Corporate Governance and the Quality of Greenhouse Gas Emission Disclosures

Abstract
This paper examines the relation between board gender diversity and the quality ofgreenhouse gas emissions disclosures in company annual reports. Disclosure quality isdetermined by scoring based on an index derived from the content analysis framework
developed by Clarkson et al. (2008). We test the hypothesis that board gender diversity is
positively associated with the quality of company GHG emission disclosures. The results
show the presence of a female director is associated with greater levels of GHG emissions
disclosure, including both high and low quality disclosures. The results add to emerging
evidence of the economic importance of board gender diversity.
JEL Codes: M14, M41, M48
Keywords: Gender diversity, content analysis, greenhouse gas emissions, disclosure.

1

Introduction
This paper examines the relation between board gender diversity and the quality ofcompany greenhouse gas (GHG) emission disclosures. Specifically, we address the question
as to whether the presence of female directors on company boards is associated with better
quality GHG disclosures in company annual reports. We measure the quality of disclosuresusing the Clarkson et al. (2008) content analysis index, which is derived from the Global
Reporting Initiative (GRI, 2011) guidelines. The index identifies disclosures as high quality(hard) disclosures that provide objective measures of environmental performance, or low
quality (soft) disclosures that ‘lack credibility and substantiation’ (Clarkson et al., 2008, p.
313). Our sample is comprised of all companies listed on the Australian Securities Exchange
in 2007 that had GHG emission disclosures in their annual report, and a matched group of
non-disclosing companies based on size and industry.
Our study is motivated by the increasing economic importance of GHG emission
disclosures. Governments worldwide have adopted policies that encourage companies toreduce their greenhouse gas (GHG) emissions. Consequently, investors are seeking highquality information about how companies manage risks and exploit opportunities related toclimate change and GHG emissions (Solomon et al., 2010). According to Solomon et al.,2010, there is substantial variation in the content and quality of public GHG emission
disclosures. Therefore, it is important to identify factors that are associated with the quality of
disclosures. The study is also motivated by increased regulatory interest in improving thegender diversity of corporate boards (Terjesen, Sealy and Singh 2009). The study adds toemerging evidence on the benefits of increasing gender diversity in company management.
Prior studies suggest that board gender diversity improves board processes anddecision-making. This includes improved monitoring of managers (Adams and Ferriera 2009;
Adams, Gray, and Nowland 2010); more risk averse decision-making (Powell and Ansic2

1997; Jianakopolos and Bernasek 1998; Byrnes, Miller, and Schafer 1999; Barber and Odean
2001; Brooks and Zank 2005); and, greater focus by the board on maintaining company
reputation (Bear, Rahman, and Post 2010). Board decision-making on GHG emission strategy
and disclosure policies should be enhanced when companies adopt a gender diverse board
composition.
We are aware of only one prior study that has examined the relation between board
gender diversity and GHG emission disclosures. The study by Prado-Lorenzo and GarciaSanchez (2010) examined the association between female board representation and the extent
of GHG disclosures for 283 large multinational companies across 28 countries. They did not
find an association between gender diversity and the extent of disclosures. In contrast to the
Prado-Lorenzo and Garcia-Sanchez (2010) study, our analysis uses a sample of large andsmall companies in a single jurisdiction. In addition, our study examines the relation between
board gender diversity and the extent and quality of GHG disclosures. We are not aware ofany prior study that considers the relation between board gender diversity and quality of
disclosure. Our study examines the quality of publicly available information provided incompany annual reports. Accordingly, it shows whether this readily available public
disclosures mechanism is useful source of information for investors to assess company
management of GHG emissions issues.
We adopt the socio-politico perspective and apply legitimacy theory in developing ourhypotheses about the relation between governance and GHG emission disclosures.
Legitimacy theory suggests that voluntary company disclosures can be explained by their
response to social and political pressure. The findings of numerous environmental disclosurestudies are consistent with the legitimization explanation (Brown and Deegan, 1998; Deegan
and Gordon, 1996; Deegan and Rankin, 1996; Deegan, Rankin, and Tobin, 2002; Kent andMonem, 2008).

3

Our results show that board gender diversity board is associated with companies
making more GHG emission disclosures in company annual reports. We also find thisrelation is consistent for both high and low quality GHG emission disclosures.
The paper proceeds as follows. In the next section we review related literature anddevelop our hypotheses. This is followed by a discussion of our research method. We thenpresent and discuss the results of our analysis. The concluding section discusses the results
and their implications.

Literature Review
GHG Emission Studies
Studies of voluntary GHG emission disclosures have mainly considered factors associatedwith extent of disclosures. Stanny and Ely (2008) examined the decision of United States
S&P500 companies to disclose GHG related information by completing the 2007 Carbon
Disclosure Project survey. They reported a response rate to the survey of 48 per cent, andfound that larger companies, companies that had completed the previous 2004 Carbon
Disclosure Project survey, and companies that had a larger percentage of foreign sales weremore likely to make GHG emissions disclosures in the Carbon Disclosure Project survey.
Given the low overall level of response to the survey, Stanny and Ely (2008) concluded thatinvestors in US companies cannot rely on voluntary disclosures to adequately assess businessrisk associated with climate change.
Prado-Lorenzo et al. (2009) examined the GHG emission disclosures of 101 Fortune
500 companies from Australia, Canada, the European Union and the United States. Theydeveloped an index to measure the extent of GHG disclosures made by the sample companies
on their web sites. The disclosure index comprised 19 items, which were determined byreference to prior studies and relevant items in the Global Reporting Index. The contents of4

GHG disclosures were examined, and a binary score was allocated for each index item. The
results showed that company size, domicile in a country that had ratified the Kyoto Protocol,and capital market performance were positively associated with GHG emission disclosures.
Operating performance was negatively associated with disclosures. Prado-Lorenzo et al.
(2009) suggest the results are consistent with legitimizing behavior. That is, companies areconcerned with legitimizing their behaviour with a view to benefiting from lower capitalcosts, being able to attract investment, and avoiding the substantial costs of making additional
disclosures.
The study by Prado-Lorenzo and Garcia-Sanchez (2010) is the only prior study we areaware of that has examined the association between female board representation and GHG
disclosures. Their study used a sample of 283 large multinational companies across 28
countries, and considered the role of the board of directors in making GHG disclosures.
Consistent with the earlier study by Stanny and Ely (2008), GHG disclosure was measured
using data from the Carbon Disclosure Program 2007 survey. Board gender diversity was notfound to be significant in the analysis. Of the board characteristics tested, only the existenceof a dual CEO / board chair person was positively associated the level of GHG information
disclosed. Board independence was found to be negatively associated with disclosure forcompanies that operate in environmentally sensitive industries. Stanny and Ely (2008) also
report that size, profitability and leverage are positively associated with the level of
disclosure. Overall, Prado-Lorenzo and Garcia-Sanchez (2010) suggest their results are
consistent with concerns about litigation risk from extensive GHG disclosures, and the focus
by independent directors on maximizing shareholder value rather than social responsibility
reporting issues.
Rankin et al. (2011) examined the GHG emission disclosures for 183 large companies
listed on the Australian Securities Exchange. Their analysis shows that companies are more5likely to make GHG disclosures if they have implemented an environmental management
system, have quality governance as indicated by the strength of board independence, makepublicly available disclosures to the Carbon Disclosure Project, are larger, and operate in theenergy, mining or industrial sectors. Rankin et al. (2011) also examined the extent andquality of GHG emissions disclosures for the 80 companies in their sample that made GHG
emissions disclosures. They found that companies make more credible disclosures if they
have implemented a certified environmental management system, use the Global Reporting
Index to guide sustainability disclosures, and make disclosures to Carbon Disclosure Project.
They also found larger companies and those in the in the mining, energy and industrial
industry sectors make more credible disclosures. Rankin et al. (2011) suggest the results
indicate that companies adopt a proactive but pragmatic approach to GHG disclosures that is
focused on risk management and maintenance of international and firm specific competitive
advantage.
In summary, the existing studies suggest several factors are associated with the extent
and quality of GHG emission disclosures. Studies that address the role of the board of
directors indicate that the extent and quality of disclosures increases as the board becomes
more focused on environmental issues. This is evidenced by the observed positive association
between disclosure and the implementation of environmental management systems andreporting to the Carbon Disclosure Project. In terms of the composition of the board, theresults are limited and inconsistent. For example, Prado-Lorenzo and Garcia-Sanchez (2010)
find lower board independence and the existence of a dual CEO is associated with more
disclosure. In contrast, Rankin et al. (2011) find that companies with greater board
independence are more likely to make disclosures.
Our study makes an incremental contribution to the existing literature. First, we revisit
the finding of Prado-Lorenzo and Garcia-Sanchez (2010) that gender diversity is not6significantly associated with GHG emission disclosure. Their study used a sample of verylarge companies across a range of jurisdictions. In contrast, our analysis uses a sample ofcompanies with heterogeneous size in a single jurisdiction. We suggest our research methodenhances the reliability of inferences that can be made about the true direction of theassociation between board composition, in particular gender diversity, and GHG disclosures.
Second, our study is the first that we are aware of that specifically examines the relation
between board gender diversity and the quality of GHG disclosures. The dependent variablein our analysis is based on the Clarkson et al. (2008) index which measures the quality of
GHG emission disclosures.

Hypothesis Development
Legitimacy Theory
Legitimacy theory suggests that companies adopt environmental reporting when theiroperations are inconsistent, or perceived to be inconsistent, with society’s norms andexpectations (Deegan and Blomquist, 2006). Lindblom (1994) suggests that the motive fordisclosures can be to: educate and inform about environmental performance and activities in
response to a legitimacy gap arising from performance failure; to change the perceptions
when a legitimacy gap arises from misperceptions about the company’s performance; and tomanipulate perception by deflecting attention from the issue of concern to other related
issues. Numerous previous studies provide evidence that legitimisation is an important
motivation for companies making voluntary disclosures. One group of these studies has used
proxies for social pressure to identify companies that have a propensity to make voluntary
disclosures. These proxies include the incidence of environmental lobby group activity,
prosecution by environmental agencies and adverse media coverage resulting in community
concern (Brown and Deegan, 1998; Deegan and Gordon, 1996; Deegan and Rankin, 1996;7

Deegan et al., 2002; Kent and Monem, 2008).

Other studies have surveyed corporate

decision-makers to gain insight into their motivations for making environmental disclosures(O'Donovan, 2002; Wilmshurst and Frost, 2000). Both groups of studies show thatpredictions about disclosures based on legitimacy theory are consistent with the incidence ofvoluntary environmental disclosure. Consistent with prior literature, we rely on legitimacy
theory for our hypothesis development.
Prior studies have also considered the quality of environmental disclosures, withseveral studies finding a tendency for companies to make self-laudatory or positive
disclosures when they experience social pressure (Deegan and Rankin, 1996; Deegan et al.,
2002; Patten, 1991). Other studies have examined the content of environmental disclosuresby the development of indices to quantified disclosure type and characteristics (Clarkson etal., 2008; Ingram and Frazier, 1980; Wiseman, 1982). Of particular relevance to the current
study is the research of Clarkson et al. (2008) who develop a disclosure index that classifies
environmental disclosures as either high quality ‘hard’ disclosures that provide objective
measures of environmental performance, and lower quality ‘soft’ disclosures that ‘lackcredibility and substantiation’ (Clarkson et al., 2008, p. 313). Their results showed that firms
with a greater threat to their legitimacy because of poor environmental performance had agreater propensity for legitimizing environmental disclosures. Moreover, these firms had astatistically significant higher rate of soft or poor quality disclosures than firms that had goodenvironmental disclosures. The inference that can be drawn from these prior studies is that
there is a negative relation between the quality of environmental disclosures and socialpressure arising from negative publicity, poor environmental performance or some otherevent that has resulted in a perceived ‘legitimacy gap’ as defined by Lindblom (1994).

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Board Gender Diversity
There is an increasing regulatory focus on the gender diversity of corporate boards (Terjesen,
Sealy and Singh 2009). For example, countries such as Norway and Spain have implemented
regulatory quotas for female board representation. (Terjesen, Sealy and Singh 2009). In
addition to regulatory requirements for board diversity, societal pressure to conform tocurrent norms is a potential catalyst for companies to increase board gender diversity.
Legitimacy theory suggests that companies adopt practices when their operations areinconsistent, or perceived to be inconsistent, with society’s norms and expectations (Scott1995). This is particularly the case for large firms that are under increased pressure for
legitimacy and are therefore more likely to have gender diverse boards (Hillman, Shropshire
and Cannella 2007).
There is considerable existing research showing that board gender diversity increases
company value, and several theoretical perspectives have been applied to explain thisrelation. An explanation in agency theory outlined by Adams and Ferreira (2009) is thatfemale directors enhance board governance in a similar manner to the oversight that can beprovided by independent directors. In addition, studies adopting organisational theory suggestthat female directors improve board processes by their bringing different perspectives,
experiences and networks to the board; their being ready to discuss difficult issues; by theirtendency to engage in independent thinking; and, by their enhancing communication (Huseand Solberg 2005; Hillman et al. 2007; Adams and Ferreira 2009; Terjesen et al. 2009). Also,
research in psychology and behavioural finance indicates there is a difference in thepropensity for risk taking behaviour between males and females, which results in improved
decision-making at the board level (Barber and Odean, 2001; Jianakopolos and Bernasek,
1998; Brooks and Zank, 2005).

9Relevant to this study is that board gender diversity has been found to extend to
improved disclosure of financial and non-financial information. For example, Bear et al.
(2010) found a positive relation between the number of female directors and the strength ofcorporate social responsibility disclosures. Krishnan and Parsons (2008) examined whether
gender diversity in top management for US firms was associated with the quality of reported
earnings. They found several earnings quality measures were positively associated withgender diversity. Srinidhi et al. (2011) also examined the relation between earnings quality
and board gender diversity for US companies from 2001 to 2007, and found that greater
female board participation is associated with higher earnings quality. Barua, Davidson,
Rama, and Thiruvedi (2010) examined the relation between chief financial officer (CFO)
gender and accruals quality and found that companies with a female CFO have better quality
accruals.
We argue that board gender diversity is associated with improved board decisionmaking and disclosure regarding GHG emissions. To the extent that female directors improveboard monitoring, bring different perspectives and independent thinking to board decisionmaking, promote the discussion of difficult issues, enhance board communication and reduce
propensity for risk-taking we expect that a gender diverse board will more effectively identify
and respond to legitimization threats. We anticipate gender diversity will be associated with
better management of GHG emissions issues, and will result in better transparent
communication of its strategy and performance to shareholders. We therefore test thefollowing hypotheses:
Hypothesis 1a: Board gender diversity is positively related to the number of corporate GHG
emission disclosures.
Hypothesis 1b: Board gender diversity is positively related to high quality corporate GHG
emission disclosures.

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Hypothesis 1c: Board gender diversity is negatively related to the number of low quality
corporate GHG emission disclosures.

Research Method
Sample and Data
Annual reports for 2059 companies listed on the Australian Securities Exchange in2007 were sourced from AspectHuntley FinAnalysis database or company websites. For eachreport, an electronic search of text for the words environment, sustain, emission, and carbon
and their variants was conducted, and relevant disclosures were documented. Only statements
relating to the natural environment were scrutinized and therefore references to “businessenvironment”, “economic environment”, “business sustainability” and the like were ignored.
Annual reports that could not be electronically searched were read, and any relevant
disclosures were extracted. A total of 231 companies were found to have made GHG
emission disclosures, which is about 11 per cent of listed companies. After removing
companies with missing data, a final sample of 214 GHG emission disclosing companies was
included in the analysis. A matched group of non-disclosing companies based on industry andsize measured by total assets was identified from the remaining listed companies. Samplingwith replacement was used so as to obtain a suitable match for a few companies. The final
sample was 428 companies; of which 214 disclosed GHG emission data and 214 did not.
Board gender diversity, governance, and shareholder data were collected directly fromcompany annual reports. Financial data were downloaded from the AspectHuntley
FinAnalysis database, and missing data were obtained from company annual reports whereavailable.

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Dependent Variable
Disclosure indices have been used for content analysis over a substantial period of time andvarious disclosure indices have been developed (Marston and Shrives, 1991; Cerf, 1961; see
Beattie, McInnes, and Fearnley, 2004 for a summary of the characteristics of such indices).
While the formation of disclosure indices is subjective, they have been found to be a valuable
research tool (Marston and Shrives, 1991).
This study uses the Clarkson et al. (2008) index as a framework for conducting content
analysis of GHG emission disclosures. The Global Reporting Initiative Sustainability
Reporting Guidelines (2002) influenced the disclosure items included in the Clarkson et al.
(2008) index. It was their conjecture that a polluting company’s adoption of reporting
guidelines espoused by the Global Reporting Initiative reports was evidence of a thoroughly
voluntary disclosure and sincerity in revealing their environmental performance credentials.
The degree of sincerity was determined by whether the disclosures relate to ‘hard’ disclosure
items concerning the environmental substance of governance systems, external oversight andverification, environmental performance indicators, and amounts spent or saved on
environmental initiatives, issues or fines. These ‘hard’ disclosures signal a genuine corporate
concern for the environment that cannot be easily mimicked by others with poor
environmental performance. The second type of disclosures captured by the Clarkson et al.
(2008) index are ‘soft’ disclosure items.

These are mainly unverifiable claims about

corporate vision, strategy, policies and initiatives of an environmental nature. Because of theunsubstantiated nature of soft disclosure items, poor environmental performers can easily
imitate good environmental performers through their environmental disclosures without
necessarily having a deep commitment to the protection of the environment.
Modifications to the Clarkson et al. (2008) index were necessary for our analysis of
GHG emission disclosures and to further reflect the nature of our enquiry. We excluded their12governance structure and management systems item “Existence of an environmental and/or apublic issues committee in the board” as our model includes the presence of an environmental
committee as an independent variable. Instead of using Clarkson et al.’s (2008) ten
environmental performance indicator items, we collected only GHG performance disclosuresand maintained Clarkson et al.’s (2008) six-level scoring scale for these. All other items
included in the index were retained. In keeping with the Clarkson et al. (2008) index scoring
system, individual items for each category of disclosure are scored one (1) if information isprovided and zero (0) if a disclosure is not present. Details of our modified content analysis
index are provided in Table 1.
The content of each company’s disclosures was assessed and scored according to theterms of our modified index. Two raters read the text of collated disclosures and assigned
and scored the sections of the text in correspondence with the seven disclosure categories
above. Only one point was awarded per disclosure category regardless of how many times
disclosures matched the criteria. The raters compared their scoring results and discrepancies
were resolved. The dependent variables used in the multivariate analysis presented are the‘total’, ‘hard’ and ‘soft’ disclosures derived from our modified Clarkson et al. (2008) index.

Independent Variable
Our test of the relation between board gender diversity and measures of GHG emission
disclosure includes a dummy variable coded one (1) for the existence of at least one female
director on the board of directors, and zero (0) otherwise.

Control Variables
We include controls for board governance strength. Independence of the board is included asa control, as prior studies have shown this is associated with GHG emission disclosure
13

(Prado-Lorenzo and Garcia-Sanchez, 2010; Rankin et al, 2011). We include a dummy
variable for whether the board has a majority of independent directors, which is coded one (1)if the company has a majority of independent directors and zero (0) otherwise.
We also include as a control board structure with a combined CEO / board chair. One
view of the dual CEO/board chair structure is that separating the roles of the CEO and board
chair is likely to enhance board leadership and ability to exercise oversight of management(Kiel and Nicholson, 2003; Muth and Donaldson, 1998; Palmon and Wald, 2002). In contrast,
stewardship theory argues that CEO/board chair duality empowers the CEO and motivatesachievement and facilitates more effective and efficient implementation of strategic decisions(Chahine and Tohmé, 2009; Kiel and Nicholson, 2003; Muth and Donaldson, 1998). The
study by Prado-Lorenzo and Garcia-Sanchez (2010) found the existence of a dual CEO /board chair person was positively associated with the level of GHG information disclosed.
The analysis includes an indicator variable coded one (1) if the company has a dual
CEO/board chair structure, and zero (0) otherwise.
Prior research indicates the benefits of audit committees in terms of strengthening
reporting quality (Davidson et al., 2005; Kent and Stewart, 2008; Rainsbury et al., 2008).
Accordingly, a dummy variable is included that indicates whether the firm has formed an
audit committee. The variable is coded one (1) if the company has an audit committee andzero (0) otherwise.
In addition to controlling for governance provided by formal internal governancemechanisms, we include a measure of shareholder concentration. Substantial shareholders arelikely to provide monitoring and this enhances governance. Shareholder concentration ismeasured as the percentage of ordinary shares held by shareholders with a 5 per cent or larger
interest in the company.

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Clarkson et al. (2008) find that annual capital investment, which is a proxy forequipment age, is positively related to the extent of environmental disclosures. They suggest
companies with newer, less polluting equipment are motivated to signal their environmental
type. We include a control for the age of equipment measured as the ratio of accumulated
depreciation of property, plant and equipment to its acquisition cost.
We also control for the experience of the board members as indicated by the numberof their external directorships (Ferris, Jagannathan and Pritchard 2003; Carcello, et al. 2011;
Haw, Ho and Yuansha 2011; Johnstone, Chan and Rupley 2011) consistent with prior studies
that have considered the role of gender diversity (Adams and Ferreira 2009).
Prior studies have indicated that companies that demonstrate board commitment to the
GHG emission issue are more likely to make disclosures and that those disclosures will be
more credible (Stanny and Ely, 2008; Rankin et al., 2011). Therefore we include a dummy
variable that indicates whether the board has formed an environment or sustainability
committee. The variable is coded one (1) if the company has a sustainability or environment
committee, and zero (0) otherwise.
To control for the effect of social pressure, we include an indicator variable that takes
a value of one (1) if the company had an adverse media report and zero (0) otherwise. We
consider companies have greater social pressure when they are the subject of unfavorable
media reports, and will have a greater propensity to make legitimizing disclosures. We
searched the Factiva electronic database for any news items relating to the sample companies
for the period 1 January 2006 to 31 December 2008 to identify whether the companies had
adverse media reports regarding the natural environment. Search terms used included
environment, carbon, greenhouse, emissions, sustainability and energy use.
Companies are more likely to make voluntary environmental disclosures if it willmaterially reduce their agency costs of debt (Kent and Chan, 2009). Companies that conduct

15

their business activities in an environmentally irresponsible manner increase their default risk
with a resulting negative effect on both access to debt and its cost (Cornell and Shapiro,
1987; Kent and Chan, 2009). Leverage is included in our analysis to control for reporting
incentives arising from reliance on debt financing for company operations (Roberts, 1992).
We also include dummy variables that indicate whether the company obtained either new
debt or equity financing in their accounting period after 2007. This was determined byexamining the 2008 statement of cash flows and identifying companies that reported proceedsfrom borrowings and proceeds from issues. We use the forward year because this would
suggest that in 2007 the companies identified were concerned with increasing their debt orequity capital in the short term.
Voluntary reporting of environmental information is costly; therefore, financial
performance is related to the probability that companies will undertake such reporting (Kentand Chan, 2009; Roberts, 1992). Moreover, economically successful companies are subject
to greater public scrutiny and have greater incentives to report on their environmental
performance. Economic performance, measured by Tobin’s Q, is included as a control
variable in our analysis.

Statistical Analysis
Equation 1 shows the regression model estimated for testing the hypotheses:
Total / Hard / Soft = β0 + β1 Female director + β2 Shareholder concentration + β3
Performance + β4 Equipment age + β5 Leverage + β6 Majority independence + β7 Dual
CEO/board chair + β8 Audit committee + β9 Environment committee + β10 Adverse media +β11 New debt + β12 New equity + e

(1)

16

Where:Total = Number of GHG emission disclosures determined by content analysis index.
Hard = Number of hard GHG emission disclosures determined by content analysis index.
Soft = Number of soft GHG emission disclosures determined by content analysis index.
Leverage = total liabilities divided by total assets.
Shareholder concentration = percentage of ordinary shareholders with 5% or greater
shareholding.
Performance = Tobin’s Q, calculated as the sum of market value of common equity plus thebook value of total debt and preferred shares divided by book value of total assets, winsorised
at 1 percent.
Equipment age = Accumulated depreciation of property plant and equipment divided by cost
property plant and equipment, winsorised at 1%.
Female director = dummy variable, coded 1 if the board has a female director, and 0
otherwise.
Majority independence = dummy variable, coded 1 if the company has a majority of
independent directors on the board, and zero otherwise.
Dual CEO/Chair = dummy variable, coded 1 if the CEO is also the board chair, and 0
otherwise.
Audit committee = dummy variable, coded 1 if the company has an audit committee, and 0
otherwise.
Environment committee = dummy variable, coded 1 if the company has an environment orsustainability committee, and 0 otherwise.
Adverse media = dummy variable, coded 1 if adverse media reporting regarding its
environmental performance in 2006 to 2008, and 0 otherwise.
New debt = dummy variable, coded 1 if the company has proceeds from borrowing recordedin the 2008 statement of cash flows, and 0 otherwise.
17

New equity = dummy variable, coded 1 if the company has proceeds from issues recorded in
the 2008 statement of cash flows, and 0 otherwise.

Results
Descriptive Statistics
Table 1 presents the disclosure quality index and reports the summary statistics for thehigh quality (hard) and low quality (soft) disclosure categories. For the 214 disclosing
companies in our sample, soft disclosures were made more frequently than hard disclosures.
We found that of the disclosing companies, 69.16 per cent made hard disclosures while 92.99
per cent made soft disclosures. The highest rate of disclosure for soft items was 81.94 percent for statements relating to GHG emission vision and strategy, compared to the highest
rate of hard disclosure of 55.09 per cent for statements connected to external certification orverification. For the other groups of soft disclosures, 79.63 per cent described theenvironmental profile of the company, and 25.93 per cent outlined their environmental
initiatives. For hard disclosures, 48.15 per cent of companies provided information about
governance structure and management systems, 26.85 percent supplied specific greenhouseor energy performance data, and 10.65 percent disclosed information concerning
environmental spending.
Table 1 about here
Table 2 shows the descriptive statistics for the independent variables, with Panel A
reporting those for the continuous variables and Panel B for the binary variables. For theboard gender diversity variable, 35.75 per cent of the sample companies have a female
director. Results for the governance variables indicate overall strong independence for the
sample companies. The proportion of companies with majority board independence is high at

18

66.59 per cent, and relatively few companies have a dual CEO/board chair at only 12.15 percent. A substantial majority of companies formed an audit committee, at 88.79 per cent. The
overall relatively strong governance is likely to be related to the large average company sizeof $7 981 million in total assets. While average company size is large, the range of is from$18 337 to $564 634 million in total assets. The percentage of shares held by shareholders
with a 5 per cent or greater holding was on average 29.00 percent, suggesting the companies
had reasonably high levels of dispersed shareholding. Adverse media regarding
environmental performance over the period from 2006 to 2008 was received by 21.73 percent of the companies. Finally, for the financial controls the following were observed. The
average Tobin’s Q measure was 2.07, which indicates a relatively high market performance;
average leverage was moderate at 0.46; the equipment age variable suggests that the averagelevel of accumulated depreciation of property plant and equipment is about 37.00 per cent ofcost or fair value. A substantial proportion of companies obtained new debt and new equity at
56.54 and 61.21 percent respectively.
Table 2 about here
Table 3 reports the correlation matrix. The highest correlation is 0.33 between thefemale director indicator variable and leverage. The female director indicator variable ispositively correlated with board independence, the existence of an audit committee, and theexistence of an environmental committee. This suggests that firms with overall stronger
governance are more likely to have a gender diverse board. Correlations were not of a
sufficient magnitude to raise concerns about multicollinearity for the regression analyses
conducted (Tabachnick and Fidell, 2001).
Table 3 about here
Table 4 presents univariate tests of differences in the independent variables between

19

companies that made GHG emissions disclosures and those that did not. The results showthat the characteristics of the two groups are systematically different. The female director
variable is significantly different between the groups (at p<0.05). Of disclosing companies,
39.72 per cent have a female director compared to 31.78 per cent for non disclosing
companies. A significant difference (p<0.01) is found for performance, with the average
Tobin’s Q value for GHG emissions disclosers at 2.23, compared to 1.81 for non disclosers.
Disclosers also had a significantly lower rate of adoption of a dual CEO/chair board structure:
7.48 per cent of disclosers adopted this board structure, compared to 16.82 per cent for nondisclosers (p<0.01). GHG disclosers form an audit and environment committee at asignificantly greater rate than non disclosers: 92.06 per cent versus 85.51 per cent and 16.36
per cent versus 8.41 per cent respectively (p<0.05). Finally, the new debt dummy variable
shows that 67.29 per cent of GHG emission disclosing companies obtained new debt,
compared to 45.79 per cent for non disclosers (significantly different at p<0.01).
The leverage and adverse media variables were marginally significantly different at
p<0.10. Mean leverage was higher for disclosers at 48.00 per cent, compared to 44.00 per
cent for non disclosers. Adverse media coverage was received by 25.23 per cent of disclosers,
compared to 18.22 per cent of non disclosers.
Table 4 about here
Multivariate Results
Table 5 provides results of the ordinary least squares regression analysis (model
shown in Equation 1) for the sample of 428 companies. Analysis is presented for total
disclosures, high quality (hard) disclosures, and low quality (soft) disclosures.
The total disclosures analysis (Model 1) is significant at p<0.01 (F=8.23), and has an
adjusted R Square of 0.18. The female director variable is significant at p<0.05 and has a20

positive coefficient. Therefore, the existence of a gender diverse board is associated with agreater number of corporate GHG emission disclosures, which supports Hypothesis 1a. The
results also show that board independence is positively related to total disclosures.
For the control variables, the indicator variable for a majority of independent directors
is significant (p<0.05) and positive, while the existence of a dual CEO/board chair ismarginally significant (p<0.10) and negative. The existence of an environmental board subcommittee is also associated with a greater number of disclosures (p<0.01). Consistent with alegitimacy theory based explanation for voluntary GHG emission disclosures, the adverse
media variable is positive and highly significant (p<0.01). The result supports the view that
disclosure is motivated by a need to change or manipulate perceptions when a legitimacy gap
arises. The performance variable is significant (p<0.05) and its coefficient is positive, whichsuggest that better performing companies have a greater propensity to make GHG emission
disclosures. Issue of new debt is also related to increased total disclosures. This is consistent
with companies signaling that they conduct their business activities in an environmentally
responsible manner so as to increase access to debt and reduce its cost. Finally, contrary to
expectations, we find that concentrated shareholding is negatively associated with total GHG
emission disclosures. A possible explanation for this result is that companies withconcentrated shareholding provide private information to investors regarding risk andopportunities related to GHG emission, thereby mitigating the need for significant additional
public disclosures.
Table 5 about here
The high quality (hard) GHG disclosures analysis (Model 2) is significant at p<0.01(F=6.55), and has an adjusted R Square of 0.15. The female director variable in this model ismarginally significant at p<0.10 and has a positive coefficient. Therefore, the existence of agender diverse board is associated with a greater number of high quality GHG emission
21

disclosures, which supports Hypothesis 1b. For the control variables, the results aresubstantively the same as those reported for Model 1 except for the shareholder concentrationand performance variables, which are not significant.
The low quality (soft) GHG disclosures analysis (Model 3) is significant at p<0.01(F=7.31), and has an adjusted R Square of 0.16. The female director variable in this model isagain marginally significant at p<0.10 and has a positive coefficient. Therefore, the existenceof a gender diverse board is associated with a greater number of low quality GHG emission
disclosures. This result is opposite to expectations and does not support Hypothesis 1c. For
the control variables, the results are substantively the same as those reported for Model 1.
In summary, the results show that the existence of a gender diverse board of directors
is associated with greater GHG emissions disclosure. We find that this relation is consistent
for analysis of both high and low quality GHG emission disclosures in company annual
reports. The results suggest that companies consider both high and low quality disclosures tobe relevant and reliable, and do not distinguish between them in developing their reporting
strategy.

Conclusion
This paper examines the relation between board gender diversity and the quality ofcompany greenhouse gas (GHG) emissions disclosure. Disclosure quality is determined byscoring based on an index derived from the content analysis framework developed by
Clarkson et al. (2008). The hypothesis tested is that board gender diversity is positively
associated with the quality of company GHG emission disclosures. The results show thepresence of a female director is associated with greater overall GHG emissions disclosure,including both high and low quality disclosures. The results add to emerging evidence of the22economic importance of board gender diversity. Overall, the results suggest that examinationof board structure, in particular gender diversity, is useful in assessing the quality of company
GHG emission disclosures.
Regarding the extent of GHG emission disclosure, we found only 11 percent of listed
Australian companies made disclosures in their 2007 annual reports. This low rate isconsistent with the prior finding that public disclosures are not sufficient to assess businessrisk associated with GHG emissions (Stanney and Ely, 2008; Solomon et al., 2010). Thissuggests there is still much policy work to be done to promote more extensive GHG
emissions reporting. Our results indicate that continued focus on enhancing board diversity
will assist in this regard.
Our results are consistent with prior research suggesting that GHG emission
disclosures being motivated by legitimization (Prado-Lorenzo et al., 2009). This is indicatedby the consistent positive relation observed between disclosure and adverse media reports.
Consistent with prior studies, our findings suggest that these legitimizing disclosures are
made with a view to benefiting from lower capital costs and maintenance of competitive
advantage (Prado-Lorenzo et al., 2009; Rankin et al., 2011).

23

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27

Table 1: GHG Emissions Disclosure Index (n=214)

A1
1
2
3
4
5
A2
1
2
3
4
5
6
7
8
9
10
A3
1
2
3
4
5
6
A4
1
2
3

Average
Score

Highest(lowest)
Score

48.15

0.62

3(0)

6.48

0.06

6.94

0.07

32.87

0.33

12.04

0.12

4.17

0.04

55.09

0.92

3.70

0.04

5.09

0.05

12.50

0.12

11.57

0.12

2.78

0.03

20.83

0.21

0.46

0.00

8.33

0.08

18.52

0.18

8.33

0.08

26.85
26.39

0.47
0.26

0.93

0.01

7.41

0.07

4.63

0.05

3.24

0.03

4.63

0.05

10.65

0.12

3.70

0.04

4.17

0.04

4.63

0.05

%
Companies

Panel A: High Quality (Hard) Disclosure Items
Companies making disclosures
Governance structure and management systems (max score is
5)
Existence of a Department for pollution control and/or
management positions for environmental management (0-1)
Existence of terms and conditions applicable to suppliers and/or
customers regarding environmental practices (0-1)
Stakeholder involvement in setting corporate environmental
policies (0-1)
Implementation of ISO 14001 at the plant and/or firm level (0-1)
Executive compensation is linked to environmental performance(0-1)
Credibility (max score is 10)
Adoption of GRI sustainability reporting guidelines or provision ofa CERES report (0-1)
Independent verification/assurance about environmental
information disclosed in the EP report/web (0-1)
Periodic independent verifications/audits on environmental
performance and/or systems (0-1)
Certification of environmental programs by independent agencies(0-1)
Product Certification with respect to environmental impact (0-1)
External environmental performance awards and/or inclusion in asustainability index (0-1)
Stakeholder involvement in the environmental disclosure process(0-1)
Participation in voluntary environmental initiatives endorsed by
EPA or Department of Energy (0-1)
Participation in industry specific associations/initiatives toimprove environmental practices (0-1)
Participation in other environmental organisations/associations toimprove environmental practices (0-1)
GHG Performance Indicators (max score is 6)
Performance data is presented (0-1)
Performance data is presented relative to peers/rivals or industry(0-1)
Performance data is presented relative to previous periods (trend
analysis) (0-1)
Performance data is presented relative to targets (0-1)
Performance data is presented both in absolute and normalized
form (0-1)
Performance date is presented at disaggregate level (i.e., plant,
business unit geographic segment) (0-1)
Environmental spending (max score is 3)
Summary of dollar savings arising from environment initiatives tothe company (0-1)
Amount spent on technologies, R&D and/or innovations toenhance environmental performance and/or efficiency (0-1)
Amount spent on fines related to environmental issues (0-1)

28

69.16

5(0)

5(0)

2(0)

Table 1: GHG Emissions Disclosure Index (n=214) cont’d
Panel B: Low Quality (Soft) Disclosure Items

A5
1
2
3
4
5
6
A6
1
2
3
4
A7
1
2
3
4
5
6

Companies making disclosures
Vision and strategy claims (max score is 6)
CEO statement on environmental performance in letter toshareholders and/or stakeholder (0-1)
A statement of corporate environmental policy, values andprinciples, environmental codes of conduct (0-1)
A statement about formal management systems regarding
environmental risk and performance (0-1)
A statement that the firm undertakes periodic reviews andevaluations of its environmental performance (0-1)
A statement of measurable goals in terms of futureenvironmental performance (if not awarded under A3) (0-1)
A statement about specific environmental innovations and/or
new technologies (0-1)
Environmental profile (max score is 4)
A statement about the firm’s compliance (or lack thereof) withspecific environmental standards (0-1)
An overview of environmental impact of the industry (0-1)
An overview of how the business operations and/or products andservices impact the environment (0-1)
An overview about specific environmental innovations and/or
new technologies (0-1)
Environmental initiatives (max score is 6)
A substantive description of employee training in environmental
management and operations (0-1)
Existence of response plans in case of environmental accidents(0-1)
Internal environmental awards (0-1)
Internal environmental audits (0-1)
Internal certification of environmental programs (0-1)
Community involvement and/or donations related toenvironment (if not awarded under A1.4 or A2.7) (0-1)(Adapted from Clarkson et al., 2008)

29%
Companies

Average
Score

Highest(lowest)
Score

92.99
81.94

1.97

6(0)

9.72

0.10

54.17

0.54

50.46

0.50

31.94

0.32

9.72

0.10

41.67

0.41

79.63

0.99

72.22

0.72

3.70

0.04

22.22

0.22

0.93

0.01

25.93

0.29

4.17

0.04

0.00

0.00

0.93
13.89
0.93

0.01
0.14
0.01

9.72

0.10

3(0)

3(0)

Variable
Total Assets
Leverage
Shareholder
concentration
Performance
Equipment age

Table 2: Descriptive Statistics (n=428)
Panel A - Continuous Variables
Mean
MedianStd. Dev
Min.
7 981m
526m
44 513m
18 337
0.46
0.48
0.25
0.00
0.29
0.20
0.34
0.00
2.07
0.37

1.53
0.39

1.79
0.26

0.00
0.00

Max.
564 634m
1.00
2.42
11.74
0.98

Panel B: Binary Variables
Variable
Number Coded 1 (%)
Female director
153 (35.75%)
Majority independence
285 (66.59%)
Dual CEO/board chair
52 (12.15%)
Audit committee
380 (88.79%)
Environment committee
53 (12.38%)
Adverse media
93 (21.73%)
New debt
242 (56.54%)
New equity
262 (61.21%)
Notes: All variables are measured in 2007 unless noted.
Variable definitions:
Leverage = total liabilities divided by total assets.
Shareholder concentration = percentage of ordinary shareholders with 5% or greater
shareholding.
Performance = Tobin’s Q, calculated as the sum of market value of common equity plus thebook value of total debt and preferred shares divided by book value of total assets, winsorised
at 1%.
Equipment age = Accumulated depreciation of property plant and equipment divided by costof property plant and equipment, winsorised at 1 percent.
Female director = dummy variable, coded 1 if the board has a female director, and 0
otherwise.
Majority independence = dummy variable, coded 1 if the company has a majority of
independent directors on the board, and zero otherwise.
Dual CEO/Chair = dummy variable, coded 1 if the CEO is also the board chair, and 0
otherwise.
Audit committee = dummy variable, coded 1 if the company has an audit committee, and 0
otherwise.
Environment committee = dummy variable, coded 1 if the company has an environment orsustainability committee, and 0 otherwise.
Adverse media = dummy variable, coded 1 if the company experiences adverse media
reporting regarding its environmental performance in 2006 to 2008.
New debt = dummy variable, coded 1 if the company has proceeds from borrowing recordedin the 2008 statement of cash flows, and 0 otherwise.
New equity = dummy variable, coded 1 if the company has proceeds from issues recorded in
the 2008 statement of cash flows, and 0 otherwise.

30

New equity

New debt

Adverse media

Environment
committee

Audit
committee

Dual
CEO/boardchair

Majority
independence

Leverage

Equipment age

Performance

Shareholder
concentration

Femaledirector

Table 3: Correlations (n=428)

Female director
1
Shareholder concentration-0.03
1
Performance-0.18*** 0.12**
1Equipment age
0.14*** -0.05-0.03
1
Leverage
0.33***
0.07 -0.30*** 0.16***
1
Majority independence
0.25***
0.07 -0.15*** -0.04 0.22***1
Dual CEO/board chair-0.16*** -0.03
0.02
0.08 -0.13*** -0.04
1
Audit committee
0.19***
0.07-0.08-0.02 0.29*** 0.20*** -0.15
1
Environment committee
0.15***
0.05
-0.08
-0.06
0.03
0.13*** -0.05
0.11**
1
Adverse media
0.10** 0.23*** -0.03 -0.12** 0.10** 0.13*** -0.04 0.15*** 0.18***
1
New debt
0.09
0.09
-0.08
-0.09 0.25*** -0.02-0.06 0.16*** 0.12**
0.04
1
New equity-0.02 0.15*** 0.22***
0.08
-0.08
-0.02
0.00
0.10**
-0.05
0.01
0.09
1
Notes: *** and ** represent significance levels of 0.01 and 0.05 level respectively. All variables are measured in the year 2007 unless noted.
Variable definitions:Female director = dummy variable, coded 1 if the board has a female director, and 0 otherwise.
Shareholder concentration = percentage of ordinary shareholders with 5% or greater shareholding.
Performance = Tobin’s Q, calculated as the sum of market value of common equity plus the book value of total debt and preferred shares divided by bookvalue of total assets, winsorised at 1%.
Equipment age = Accumulated depreciation of property plant and equipment divided by cost property plant and equipment, winsorised at 1%.
Leverage = total liabilities divided by total assets.
Majority independence = dummy variable, coded 1 if the company has a majority of independent directors on the board, and zero otherwise.
Dual CEO/Chair = dummy variable, coded 1 if the CEO is also the board chair, and 0 otherwise.
Audit committee = dummy variable, coded 1 if the company has an audit committee, and 0 otherwise.
Environment committee = dummy variable, coded 1 if the company has an environment or sustainability committee, and 0 otherwise.
Adverse media = dummy variable, coded 1 if adverse media reporting regarding its environmental performance in 2006 to 2008, and 0 otherwise.
New debt = dummy variable, coded 1 if the company has proceeds from borrowing recorded in the 2008 statement of cash flows, and 0 otherwise.
New equity = dummy variable, coded 1 if the company has proceeds from issues recorded in the 2008 statement of cash flows, and 0 otherwise.

31

Table 4: Univariate Statistical Tests
Non
Disclosing
Disclosing
Variable
Companies
Companiest statistic
Chi-square
Mean or %Mean or %(n=214)(n=214)
Female director
39.72%
31.78%**2.94
Shareholder concentration
0.26
0.30
1.28
Performance
2.23
1.81
***-2.96
Equipment age
0.36
0.39
1.55
Leverage
0.48
0.44*-1.77
Majority independence
70.56%
62.62%
2.39
Dual CEO/board chair
7.48%
16.82%***8.75
Audit committee
92.06%
85.51%**4.11
Environment committee
16.36%
8.41%**6.22Adverse media
25.23
18.22%*3.09
New debt
67.29%
45.79%***20.12
New equity
61.68%
60.75%
0.04
Notes : ***, ** and * represent significance levels of 0.01, 0.05, and 0.10, respectively.
Variable definitions:Female director = dummy variable, coded 1 if the board has a female director, and 0 otherwise.
Shareholder concentration = percentage of ordinary shareholders with 5% or greater shareholding.
Performance = Tobin’s Q, calculated as the sum of market value of common equity plus the bookvalue of total debt and preferred shares divided by book value of total assets, winsorised at 1%.
Equipment age = Accumulated depreciation of property plant and equipment divided by cost of
property plant and equipment, winsorised at 1 percent.
Leverage = total liabilities divided by total assets.
Majority independence = dummy variable, coded 1 if the company has a majority of independent
directors on the board, and zero otherwise.
Dual CEO/Chair = dummy variable, coded 1 if the CEO is also the board chair, and 0 otherwise.
Audit committee = dummy variable, coded 1 if the company has an audit committee, and 0
otherwise.
Environment committee = dummy variable, coded 1 if the company has an environment orsustainability committee, and 0 otherwise.
Adverse media = dummy variable, coded 1 if the company experiences adverse media reporting
regarding its environmental performance in 2006 to 2008.
New debt = dummy variable, coded 1 if the company has proceeds from borrowing recorded in the2008 statement of cash flows, and 0 otherwise.
New equity = dummy variable, coded 1 if the company has proceeds from issues recorded in the2008 statement of cash flows, and 0 otherwise.

32

Table 5: Regression Results (n=428)
Expected Sign
Constant
Female director
Shareholder concentration
Performance
Equipment age
Leverage
Majority independence
Dual CEO/board chair
Audit committee
Environment committee
Adverse media
New debt
New equity

+
+
+
+
+
+
+
+
+
+
+

Model 1:
Total Disclosures
Coefficientt statistic
-0.16
-0.23
0.64
**1.74-1.06**-2.110.16**1.69
-0.39
-0.61
0.59
0.79
0.83
**2.25-0.64*-1.28
0.56
1.03
2.22
***4.47
1.14***2.73
1.71***4.98
-0.19
-0.56

Model 2:
Hard Disclosures
Coefficientt statistic
-0.18
-0.49
0.30
*1.56
-0.29
-1.12
0.03
-0.31
0.12
0.35
-0.02
-0.06
0.43
***2.27-0.37*-1.45
0.20
0.73
1.10
***4.30
0.58***2.71
0.76***4.30
-0.07
-0.38

Model 3:
Soft Disclosures
Coefficientt statistic
0.02
0.04
0.34
*1.59
-0.77
***-2.62
0.13***2.40-0.51*-1.35
0.61
*1.40
0.40
**1.83
-0.27
-0.91
0.35
1.11
1.12
***3.84
0.56***2.27
0.95***4.72
-0.12
-0.62

Model
Adjusted R Square
0.18
0.15
0.16
F Statistic***8.23***6.55***7.31
Notes: *** and ** represent significance levels of 0.01 and 0.05 level respectively. All variables are measured in the year 2007 unless noted.
Variable definitions:Female director = dummy variable, coded 1 if the board has a female director, and 0 otherwise.
Shareholder concentration = percentage of ordinary shareholders with 5% or greater shareholding.
Performance = Tobin’s Q, calculated as the sum of market value of common equity plus the book value of total debt and preferred shares, divided by bookvalue of total assets, winsorised at 1%.
Equipment age = Accumulated depreciation of property plant and equipment divided by cost property plant and equipment, winsorised at 1%.
Leverage = total liabilities divided by total assets.
Majority independence = dummy variable, coded 1 if the company has a majority of independent directors on the board, and zero otherwise.
Dual CEO/Chair = dummy variable, coded 1 if the CEO is also the board chair, and 0 otherwise.
Audit committee = dummy variable, coded 1 if the company has an audit committee, and 0 otherwise.
Environment committee = dummy variable, coded 1 if the company has an environment or sustainability committee, and 0 otherwise.
Adverse media = dummy variable, coded 1 if adverse media reporting regarding its environmental performance in 2006 to 2008, and 0 otherwise.
New debt = dummy variable, coded 1 if the company has proceeds from borrowing recorded in the 2008 statement of cash flows, and 0 otherwise.
New equity = dummy variable, coded 1 if the company has proceeds from issues recorded in the 2008 statement of cash flows, and 0 otherwise.

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