessment/description of the risks (regulatory, physical or
opportunities general) relating to climate change and actions taken or to be taken
to manage the risks
CC2 – assessment/description of current (and future) financial
implications, business implications and opportunities of climate
change
2 – GHG emissions accounting GHG1 – description of the methodology used to calculate GHG
emissions (e.g. GHG protocol or ISO)
GHG2 – existence external verification of quantity of GHG
emission – if so by whom and on what basis
GHG3 – total GHG emissions – metric tonnes CO2-e emitted
GHG4 – disclosure of Scopes 1 and 2, or Scope 3 direct GHG
emissions
GHG5 – disclosure of GHG emissions by sources (e.g. coal,
electricity, etc.)
GHG6 – disclosure of GHG emissions by facility or segment level
GHG7 – comparison of GHG emissions with previous years
3 – Energy consumption EC1 – total energy consumed (e.g. tera-joules or peta-joules)
accounting EC2 – quantification of energy used from renewable sources
EC3 – disclosure by type, facility or segment
4 – GHG reduction and cost RC1 – detail of plans or strategies to reduce GHG emissions
RC2 – specification of GHG emissions reduction target level and
target year
RC3 – emissions reductions and associated costs or savings
achieved to date as a result of the reduction plan
RC4 – cost of future emissions factored into capital expenditure
planning
5 – Carbon emission ACC1 – indication of which board committee (or other executive
accountability body) has overall responsibility for actions related to climate
change
ACC2 – description of the mechanism by which the board (or Table I.
other executive body) reviews the company’s progress regarding Carbon disclosure
climate change checklist
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PAR 3.2 Models and variables

25,1 To investigate the determinants of voluntary carbon emission disclosures, a regression
analysis of disclosure scores against industrial and corporate characteristics is
conducted. To test the H1, two year dummies for 2007 and 2008 are included to see
whether there have been increases in the extent of carbon disclosures since 2006.
As a proxy for environmental visibility, two variables are included. The first variable
68 is the industry in which the firm operates. A dummy variable (IND) takes a value of 1 if
the company is a member of emission intensive industries which include energy,
transportation, materials, and utilities industries according to the Global Industry
Classification Standard (GICS)[10]. The second variable is the level of carbon emissions
for individual firms (EMISSION). This is obtained from a list of firms which met the
mandatory reporting requirements in the 2008-2009 financial year under the NGER
Act. Since only firms emitting more than 125 kt of carbon dioxide or consuming more
than 500 TJ of energy per annum were required to disclose, the emission level for those
firms not meeting the thresholds was set as zero. The carbon emissions information is
obtained from the web site of Department of Climate Change and Energy Efficiency of
Australian Government. The total of Scopes 1 and 2 emissions is used for analysis.
Following Brammer and Pavelin (2006), firm size (SIZE) measured by a logarithm of
total assets is used as a proxy for organisational visibility. Companies’ profitability is
measured by return on assets (ROA) and leverage (LEV) is calculated as the total
liabilities divided by the total assets. The financial statement data of sample firms are
collected from Aspect Fin Analysis. The proxy for the quality of corporate governance
(GOV) is obtained from the Horwath Corporate Governance Report[11]. This report
provides a ranking of Australia’s 250 largest listed public companies based upon their
corporate governance structures[12]. After including the GOV variable, the number of
total observations is reduced to 248 as some of the sample firms in our dataset are not
included in the corporate governance dataset.

4. Results
4.1 Descriptive analysis
The distribution of disclosure scores is presented in Table II and highlights the improving
trend of voluntary carbon emission disclosures. The key observations are as follows: in
2006, 57 of the 97 companies[13] (58.76 percent) do not disclose any information satisfying
our checklist criteria in either the annual report or the environmental reports. The results
are slightly improved in 2007 when 46 of 99 companies[14] (46.46 percent) do not disclose
any carbon emission or climate change information. In 2008, the number of firms that do
not disclose any carbon emission or climate change information further decreases to 33 of
the 100 companies (33 percent).
The data confirms that the extent of voluntary disclosure improved over the research
period. The total carbon disclosure score in 2006 is 151 (mean of 1.56 per company); in 2007
it is 246 (mean of 2.49 per company), and in 2008 it is 416 (mean of 4.16 per company)[15].
Table III presents the percentage of firms that provide the information satisfying
each checklist item. For each of the 18 items, the percentage of disclosing companies
increases over the three-year period of analysis. Notably, the number of companies
acknowledging and identifying the risk of climate change almost doubles from
34.02 percent in 2006 to 61.00 percent in 2008 (i.e. CC1). More firms report information
on the changes in carbon emission levels, from 12.37 percent in 2006 to 34 percent
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2006 2007 2008

Carbon emission
Scores No. % No. % No. % disclosures
18 0 0.00 0 0.00 0 0.00
17 0 0.00 0 0.00 0 0.00
16 0 0.00 0 0.00 1 1.00
15 0 0.00 0 0.00 1 1.00
14 0 0.00 1 1.01 1 1.00
69
13 0 0.00 1 1.01 2 2.00
12 0 0.00 1 1.01 4 4.00
11 0 0.00 2 2.02 4 4.00
10 1 1.03 1 1.01 1 1.00
9 2 2.06 1 1.01 5 5.00
8 2 2.06 7 7.07 6 6.00
7 3 3.09 1 1.01 8 8.00
6 2 2.06 3 3.03 5 5.00
5 4 4.12 5 5.05 3 3.00
4 4 4.12 3 3.03 4 4.00
3 4 4.12 6 6.06 1 1.00
2 8 8.25 9 9.09 9 9.00
1 10 10.31 12 12.12 12 12.00
0 57 58.76 46 46.46 33 33.00
Total number of firms 97 99 100
Total scores 151 246 416
Average score per firm 1.56 2.49 4.16
Notes: This table presents distributions of scores in 2006-2008; the maximum score a company can Table II.
achieve is 18 and the minimum 0; the largest 100 companies listed on the Australian Securities Distribution of scores
Exchange (based on market capitalisation) as of June 2009 are selected for analysis of top 100 companies

in 2008 (GHG7). Additionally, the number of firms reporting plans or strategies to reduce
future carbon emissions nearly doubles from 18.56 percent in 2006 to 35.00 percent
in 2008 (RC1). Finally, details of carbon emission accountability (ACC1 and ACC2)
are disclosed by approximately one quarter (26 percent) of the companies in 2008.
This number represents nearly a five-fold increase from 2006 when the percentage of
companies disclosing details of carbon emission accountability is between 5 and 6 percent.
In Table IV, the summary statistics for each year are provided with the paired t-test
results of the differences between the means of 2006 and 2008. The statistics for the
total score and individual scores of the five categories are provided. When the t-tests
are conducted for the total score, the difference is positive and significantly different
from zero at the 1 percent level, indicating that the total carbon disclosure score has
increased over our research period. Notably, the increase is observed across all
categories with the mean score increasing by nearly a factor of three between 2006 and
2008. Furthermore, during this time period there was increasing domestic and global
discussion of carbon emissions and the introduction of a mandatory reporting system.
For example, in Japan, an annual mandatory reporting of GHG emissions was enacted
in 2006 through the Act on the Promotion of Global Warming Countermeasures.
In the USA, a provision was signed into law by President Bush on 27 December 2007
that required the Environmental Protection Agency to establish a mandatory
programme requiring US companies to report their GHG emissions by mid-2009.
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PAR
% % %
25,1 Categories Items 2006 2007 2008

Climate change: risks CC1 – assessment of risks and opportunities 34.02 47.47 61.00
and opportunities CC2 – financial implications 12.37 17.17 34.00
GHG emissions GHG1 – methodology for calculation 1.03 9.09 19.00
70 GHG2 – external verification 1.03 6.06 17.00
GHG3 – total emissions 21.65 27.27 38.00
GHG4 – disclosure by scope 1.03 3.03 14.00
GHG5 – disclosure by source 7.22 4.04 15.00
GHG6 – disclosure by facility or segment 6.19 9.09 16.00
GHG7 – historical comparison of emissions 12.37 24.24 35.00
Energy consumption EC1 – total consumed 14.43 17.17 28.00
EC2 – disclosure consumption from renewable source 0.00 2.02 4.00
EC3 – disclosure by type, facility or segment 4.12 6.06 14.00
GHG reduction and cost RC1 – plans to reduce GHG emissions 18.56 23.23 35.00
RC2 – targets for GHG emissions 5.15 11.11 11.00
RC3 – reductions achieved to date 5.15 14.14 21.00
RC4 – costs of future emissions factored in capital 0.00 1.01 2.00
expenditure planning
GHG emission ACC1 – explanation of where responsibility lies for 6.19 13.13 26.00
accountability climate change policy and action
ACC2 – mechanism by which Board reviews 5.15 13.13 26.00
company progress on climate change actions
Table III.
Percentage distribution Note: This table contains the percentage of firms that have sufficient information required to satisfy
for each checklist item each environmental checklist item

Therefore, international factors may have also stimulated the increase in Australian
carbon emission disclosures during the three-year period.

4.2 Carbon emissions disclosure scores in different industries

This section explores voluntary carbon disclosures by companies in different industries.
Table V shows the level and the change in average disclosure scores for ten industry
sectors from 2006 to 2008. The industry sectors under the GICS classification are
consumer discretionary, consumer staples, energy, financials, health care, IT and
telecommunications, industrials, transportation, materials, and utilities. In 2006, the
industry with the highest score is IT and telecommunications, followed by transportation
and materials. In 2007 the industry with the highest score is transportation, followed by
materials and IT and telecommunications. In 2008, the highest scoring industry is IT and
telecommunications, followed by consumer staples and transportation. Looking at the
results in aggregate, most of the industries with the highest disclosure scores are
emissions intensive industries except for consumer staples, financials, and IT and
telecommunication. For those non-emissions intensive industries the high scores are
considered to be driven by corporate characteristics of individual member firms rather
than industry specific features. In particular, high scores are concentrated in a few “big
players” such as Telstra in IT and telecommunication and ANZ Banking Group and
National Australia Bank in financials. This notion is also supported by relatively high
standard deviations in scores in both sectors. To closely investigate the impact of industry
characteristics on carbon reporting after controlling for firm characteristics, further
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Carbon emission
t-test
Categories Years Mean SD Min. Q1 Median Q3 Max. Diff. ( p-value) disclosures
All categories 2006 1.56 2.53 0.00 0.00 0.00 2.00 10.00 2.60
2007 2.48 3.50 0.00 0.00 1.00 4.00 14.00 (0.00)
2008 4.16 4.50 0.00 0.00 2.00 7.50 16.00
1. Climate change risk and 2006 0.46 0.69 0.00 0.00 0.00 1.00 2.00 0.49 71
opportunities (RO) 2007 0.65 0.75 0.00 0.00 0.00 1.00 2.00 (0.00)
2008 0.95 0.82 0.00 0.00 1.00 2.00 2.00
2. GHG emissions (GHG) 2006 0.51 1.01 0.00 0.00 0.00 0.25 4.00 1.03
2007 0.83 1.39 0.00 0.00 0.00 1.00 5.00 (0.00)
2008 1.54 2.02 0.00 0.00 0.00 3.00 6.00
3. Energy consumption (EC) 2006 0.19 0.46 0.00 0.00 0.00 0.00 2.00 0.27
2007 0.25 0.56 0.00 0.00 0.00 0.00 2.00 (0.00)
2008 0.46 0.80 0.00 0.00 0.00 1.00 3.00
4. GHG reduction and costs 0.29 0.61 0.00 0.00 0.00 0.00 2.00 0.40
(RC) 2006
2007 0.49 0.94 0.00 0.00 0.00 1.00 4.00 (0.00)
2008 0.69 1.03 0.00 0.00 0.00 1.00 4.00
5. GHG emission 2006 0.11 0.43 0.00 0.00 0.00 0.00 2.00 0.41
accountability (ACC) 2007 0.26 0.66 0.00 0.00 0.00 0.00 2.00 (0.00)
2008 0.52 0.86 0.00 0.00 0.00 1.00 2.00
Table IV.
Notes: This table gives the summary statistics for years 2006-2008; the paired t-test results for the Descriptive statistics of
difference between the means of 2006 and 2008 for each five categories are provided; Q1 and Q3 stand disclosure scores in years
for the first quartile and the third quartile of the data, respectively 2006 through 2008

analyses are conducted by multiple regression methods in the following section. When the
changes in disclosure scores are examined by using a paired t-test, a significant increase is
found across different industries, including consumer discretionary, consumer staples,
financials, industrials, and materials.

4.3 Regression analysis for carbon emissions disclosures

Table VI presents a correlation matrix between our key variables. All the explanatory
variables are significantly associated with the total score except for ROA. Contrary to
our expectation, leverage (LEV) shows a positive sign of correlation with the total
score. This result can be attributed to the significantly high correlation between SIZE
and LEV, which is 0.66. We further test the possible impact of multicollinearity on our
regression results driven by the close relationship between SIZE and LEV.
Table VII shows the results of the regression analysis for each of the three years
individually and in the pooled sample. The first regression model for the pooled sample
illustrates that corporate characteristics such as the level of emissions (EMISSION),
firm size (SIZE), and quality of corporate governance (GOV) are key drivers for
determining the extent of carbon disclosures. This finding is consistent with H3, H4,
and H7. Bowen (2000) argues that the positive impact of firm size on environmental
responsiveness can also be explained by the fact that large firms have additional
resources to make such disclosures. Arguably, companies with greater resources can
effectively respond to increased environmental concern since additional discretionary
resources can allow managers to search for more appropriate environmental response
options (Bowen, 1999). Thus, our positive result for firm size may indicate large firms
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PAR
t-test
25,1 Sectors Years n Mean SD Min. Q1 Median Q3 Max. Diff. ( p-value)

Consumer 2006 11 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.91
discretionary 2007 11 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.09)
2008 11 0.91 1.58 0.00 0.00 0.00 2.00 5.00
72 Consumer staples 2006 8 1.63 2.77 0.00 0.00 0.00 3.00 7.00 4.00
2007 8 2.75 3.33 0.00 0.50 1.50 5.00 8.00 (0.02)
2008 8 5.63 3.07 0.00 4.00 6.50 7.50 9.00
Energy 2006 16 2.19 3.19 0.00 0.00 0.50 3.50 9.00 0.69
2007 17 2.35 3.18 0.00 0.00 1.00 3.00 9.00 (0.56)
2008 17 2.88 3.50 0.00 0.00 2.00 4.00 11.00
Financials 2006 19 1.79 2.90 0.00 0.00 0.00 4.00 9.00 2.21
2007 20 2.80 4.25 0.00 0.00 0.50 5.50 12.00 (0.09)
2008 20 4.00 4.71 0.00 0.00 1.00 7.50 14.00
Health care 2006 7 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.14
2007 7 0.14 0.38 0.00 0.00 0.00 0.00 1.00 (0.30)
2008 7 1.14 2.61 0.00 0.00 0.00 1.00 7.00
IT and 2006 2 4.00 5.66 0.00 0.00 4.00 8.00 8.00 2.00
telecommunication 2007 2 4.00 5.66 0.00 0.00 4.00 8.00 8.00 (0.81)
2008 2 6.00 8.49 0.00 0.00 6.00 12.00 12.00
Industrials 2006 7 0.71 1.11 0.00 0.00 0.00 1.00 3.00 3.29
2007 7 2.00 2.31 0.00 0.00 1.00 5.00 5.00 (0.09)
2008 7 4.00 4.55 0.00 0.00 1.00 8.00 11.00
Transportation 2006 2 2.50 2.12 1.00 1.00 2.50 4.00 4.00 3.00
2007 2 5.00 4.24 2.00 2.00 5.00 8.00 8.00 (0.51)
2008 2 5.50 4.95 2.00 2.00 5.50 9.00 9.00
Materials 2006 22 2.27 2.47 0.00 0.00 2.00 3.00 10.00 4.68
2007 22 4.09 3.98 0.00 1.00 3.00 6.00 14.00 (0.00)
2008 23 6.96 4.89 0.00 3.00 7.00 11.00 16.00
Utilities 2006 3 0.33 0.58 0.00 0.00 0.00 1.00 1.00 4.00
2007 3 1.67 2.89 0.00 0.00 0.00 5.00 5.00 (0.41)
2008 3 4.33 6.66 0.00 0.00 1.00 12.00 12.00
Notes: This table shows the level and the change of average disclosure scores for ten industry sectors
Table V. from 2006 to 2008; the last column contains the paired t-test results for the difference between the
Comparison between means of 2006 and 2008; Q1 and Q3 stand for the first quartile and the third quartile of the data,
different industry sectors respectively

will engage more actively in voluntary carbon reporting since they are more visible
and also have more resources to prepare comprehensive disclosures.
Two proxies for financial health, ROA and LEV, show the expected signs of
coefficients, but their coefficients are not statistically significant. Both of the two year
dummies (Y2007 and Y2008) show positive results significantly different from zero.
In particular, the coefficient of Y2008 is almost tripled when compared to Y2007,
indicating a strong increase in the overall carbon disclosure scores in the 2008 financial
year. This result implies that the passage of pending disclosure legislation led to
increases in voluntary disclosures of carbon emissions even though the NGER Act was
not yet operative. This finding is supportive of H1.
Firms in emissions intensive industries (IND) also show a positive relationship with
the carbon disclosure score, confirming H2. The important role played by industry
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Carbon emission
Total score EMISSION SIZE ROA LEV GOV IND
disclosures
EMISSION 0.47 * 1.00
SIZE 0.49 * 0.27 * 1.00
ROA 0.00 0.06 20.16 * 1.00
LEV 0.22 * 0.05 0.66 * 20.20 * 1.00
GOV 0.36 * 0.19 * 0.49 * 0.06 0.45 * 1.00 73
IND 0.19 * 0.31 * 20.27 * 20.11 20.31 * 20.08 1.00
Notes: Significant at: *1 percent level; this table presents the pair-wise correlations between variables;
total score is the score of carbon disclosures based on the checklist; EMISSION is the level of GHG
emissions (million t CO2-e); SIZE is measured by a logarithm of total assets; ROA is used for a proxy of
companies’ profitability; LEV is the leverage calculated by dividing total liabilities by total assets;
GOV is the ranking of corporate governance of the top 250 Australian firms obtained from the
Horwath Corporate Governance Report; IND identifies a firm in emissions intensive industries Table VI.
including energy, transportation, materials, and utilities Correlation matrix

(1) (2) (3) (4)

VARIABLES Pooled 2006 2007 2008

EMISSION 0.36 * * * 0.19 * 0.43 * * * 0.38 * *
(4.23) (1.67) (3.29) (2.19)
SIZE 1.17 * * * 0.83 * * * 1.36 * * * 1.48 * * *
(7.41) (4.32) (5.18) (4.38)
ROA 2.76 3.92 7.19 3.76
(1.22) (0.96) (1.47) (1.07)
LEV 2 1.31 21.31 20.67 2 1.92
(2 1.13) (20.79) (20.35) (2 0.88)
GOV 0.40 * 0.16 20.10 0.88 * *
(1.81) (0.51) (20.29) (2.07)
IND 1.58 * * * 1.19 * * 1.88 * * * 1.90 * *
(3.70) (2.03) (2.81) (2.20)
Y2007 0.78 *
(1.79)
Y2008 2.23 * * *
(5.13)
Constant 2 26.15 * * * 217.55 * * * 228.61 * * * 2 32.71 * * *
(2 8.49) (24.60) (25.56) (2 4.89)
Observations 248 76 84 88
Adjusted R 2 0.51 0.41 0.56 0.48
F-value 33.07 9.67 18.38 14.40
Notes: Significant at: *10, * *5 and * * *1 percent levels; this table presents the results of the
regression analysis on the disclosure scores; the dependent variable is the score of voluntary carbon
disclosures; EMISSION is the level of GHG emissions (million t CO2-e); SIZE is measured by a
logarithm of total assets; ROA is used for a proxy of companies’ profitability; LEV is leverage
calculated by dividing total liabilities by total assets; GOV is the ranking of corporate governance of
the top 250 Australian firms obtained from the Horwath Corporate Governance Report; IND identifies
a firm in emissions intensive industries including energy, transportation, materials, and utilities; Table VII.
Y2007 and Y2008 correspondingly represent a dummy variable for year 2007 and 2008; the t-stats are Regression of voluntary
given in the parentheses carbon disclosures
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PAR characteristics to determine voluntary environmental reporting has been reported by

25,1 various previous studies including Deegan and Gordon (1996) and Patten (1992).
Deegan and Gordon (1996) document a positive association between the “environmental
sensitivity” of the industry and the level of corporate environmental disclosures made
by Australian corporations. Patten (1992) examines the extent of environmental
disclosures by oil companies, other than Exxon Oil, before and after the Exxon Valdez
74 disaster. One important finding from Patten’s study is that environmental disclosures
across most companies in the petroleum industry increased substantially during the
post-disaster period, even though only one company was directly connected to the
environmental incident. Our results also indicate that all firms in the emissions
intensive industries provide more carbon disclosures in response to the increased social
and political pressures.
When the regression for each year is run individually in Models from (2) to (4), the
results echo the findings from Model (1). The level of emissions (EMISSION) and firm
size (SIZE) still act as key factors in determining the extent of voluntary carbon
reporting along with the industry characteristics (IND). The corporate governance
variable (GOV) is shown to be a significant variable only in year 2008. Overall, the
regression results in Table VII demonstrate strong support for H1, H2, H3, and H4 but
only weak support for H7. However, we find no evidence that the financial health of
firms influences the extent of carbon emission disclosures.

4.4 Robustness tests

First, we analyse the Variance Inflation Factors (VIF) of the dependent variables to
check multicollinearity. Although the maximum correlation coefficient is 0.66 between
LEV and SIZE, the maximum VIF is 3.60. Thus, multicollinearity does not seem to
affect the predicted values of our models. Next, we conduct additional tests to control
for any estimation bias caused by using a censored sample. More than half of the firms
in 2006 and approximately one third of the firms in 2008 do not disclose any carbon
emission information, leading our sample to be left censored at zero. To mitigate any
estimation bias or problems with using the OLS regression, we repeat the same
regression tests using a Tobit model. The untabulated results indicate that the main
results of all the coefficients do not change.
Additionally, further control variables selected from the previous studies are
included in the regression models to check the robustness of our results. First, the market
to book ratio (MVBV) is included as a proxy for future growth opportunities following
Al-Tuwaijri et al. (2004). Growing firms are more likely to provide voluntary disclosures
on their social and environmental policies to lower the cost of capital by attracting more
investors (Dhaliwal et al., 2011) and reducing information asymmetry (Healy and
Palepu, 2001). Thus, a higher level of the MVBV (higher growth) is expected to have a
positive association with the disclosure scores. In addition, two proxies for the average
age of firms’ equipment (NEW) and annual capital spending (CAPIN) are included
following Clarkson et al. (2008) and De Villiers and Van Staden (2011b). The main
argument of those studies is that firms with newer and cleaner technologies are likely
to have better environmental performance and be more willing to communicate with
their stakeholders and the public about this superior environmental performance.
The variable NEW is measured as net PPE divided by gross PPE, and CAPIN is
measured as the ratio of capital expenditures to total revenue. Finally, we examine
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whether the elevated level of carbon disclosure scores for non-emissions intensive Carbon emission
industries, such as consumer staples, financials, and IT and telecommunication, is disclosures
indeed driven by corporate characteristics of individual member firms as reported in
Section 4.2. An additional industry indicator for these three industries is included in
the regression model. The untabulated results confirm that the associations between the
carbon disclosure score and our main explanatory variables are not affected by the
addition of new control variables. In fact, none of the control variables are significant. 75
5. Conclusions
This study analyses the reaction of Australia’s largest 100 companies during the period
2006-2008 in which the Australian Government announced a series of regulations
regarding carbon emission disclosure. In 2006, the level of voluntary disclosure on
environmental strategies and carbon emissions is minimal, with only 42 percent of
Australia’s companies providing information on environmental factors including carbon
emissions. By 2008, the percentage of Australia’s companies providing information on
environmental factors including carbon emissions increases substantially to 67 percent.
In addition, the quality of that information also improves in all the areas of assessment.
Our regression model indicates that the level of carbon emissions, firm size, and
quality of corporate governance are key drivers for determining the extent of voluntary
carbon emission disclosures. The dummy variable for a firm operating in emissions
intensive industries also has a positive relationship with carbon emission disclosure
scores, demonstrating that industry characteristics are important explanatory factors in
voluntary carbon disclosures. Overall, our results indicate that the legislation of the
NGER Act in 2007 may have enhanced the voluntary disclosures of carbon emissions in
the 2007 and 2008 financial years, even though the NGER Act did not take effect until the
2009 financial year.
Notwithstanding the findings of this paper, the following limitations are
acknowledged. First, our measure of carbon emission disclosure is based on
18 individual items. While we believe these 18 environmental items are consistent
with good carbon emission disclosure, there are likely other relevant factors we do not
consider. Furthermore, we do not attempt to weight the variables. Second, in assessing
the voluntary carbon emission disclosures, we examine disclosures made either in the
annual report or the environmental report, so there is therefore the risk that companies
may have made public disclosures in other forms of which we are not aware. Third,
we examine the carbon emission disclosures of Australia’s largest 100 companies.
Accordingly, our observations and conclusions may have a “large-size bias”.

Notes
1. Extent refers to the breadth and depth of the information based on certain criteria deemed to
be significant in describing carbon emission disclosures.
2. At the time of writing, 75 Australian businesses (including small and medium-sized
enterprises) are participating in the CDP.
3. www.au.findlaw.com/articles/printArticle.asp?id¼10130
4. www.blakedawson.com/Templates/Publications/x_article_content_page.aspx?id¼51789
5. kt – kilotonnes in CO2 equivalent of GHG emitted; TJ – terajoules of energy consumed or
produced.
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PAR 6. www.cleanenergyfuture.gov.au/clean-energy-future/our-plan/
25,1 7. Some companies have a dedicated report on environmental activities. It is titled in different
ways by different companies including “Environmental Report”, “Sustainability Report”,
“Corporate Social Responsibility Report”, etc. For the sake of consistency, the term
“environmental report” is used in this paper.
8. At the time of writing this paper, CDP information request sheets contain four categories: (1)
76 risks and opportunities; (2) GHG Emissions accounting; emissions intensity, energy and
trading; (3) performance; and (4) governance. Our five sub-classes are similar to those
adopted by the CDP but there are separate categories for GHG emissions and energy
consumption.
9. Thought was given to weighting the items differently, based on their assumed importance.
However, it was considered that this brought in an extra level of unwarranted subjectivity.
10. Each industry sector consists of several subgroups. For example, the energy sector includes
energy equipment and services, and oil, gas and consumable fuels. The materials industry
incorporates chemicals, construction materials, metal and glass containers, metals and
mining, and paper and forest products.
11. See www.newcastle.edu.au/school/business/research/horwath for details.
12. The loss of sample is caused by the difference in selection criteria of two datasets.
The Horwath Report selects the largest 250 companies based on market capitalisation at
31 December each year. Our dataset consists of the largest 100 listed companies based on
market capitalisation at 30 June 2009. We choose 30 June as it is the financial year end for
most Australian companies.
13. Three of the companies selected in the sample (as at 30 June 2009) were not ASX listed
companies in 2006.
14. One of the companies selected in the sample (as at 30 June 2009) was not an ASX listed
company in 2007.
15. When we consider individual companies, a similar story becomes apparent. BHP Billiton Ltd
is the highest ranked company in terms of the disclosure score in each of the three years. Its
disclosure score has increased throughout the research period.

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Corresponding author
Bo Bae Choi can be contacted at: Bobae.Choi@newcastle.edu.au

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