Environmental reputation may be influenced more by what companies say than by what they do, according to a study by a Kansas State University researcher and other collaborators. The study found that the more information companies disclose about their sustainable practices, the more they are viewed as being environmentally friendly—even if their actual environmental performance is not particularly strong.
The researchers—including Amy Hageman, assistant professor of accounting at KSU, Charles Cho of the ESSEC Business School in France, and Ronald Guidry and Dennis Patten, both of Illinois State University—investigated environmental performance and perceptions of environmental reputation by analyzing the financial and corporate social responsibility reports of companies listed in Newsweek magazine's green rankings of large US companies.
They found that companies with the worst environmental performance—including companies from industries such as utilities, oil and gas, which have significant environment impact—often have the best environmental reputations.
"The data suggest that many companies that have the worst performance actually disclose more, likely because they have a greater incentive to promote sustainability practices like investing in green technology," says Hageman. "We also found that more extensive firm environmental disclosure is associated with more favorable environmental reputation scores, suggesting that higher levels of environmental disclosure appear to mediate the potential negative effects of poorer performance on environmental reputation."
Researchers also analyzed the North American Dow Jones Sustainability Index, which is purported to reflect companies' leadership in terms of corporate sustainability, and found a similar link between environmental communication and inclusion.
"Companies listed on the Dow Jones Sustainability Index have a much better environmental reputation," Hageman says, "but the corporations on the index are ones that are disclosing more information—not the ones that are necessarily performing better environmentally. If people are relying on this index to invest in green companies, they're really being swayed a lot more by what companies say they're doing about the environment rather than their actual performance,."
That may be hindering improved future corporate environmental performance, according to the study.
"Disclosure may actually reduce the incentives that companies have for improving their actual environmental performance in the future, because disclosure tends to reduce the potential negative effects of poor environmental performance," Hageman says.