Investigating how Norwegian companies report Environmental Metrics
Master thesis
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https://hdl.handle.net/11250/3142881Utgivelsesdato
2024Metadata
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Sammendrag
How do consumers perceive sustainability within Norwegian companies? That is a question that has been researched by BI in the past five years through their Norwegian Sustainability Barometer. By surveying Norwegian consumers about their view of companies, and translating the responses into sustainability ratings, the research aims to understand how companies have communicated their sustainability efforts to consumers.The Norwegian Sustainability Barometer is part of the research project Norwegian Customer Barometer, which for almost 30 years has measured customer satisfaction and loyalty among Norwegian consumers. In the last annual survey, 4690 Norwegian consumers expressed their opinion and told how satisfied they were with companies they buy goods and services from. 155 businesses from around 30 different industries were judged. Consumers have assessed companies they are customers of on the three main dimensions of sustainability: Economic sustainability, environmental sustainability and social sustainability. (BI, 2024).One of the most important ways companies can communicate their sustainability efforts and performance is through their annual reports. There is a growing interest in corporate social responsibility (CSR), and with it comes the growing need to measure a firm’s CSR performance. (Li et al, 2021)This thesis has collected data from the companies included in BIs study and chosen a sample of twenty companies for further research. This research aims to investigate how these companies have reported environmental metrics in their most recent annual reports. To be clear, only environmental data is part of the study. Social and Governance factors are not included. The companies included in the sample were chosen because they were the ones that reported the highest revenue in 2022. This sample covers a wide array of industries and may therefore be somewhat representative for Norwegian corporate business. The focus of analysis is environmental key performance indicators (KPIs) reported by the companies. All KPIs are retrieved from annual reports and sorted into one of seven environmental categories: greenhouse gas (GHG), energy, waste, water, accidents and fines, biodiversity and others. Further, they are classified as either unique or not unique. A KPI that is reported in the same way by more than one company is considered not unique. Through the data collection and analysis, the thesis investigates the following questions:Which environmental key performance indicators (KPIs) are most commonly disclosed by the companies?To what extent is there conformity between the companies' presentation of environmental metrics?Which industries disclose the most environmental data, and which industries disclose the least?Do industries with larger negative environmental impact disclose more than others?Do larger companies report more environmental data than smaller companies?Is there any relation between companies’ disclosure of environmental metrics and their sustainability score received by BI in the following year?1354 environmental KPIs were found in data collection. Analysis shows that out of these, GHG was the most reported category by a large margin. Still, even with the large number of total metrics reported, the most disclosed KPI was only reported by six of the companies. The most reported metric was “emissions from total waste”, followed by “bought products and services”, “employee commuting”, “use of sold products”, “GHG intensity from total operations” and “scope 1: total GHG emissions”. As many as 1199 out of the 1354 reported metrics were deemed unique, indicating a low degree of conformity between the presentations of environmental data by the companies. Out of the 11 industries included in the study, “furniture” had the highest average of reported environmental metrics per company, while “building materials” had the lowest. It should be noted, however, that these industries only contain one company each. Out of the four industries with more than one company, “cars” reported the most and “gas station” reported the least. “Gas Station” is one of the 11 industries represented in the research sample. Considering the two companies included in this, it may be more correct to refer to this group as “fossil fuel companies”. This is the most polluting industry on the planet (Binns, 2023), and therefore the industry with the largest negative environmental impact. At the same time, fossil fuel companies are known to disclose less environmental data compared to other industries (IEA, 2020). The findings of the study support this view, as the number of reported environmental metrics was significantly lower than the total average.Existing literature has shown that larger firms tend to disclose more environmental data such as their climate risks and greenhouse gas emissions compared to smaller firms (The Conference Board, 2022). From the sample of twenty companies, the ten smallest (by reported revenue in 2022) reported considerably more environmental metrics than the ten largest companies. While this is a small sample, no evidence was found to support the hypothesis that larger companies report more. Further, little correlation was found between companies’ disclosure of environmental data and their sustainability scores.The findings imply large discrepancies in environmental reporting. This makes it difficult for consumers, ESG rating agencies and investors to compare and evaluate environmental performance. Thus, consumers are less knowledgeable about environmental sustainability within companies and are less likely to be able to choose the “green option”. ESG rating agencies have suboptimal data to base their calculations on, which may affect investors who rely on the ESG scores they provide. A 2020 study showed that “while the correlation between credit ratings is around 99 percent, the correlation between industry ESG scores is only around 60 percent” (Berg et al, 2019). The study found that this discrepancy across ESG rating agencies was influenced by different ways of ESG weighing and reliance on different metrics for measurement of ESG (Berg et al, 2020). Thus, investors may not act on the most correct information. This affects the financial markets and means that even those acting with the best (environmental) intentions do not necessarily make as much of a positive difference as wanted.By analyzing how environmental sustainability efforts and results are reported, the study aims to enhance understanding of corporate transparency and accountability. This research contributes to academic literature and offers practical insights for companies, investors, regulators and researchers. Companies may use it as a benchmarking tool to find out which environmental metrics can be gathered and disclosed to better align reporting with peer companies. Investors may get a better understanding of what determines the environmental part of ESG ratings, and thereby be better equipped to compare environmental performance across companies or industries. Regulators who want to improve reporting standards and standardize disclosing requirements for certain metrics may get insight into current reporting trends. Researchers that wish to further explore this topic can use this method of measuring environmental reporting, which goes beyond other ESG scores and focuses on the metrics publicly disclosed by companies (Li et al, 2021).