The extent of environmental management accounting (EMA) implementation and environmental reporting (ER) practices : evidence from Malaysian public listed companies / Norsyahida binti Mokhtar

While the pressure of legitimacy was found to greatly influence companies’ environmental reporting (ER) practices, being environmentally responsible, however, is not necessarily reflected through positive and descriptive ER. Unless companies begin to truly commit to their business environmental impacts, the issue of incomprehensiveness and incredibility of ER will remain. Given it has been suggested that the deficiency of conventional accounting practices to capture environmental information contributes to the non-disclosure of complete and reliable information, the implementation of environmental management accounting (EMA) is thus necessary. Through EMA implementation, both monetary and physical environmental information can be generated, enabling the integration of environmental information into decision makings as well as reporting practices. A review of literature suggests that there has been very little research conducted on EMA implementation and the effect its hold on ER practices. Therefore, the present study seeks to examine the extent to which companies implement EMA and whether such implementation is influenced by corporate characteristics. The present study also examines whether the extent of EMA implementation influences the quantity and quality of ER. Using a contingency model, five corporate characteristics, namely, environmental sensitivity of industry, company size, ownership status, environmental management system (EMS) adoption and the proportion of non-executive directors (NEDs) were examined for their associations with the extent of EMA implementation. To explain the association between EMA implementation and quantity and quality of ER, social issue life cycle theory was employed. For consistency purposes, companies were segmented into three social issue life cycle phases: Policy, Learning and Commitment; with Policy represents the lowest and Commitment the highest extent of EMA implementation. Data were collected using postal questionnaires and content analysis of corporate annual reports. The results, derived from a sample of 78 Malaysian public listed companies (PLCs), indicate that the extent of EMA implementation was moderate and that more emphasis was placed on environmental cost effectiveness activities. From the social issue life cycle phases standpoint, the majority of companies were in the Learning phase. Additionally, the differences in the extent of EMA implementation were significantly explained by environmental sensitivity of industry and EMS adoption. The results also showed that companies in the Commitment phase reported a greater quantity of ER than those in the Policy and Learning phases. However, no similar effect was observed in the quality of ER. These findings confirm the assertion that a lack of regulation on ER leads to incomprehensiveness and incredibility of ER. In fact, remarks made by the respondents in the questionnaire indicate their inclination towards the development of a comprehensive approach to EMA and refinement of existing ER legislation. This is because, the lack of standardisation makes the measuring and reporting processes very challenging. Despite this however, the regulatory requirement on EMA should be limited to environmentally sensitive industries while others should be on a cost-benefit basis. Taken together, the results of the present study offer important implications for both policymakers and companies. Policymakers will be better informed on the needs of companies pertaining to EMA and ER practices. Companies will be enlightened on the importance of being environmentally responsible and that such practice benefits the companies in many ways, socially and economically.