The impact of environmental reporting on the value of listed manufacturing firms in South Africa

Abstract

Environmental reporting is a recent novelty in both corporate and academic fields around the globe. As a result, an increase in environmental pollution and degradation has raised many concerns from the stakeholders. Equally, the firms addressed these concerns through a proper disclosure in a form of annual integrated reporting which addressed how firm’s day-to-day operations and production activities affect the environment, especially the environment of the location where firms operate, this reporting included the measurements implemented to mitigate the impact. On the 1st of March 2010, the JSE has passed a listing requirement which compelled all the listed firms and companies to also report on non-compliance and compliance of environmental and social aspects. This JSE listing requirement was prompted by the assumption that the annual financial statements, also referred to as traditional reporting, only served the interest of investors with financial interest. However, the question of whether the disclosure of environmental reporting impacts firm value remains unanswered. Therefore, this study aims to investigate the impact of environmental reporting on the value of South African manufacturing firms listed on the Johannesburg Stock Exchange (JSE). A content analysis was utilized to attain the environmental reporting information from the integrated annual reports of listed manufacturing firms from 2016 to 2020. These reports were retrieved from the companies' websites. Both descriptive and Wilcoxon-signed ranked test was used to test the extent and the movement of environmental reporting practices of South African listed manufacturing. Furthermore, this study adopts regression techniques to test the association between environmental reporting and firms’ profitability. The findings of this study further indicated that the environmental reporting practices implemented by manufacturing firms increased gradually over time. The evidence further showed a significant negative relationship between environmental reporting and return on equity (ROE) and a positive but insignificant relationship with ROA. Lastly, this study documents that environmental reporting negatively affects firm value. The study further demonstrated that environmental reporting is mainly adopted to conform with JSE listing requirements and not for accountability purposes. As a result, it is recommended that South African listed manufacturing firms must develop a technique that will assist in knowing and understanding the desires of primary and prominent stakeholders to disclose relevant environmental reporting information to the relevant stakeholders, as this can increase the trust between stakeholders and manufacturing firms.