GOVERNMENTAL GUIDANCE AND VOLUNTARY ENVIRONMENTAL DISCLOSURE IN STANDALONE REPORTS: AN ANALYSIS OF

DIFFERENCES ACROSS SOUTH KOREAN AND U.S. COMPANIES

Charles H. Cho* Assistant Professor

Department of Accountancy John Molson School of Business

Concordia University 1455, de Maisonneuve Blvd West

Montréal, Québec H3G 1M8, Canada Tel: (514) 848-2424 ext. 2319

E-mail: ccho@jmsb.concordia.ca

Jong-Seo Choi Professor

Department of Accounting College of Business Adminstration

Pusan National University South Korea

E-mail: jschoi@pusan.ac.kr

Young-Min Kwak Doctoral Student

Department of Accounting College of Business Adminstration

Pusan National University South Korea

E-mail: ymkwak@pusan.ac.kr

Dennis M. Patten Professor

Department of Accounting College of Business

Illinois State University Stevenson Hall Campus Box 5520

Normal, IL 61761-5520 E-mail: dmpatte@ilstu.edu

Please do not quote, cite, distribute or copy without the consent of the authors * Corresponding author

GOVERNMENTAL GUIDANCE AND VOLUNTARY ENVIRONMENTAL DISCLOSURE IN STANDALONE REPORTS: AN ANALYSIS OF

DIFFERENCES ACROSS SOUTH KOREAN AND U.S. COMPANIES

ABSTRACT In contrast to U.S. governmental departments (and other authoritative boards), South Korea’s Ministry of the Environment provides formal guidelines on standalone corporate environmental reporting. The purpose of our investigation is to determine whether this higher level of governmental support for standalone reporting is associated with differences in the extent of disclosure. Using two separate environmental disclosure scoring metrics (Clarkson et al., 2008, Patten and Crampton, 2004), we examine the extent of environmental disclosure made by a matched sample of 25 South Korean and 25 U.S. companies in standalone sustainability-type reports. Empirical results show, using either disclosure scale, that South Korean companies’ environmental disclosures are significantly more extensive than the disclosures for their U.S. counterparts. These findings provide strong evidence that governmental support and guidance appears to lead to more extensive provision of environmental information in standalone sustainability-type reports, and suggests that calls for more authoritative support for environmental disclosure (see, e.g., Cho and Patten, 2008; Patten and Freedman, 2008) are justified.

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GOVERNMENTAL GUIDANCE AND VOLUNTARY ENVIRONMENTAL DISCLOSURE IN STANDALONE REPORTS: AN ANALYSIS OF

DIFFERENCES ACROSS SOUTH KOREAN AND U.S. COMPANIES 1. Introduction Ballou, Heitger, & Landes (2006) argue that increasing stakeholder pressure is

leading to an increase in corporate reporting on social and environmental performance,

largely through the issuance of standalone sustainability-type reports. As evidence of

that growth, KPMG International, in its 2008 survey of corporate social responsibility

and sustainability reporting, claims that “nearly 80 percent of the largest 250 companies

worldwide” are now issuing some type of a corporate social responsibility report (KPMG

International, 2008, p.13). Unfortunately, much of the standalone sustainability reporting

has been criticized as being limited in scope (Jupe, 2007), trivial (Gray, 2006), and even

disingenuous (Aras & Crowther, 2008). The problem is that this reporting, like the

provision of social and environmental information in annual reports, continues to take

place largely in a voluntary regime (see, e.g., Gray & Bebbington, 2000; 2007).

Given the concerns with the quality of voluntary environmental disclosure and the

growth of standalone reporting as a tool for disseminating this information, the intent of

our investigation is to provide evidence on whether a higher level of governmental

support for standalone reporting is associated with differences in the extent of disclosure.

In contrast to governmental departments (and other authoritative boards) in the U.S., who

offer no formal guidance on standalone environmental reporting, South Korea’s Ministry

of the Environment (MOE) has had a formal (annually updated) guideline in place since

1999. The MOE’s Business Environmental Report Guideline lays out specific

recommendations for corporate environmental reporting. The existence of this

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governmental guidance is particularly interesting because South Korea’s historical

emphasis on economic development above all else, as well as its cultural, legal, and

institutional characteristics (Nelson & Deegan, 2002; Leuz, Nanda, & Wysocki, 2003)

both suggest corporate environmental disclosure would otherwise be expected to trail that

of similar U.S. companies.

Using two separate environmental disclosure scoring metrics (Clarkson, Li,

Richardson, & Vasvari, 2008; Patten & Crampton, 2004), we examine the extent of

environmental disclosure made by a matched sample of 25 South Korean and 25 U.S.

companies in standalone sustainability-type reports.1 Our results show, using either

disclosure scale, that the South Korean companies’ environmental disclosures are

significantly more extensive than the disclosures for their U.S. counterparts. This is true

for all major sub-groupings included within each of the respective scoring metrics. These

findings provide strong evidence that governmental support and guidance appears to lead

to more extensive provision of environmental information in standalone sustainability-

type reports. The results thus suggest that calls for more authoritative support for

environmental disclosure (see, e.g., Cho & Patten, 2008; Patten & Freedman, 2008)

appear to be warranted.

2. Background and Hypothesis Development While a number of studies investigate whether changes in reporting regulations

and/or authoritative guidance are associated with subsequent changes in environmental

disclosure2 (e.g,, Alciatore, Dee, & Easton, 2004; Larrinaga, Carrasco, Correa, Llena, &

1 Although many of the reports we examine provide information across both social and environmental dimensions, we limit our analysis in this study to only the latter category. 2 Results of these investigations are mixed. For example, both Alciatore et al. (2004) and Patten (2000) report increases in disclosure related to changes in regulations and authoritative guidance for firms in the

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Moneva, 2002; Patten, 2000), this prior work focuses on mandated (at least in theory)

disclosures to be included in companies’ annual reports. In contrast, in this investigation

we concentrate on disclosures included in voluntary corporate sustainability reports and

attempt to determine whether stronger governmental guidance is associated with more

extensive disclosure. This issue is relevant, because with the exception of one or two

countries (see Hibbitt & Collison, 2004), the choice to issue separate standalone

sustainability-type reports is purely voluntary. Unfortunately, as noted by Gray (2006,

p.803), this voluntary regime has led to a situation where “the vast majority of reports are

company-based . . . partial, and mostly, fairly trivial.” If it can be shown that a proactive

and supportive governmental stance for reporting leads to better information provision,

even given that the reports remain voluntary in nature, then justification can be offered

for increasing pressures on government (and other authoritative bodies) to provide better

disclosure guidance.

We examine the issue of differing governmental guidance for environmental

disclosure relative to standalone reporting by identifying this disclosure for a sample of

companies in South Korea and the United States. In contrast to the U.S., where no formal

governmental guidance on voluntary corporate environmental disclosure3 exists, the

South Korean government, as will be discussed below, does provide substantial guidance.

We believe comparing voluntary disclosure by corporations across these two countries is

a particularly strong test of the value of governmental guidance because other factors -

the longer history of social and governmental interest in environmental protection and

U.S., whereas Larrinaga et al. (2002) find that Spanish company disclosures did not appear to increase following inclusion of requirements for environmental information in disclosure standards issued in 1998. 3 Our focus is entirely on voluntary environmental disclosure through standalone reporting. As discussed below, U.S. companies are required to make some mandatory environmental disclosures, primarily with respect to hazardous waste remediation liabilities, in their financial reports.

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disclosure, and stronger legal and institutional characteristics in the U.S. - appear to

suggest that South Korean corporate disclosure would otherwise be lower. We discuss

these inter-country differences, as well as the South Korean disclosure guidance, in more

detail below.

Differing Backgrounds

As noted by Heard and Bolce (1981), societal and governmental concern for

environmental matters in the U.S. dates back to at least the early 1960s, and many of the

major governmental enactments relating to corporate environmental performance go back

nearly as far. For example, many major pieces of environmental legislation including the

Clean Air Act and the Federal Water Pollution Control Act were passed in the early

1970s. Requirements for 10-K report disclosures on environmental matters were also

initiated in the 1970s, with major additional guidance for financial report disclosure of

exposures relating to Superfund and other hazardous waste liabilities promulgated in the

late 1980s and early 1990s. And although standalone environmental reporting didn’t take

hold until the early 1990s (Buhr, 2007), disclosure of environmental information in

annual financial reports was already widespread by the 1970s (see, e.g., Ernst & Ernst,

1973 et seq.). In spite of this history and in spite of the growing trend of standalone

sustainability reporting over the past twenty years (Buhr, 2007), no governmental (or

other authoritative board) guidance for standalone sustainability-type reporting has been

issued in the U.S.

South Korea has a different history with respect to its relation between business

and the environment. Compared to other advanced economies, and in particular the U.S.,

the most contrasting feature of South Korea in terms of the relationship between the

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economy and the environment arises from the fact that the country achieved its economic

development in an extremely short period of time. South Korea transformed itself from

post-war ruins in 1954 into the eleventh largest economy in the world and a member of

the Organization for Economic Cooperation and Development by the end of 1996. The

South Korean government put supremacy on economic success over any other values,

including environmental conservation, during the process of compressed economic

development. Historically, the South Korean business community at large shared the

same sentiments as the prevailing governmental powers regarding the value of the

environment. As a result, environmental degradation and exploitation was an inevitable

side effect. However, the growth of the Korean economy also accelerated the expansion

and globalization of business enterprises, which in turn led to increased societal demands

for a cleaner environment. Spurred by high profile cases of river pollution caused by

effluents discharged by South Korean firms during the early 1990s, the South Korean

government passed extensive environmental legislation. These enactments include the

Basic Environment Policy Act of 1990, the Liability for Environment Improvement

Expenses Act of 1991, the Environmental Pollution Damage Dispute Adjustment Act of

1990, and the Natural Environment Preservation Act of 1991, among others (Choi, 1999).

Thus, governmental concern with environmental matters trailed the U.S. by two decades.

Similar to the time lag for environmental protection legislation, requirements for

mandatory financial report environmental disclosure also came about much later in South

Korea than in the U.S. Requirements for disclosure in the financial reports dates back to

the enactment of article 90, clause 21 of the Corporate Accounting Standards of 1996,

whereby audited firms are required to disclose environment related information in the

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notes to the financial reports (Choi, 1999). The categories of information required by the

clause include environmental standards and policies, safety and accidents, environmental

investments, consumption of resources and energy, and treatments of wastes and by-

products. However, the disclosure requirement is subject to company discretion as to the

applicability of the information and might be interpreted as subject to a discretionary

materiality threshold. As a result, not all companies provide this information in their

financial reports (Choi, 2006).

Aside from the differences in the history of social and political concerns with

environmental degradation and differences in requirements for mandatory financial report

environmental disclosures, South Korea’s cultural, legal, and institutional characteristics

also suggest that corporate voluntary disclosure would be expected to trail that of U.S.

firms. Nelson and Deegan (2002, p.190-191) note for example, that based on the work of

Hofstede (1980, 1991), Gray (1988) and Eddie (1996), South Korea can be classified as

having “high level of secrecy”, a factor argued to lead to lower disclosure. In support of

this claim, Nelson and Deegan (2002) document that 1998 social disclosure by South

Korean corporations was significantly lower than that of firms from Australia and

Singapore. Somewhat similarly, Leuz et al. (2003) classify the U.S. and South Korea

very differently with respect to legal and institutional characteristics as they apply to

market economies. More specifically, Leuz et al. (2003, p.519) classify the U.S. as

having an “outsider economy.” Countries included in this class all have common law

legal tradition, but also tend to exhibit larger stock markets, low ownership concentration,

and extensive outsider rights. Importantly, Leuz et al. (2003, p.519) also note that

relative to other countries, those with outsider economies are also characterized by strong

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legal enforcement and higher disclosure levels. In contrast, Leuz et al. (2003) classify

South Korea as an insider economy country with weak legal enforcement.4 Leuz et al.

(2003) provide evidence that companies from countries with outsider economies exhibit

lower levels of earnings management, presumably because the stronger protections limit

insiders’ ability to mask firm performance.

Although not discussed by Leuz et al. (2003), differences in legal enforcement

appear to exist with respect to environmental protection as well. South Korea is not yet

equipped with strong regulatory sanction mechanisms such as the U.S.’s Superfund Act.

Even when violations occur with regard to environmental protection, the guilty

companies are seldom severely punished out of fear of causing substantial operational

risk for the offenders.5

Everything else being equal, it appears that South Korea’s shorter history of social

and political interest in environmental protection and disclosure, along with the

differences in cultural, legal, and institutional factors highlighted by Nelson and Deegan

(2002) and Leuz et al. (2003), would suggest that voluntary environmental disclosure by

South Korean firms would be expected to lag behind that of their U.S. counterparts.

However, all else is not equal.

Separate from the Corporate Accounting Standards, South Korea’s MOE, in late

1999, issued its initial Business Environmental Report Guideline. The Guideline, which

has been updated on an annual basis, provides recommendations for disclosures in

4 Leuz et al. (2003) identify three distinct country clusters. The first cluster includes companies with outsider economies. Clusters two and three both are classified as having insider economies. The distinction, as noted by Leuz et al. (2003, p.519) is that cluster two countries “have significantly better legal enforcement than countries in the third cluster.” 5 For example, in spite of a major oil spill by Samsung Heavy Industries near the port of Daesan in Taean County in 2007, sanctions were minimal.

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corporate environmental reports including a declaration by the CEO, and information on

the firm’s environmental policy and goals, environmental management systems,

environmental audits, environmental impacts and performance, and stakeholder

partnerships, among other things. These items are encouraged to be included as core

indicators in the environmental reports. Further, since August of 2001, the MOE has been

operating the Corporate Environmental Report pilot project with selected businesses

sporting good environmental management records. The objective of the pilot project was

to publish and disseminate standalone environmental reports that disclose corporate

environmental management records, environmental improvement efforts and other

environmental information to financial institutions and other interested parties. Mainly

motivated by these governmental initiatives, the number of firms preparing standalone

environmental reports or disclosing environment-related information on firm websites

has increased substantially since the early 2000s (Choi, 2006).

In addition to the Corporate Environmental Report pilot project undertaken in

2001, MOE is in the process of developing an Environmental Management Performance

Index to help executives make informed decisions and to meet the demand for reliable

data by interested parties. The index will include information on environmental

improvement impacts and the development of new products, not to mention physical and

chemical indicators of the entire process, so that corporate environmental management

performance may be compared and evaluated. Furthermore, MOE is also proceeding with

the introduction of environmental accounting that enables accurate quantification of

corporate environmental performance. It also supports the development of guidelines for

corporate environmental performance evaluation so that financial institutions can assess

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corporate environmental performance or environmental risks in advance and confirm the

borrowing company’s asset management. The guideline will also enhance the

competitiveness of environment-friendly businesses through market-based valuation and

encourage the implementation of an environmental management policy (MOE, 2007).

As noted above, and in contrast to the guidance for standalone environmental

reporting being provided by the MOE in South Korea, no governmental agencies in the

U.S. have issued any type of guidance or requirements for environmental or other

disclosure in standalone environmental or sustainability-type reports. We believe the

existence of the guidance in South Korea is likely to lead to more extensive disclosure of

environmental information in standalone reports for their companies relative to those

from the U.S., both because the guidance offers specific recommendations on the types of

information to disclose and because the Guidelines (and other related initiatives) signal

public policy interest in the reporting. We state our formal hypothesis (in alternative

form) as:

H1: Ceteris paribus, standalone sustainability-type reports issued by South Korean companies will include more extensive environmental disclosures than reports issued by firms from the United States. 3. Research Methods Sample selection

Sample selection was based on the following criteria:

1. Companies had to have issued a stand-alone sustainability report over the period from 2006 through 2008.6

2. Companies had to have an identifiable industry or sector in their respective

country. 6 In contrast to financial reports, many companies do not issue standalone sustainability reports on an annual basis.

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3. Companies had to have financial data available (for size proxy). We started by identifying a sample of 33 firms listed on the Korea Securities Exchange

with recently issued and available standalone sustainability-type reports. We then

attempted to match each of these companies with a U.S. firm based on industry and

relative size within industry (based on total assets) by country.7 However, the U.S.

matched company also had to have issued a standalone sustainability-type report over the

period of interest. Using these criteria we were unable to identify suitable matches for

eight Korean firms. Our final sample thus consists of 50 companies, 25 Korean and 25

U.S. matched firms. Sample companies represent 12 industries. Firm size (based on

2006 total assets) ranges from $3.2 billion to $1.35 trillion with a mean (median) of 132.4

billion ($25.4 billion) for the U.S. firms and ₩986.6 billion ($1.1 billion) to ₩119.3 trillion

($128.3 billion) with a mean of ₩19.32 trillion ($20.8 billion) and median of ₩11.96

trillion ($12.9 billion) for the Korean companies.8

Disclosure indexes

To measure the extensiveness of environmental disclosures, we use, first, the

discretionary disclosure index from Clarkson et al. (2008). This comprehensive scheme

was largely designed based on the guidelines set forth by the Global Reporting Initiative

(GRI). The GRI is a large joint initiative launched in 1997 by the Coalition for

Environmentally Responsible Economics, a U.S. non-governmental organization, and the

United Nations Environmental Program. Its major objective is to develop a global 7 Due to the inherent size difference between Korean and U.S. markets and economies, relative rank within industry was deemed a better match choice than absolute size. 8 Due to our matching on relative position within industry, the U.S. firms are, on average, significantly larger than their Korean counterparts. Almost all prior studies of environmental disclosure find that the extent of environmental disclosure is positively related to firm size, suggesting a potential bias in our analysis. However, as we report below, we find less extensive disclosure for the U.S. companies, indicating, if anything, the matching understates the magnitude of the difference in disclosure between U.S. and Korean firms.

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reporting framework to continuously improve the quality, credibility and relevance of

sustainability reporting (Global Reporting Initiative, 2009). The G3 guidelines constitute

the “cornerstone” of the GRI framework and the organization recommends it should be

used as the basis for annual reporting on sustainability. These guidelines present

principles and guidance related to both report content (materiality, stakeholder

inclusiveness, sustainability context, and completeness) and report quality (balance,

comparability, accuracy, timeliness, reliability, and clarity).

The Clarkson et al. (2008) index consists of two major sections, classified as

“hard disclosure items” and “soft disclosure items.” The “hard disclosure” area includes

four sub-groups categorized as (1) governance and structure management systems, (2)

credibility, (3) environmental performance indicators (EPIs) and (4) environmental

spending/ On the other hand, the “soft disclosure items” include three sub-groups labeled

as (1) vision and strategy claims, (2) environmental profile and (3) environmental

initiative. Several disclosure items are included within each sub-group. The total

maximum possible score is 95 of which 60 are potentially generated by the EPIs sub-

group due the various weights attributed for each EPI item.

We repeat our analysis using a second disclosure metric, the scale developed by

Patten and Crampton (2004). While less comprehensive in scope than the Clarkson et al.

(2008) scale, Patten and Crampton’s (2004) scheme better captures both more specific

environmental spending disclosures as well as information relating to negative aspects of

environmental performance. Patten and Crampton (2004) break their scale into “positive

or neutral” disclosures (17 separate items across three major sub-groups – economic,

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pollution abatement, and other), and negative disclosures (four items). With the Patten

and Crampton scale, total disclosure scores can range from zero to 21.

4. Analysis and Results

We use a t-test of means to identify the statistical significance of our hypothesized

relations.9 Table 2 presents the results of the analyses of differences in voluntary

environmental disclosure scores, measured using the Clarkson et al. (2008) index,

between U.S. and South Korean firms. Panel A of the table summarizes the hard

disclosure items while Panel B presents the differences in disclosure across the soft

disclosure items.

As highlighted in Table 2 Panel A, the South Korean firms have significantly

higher disclosure scores than their U.S. counterparts for all four sub-groups within the

hard disclosure category. More specifically, (1) South Korean firms’ mean government

structure and management systems score is 3.08 in comparison to a mean score of 1.36

for U.S. firms; (2) South Korean firms’ environmental credibility is 6.32, on average,

versus 2.56 for the U.S. firms; (3) South Korean firms’ environmental performance

indicator mean score is 26.56 as opposed to a mean of 7.44 for U.S. companies; and (4)

South Korean firms’ environmental spending score is 1.88, on average, compared to 0.56

for the U.S. sample companies. Finally, the mean total score for hard item disclosure is

37.84 for South Korean firms while their U.S. counterparts’ average score is only 11.09.

All these differences are highly significant (p < .01, two-tailed).

Results for soft disclosure items are presented in Table 2 Panel B and are similar

to hard disclosure item results. All sub-groups (vision and strategy claims, environmental

9 Tests of differences were repeated using non-parametric Mann-Whitney tests. Results, not presented, were essentially equivalent to the results of our parametric tests.

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profile, and environmental initiative) reflect significantly higher mean total disclosure

scores for the South Korean firms in comparison to the U.S. companies (p < .01, two-

tailed). Mean disclosure scores for the South Korean companies are 5.08, 2.28, and 3.96

across the vision and strategy claims, environmental profile, and environmental initiative

areas, respectively, in comparison to the U.S. mean scores of 3.68, 1.44, and 0.92. The

differences in both soft disclosure total score (mean of 11.32 for South Korean companies

and 6.04 for U.S. firms) and total disclosure scores (South Korean firms’ average score is

49.16, U.S. mean score is 17.96) are also highly significant (p < .01, two-tailed). It is

worth noting that there were no items of either hard or soft disclosure where the U.S.

sample firms out-disclosed (at statistically significant levels) their South Korean matches.

These results provide strong evidence in support of our hypothesis that stronger

governmental guidance is associated with more extensive voluntary environmental

disclosure.

[Table 2 about here]

Table 3 presents results for the analysis of differences in disclosure based on the

Patten and Crampton (2004) disclosure scale. Consistent with the results presented above,

South Korean firms again are shown to provide significantly more extensive

environmental disclosure in their standalone reports than the cohort of U.S. companies.

This is true across both positive/neutral disclosures (summarized in Panel A of Table 3)

and negative disclosures (Panel B). The average positive item total score for the South

Korean firms was 12.84 in comparison to a mean score of 6.16 for the U.S. companies.

This difference is statistically significant at p < .01, two-tailed. While the South Korean

companies, on average, disclosed significantly more across all three sub-groups within

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the Patten and Crampton (2004) positive/neutral category, perhaps the most interesting

difference relates to the disclosure of economic information. The mean score for the

South Korean firms for this area was 1.96 (out of a possible 4) compared to an average of

only 0.24 for the U.S. companies. The South Korean companies were also more

forthcoming than their U.S. counterparts with information of a negative nature (a mean of

1.00 compared to the U.S. average of 0.32), although disclosure in this area was more

limited than for any positive/neutral sub-groups.10 The difference in mean negative

disclosure scores is also statistically significant (at p <. 05, two-tailed). Consistent with

the results based on the Clarkson et al. (2008) disclosure metric, these findings support

the hypothesis that stronger governmental guidance leads to more extensive voluntary

environmental disclosure.

[Table 3 about here]

5. Discussion and conclusion Empirical results presented in this study find that firms based in South Korea

make significantly more extensive environmental disclosures in their standalone

sustainability reports than U.S. counterparts do in theirs. These results hold for most

individual disclosure items contained in both the disclosure indexes and checklists

developed by (1) Clarkson et al. (2008), which is heavily based on GRI guidelines, and

(2) Patten and Crampton (2004), which better classifies both economic-related and

negative environmental disclosures. We attribute the more extensive South Korean

disclosure to the existence of formal governmental guidance for environmental reporting

in that country.

10 In contrast, the mean negative disclosures score for the U.S. sample firms was slightly higher than the mean score for the economic disclosures (0.32 versus 0.24).

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Our study was motivated by concerns that, even though more and more

companies across the world appear to be disseminating standalone sustainability reports,

the quality of the information being provided has been criticized as being, partial, trivial

and even misleading. Our findings suggest that more extensive guidance for

environmental reporting, even in an admittedly still voluntary regime, appears to

substantially increase at least the extensiveness of information provision. Given that the

Clarkson et al. (2008) scale is heavily weighted on GRI guidelines, our findings also

suggest higher quality disclosure, at least to the extent that GRI is viewed as an indicator

of quality (see, e.g., Hedberg and von Malmborg, 2003; but also Gray, 2006; Milne, Ball,

& Gray, 2008; Moneva, Archel, & Correa, 2006). Pressuring governments (or perhaps

other authoritative bodies) to provide more guidance may thus be a powerful step toward

improving corporate environmental reporting.

Like all studies, our investigation is subject to limitation. It is possible, for

example, that some omitted factor other than the existence of governmental guidance

drives the higher disclosure of the South Korean firms. Investigations of differences in

disclosure across other countries with perhaps varied levels of guidance would thus

appear warranted. We also focus only on large, very visible firms within the countries’

respective environments. The degree to which guidance filters, if at all, to smaller

companies remains unanswered. Finally, we focus only on environmental information.

Sustainability is a broader concept, and whether increasing environmental disclosure will

lead to more sustainable companies is yet to be determined.

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Nelson, M. & Deegan, C. (2002). Global expectations and their association with

corporate social disclosure practices in Australia, Singapore, and South Korea. The International Journal of Accounting, 37(2), 183-213.

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Table 1 Descriptive statistics n (sample size) 50 Firm size (2006 total assets) U.S. firms Mean $132.4 billion Median $25.4 billion South Korean firms Mean ₩19.32 trillion ($20.8 billion) Median ₩11.9 trillion ($12.9 billion)

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Table 2 Comparison of disclosure index (based on Clarkson et al., 2008) scores assessing the content of voluntary environmental disclosures for U.S. and South Korean firms Panel A Hard disclosure items Total score Average score11

U.S. South Korean

U.S. N = 25

South Korean N = 25

(A1) Governance structure and management systems (max score is 6) 1. Existence of a Department for pollution control and /or management positions for environmental management (0-1) 2 20 0.08 0.80***

2. Existence of an environmental and/or a public issues committee in the board (0-1) 8 15 0.32 0.60* 3. Existence of terms and conditions applicable to suppliers and/or customers regarding environmental practices (0-1) 8 18 0.32 0.72***

4. Stakeholder involvement in setting corporate environmental polices (0-1) 6 2 0.24 0.08 5. Implementation of ISO14001 at the plant and/or firm level (0-1) 9 21 0.36 0.84*** 6. Executive compensation is linked to environmental performance (0-1) 1 1 0.04 0.04

Governance structure and management systems total score 34 77 1.36 3.08*** (A2) Credibility (max score is 10) 1. Adoption of GRI sustainability reporting guidelines or provision of a CERES report (0-1) 10 23 0.40 0.92*** 2. Independent verification/assurance about environmental information disclosed in the EP report/web (0-1) 2 23 0.08 0.92*** 3. Periodic independent verifications/audits on environmental performance and /or systems (0-1) 4 14 0.16 0.56*** 4. Certification of environmental programs by independent agencies (0-1) 2 9 0.08 0.36** 5. Product certification with respect to environmental impact (0-1) 2 15 0.08 0.60*** 6. External environmental performance awards and/or inclusion in a sustainability index (0-1) 13 16 0.52 0.64 7. Stakeholder involvement in the environmental disclosure process (0-1) 4 1 0.16 0.04 8. Participation in voluntary environmental initiatives endorsed by EPA or Department of Energy (0-1) 8 21 0.32 0.84*** 9. Participation in industry specific associations/initiatives to improve environmental practices (0-1) 12 16 0.48 0.64 10. Participation in other environmental organizations/assoc. to improve, environmental practices (if not awarded under 8 or 9 above) (0-1) 7 20 0.28 0.80***

Credibility total score 64 158 2.56 6.32***

11 The significance levels presented in the last column are from two-sample t-statistics that test the difference between U.S. and South Korean firm groups. ***, **, * represent significance levels at 1%, 5% and 10%, respectively. Non-parametric Mann-Whitney tests and t-tests provided similar results.

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Hard disclosure items (continued) Total score Average score2

U.S. South Korean

U.S. N = 25

South Korean N = 25

(A3) Environmental performance indicators (EPI) (max score is 60)12 1. EPI on energy use and/or energy efficiency (0-6) 37 84 1.48 3.36*** 2. EPI on water use and/ or water use efficiency(0-6) 27 82 1.08 3.28*** 3. EPI on greenhouse gas emissions (0-6) 40 82 1.60 3.28*** 4. EPI on other air emissions (0-6) 22 75 0.88 3.00*** 5. EPI on TRI (land, water, air) (0-6) 4 59 0.16 2.36*** 6. EPI on other discharges, releases and/or sills (not TRI) (0-6) 12 68 0.48 2.72*** 7. EPI on waste generation and/or management (recycling, re-use, reducing, treatment and disposal) (0-6) 32 78 1.28 3.12*** 8. EPI on land and resources use, biodiversity and conservation (0-6) 3 47 0.12 1.88*** 9. EPI on environmental impacts of products and services (0-6) 2 56 0.08 2.24*** 10. EPI on compliance performance (e.g., exceedances, reportable incidents) (0-6) 7 46 0.28 1.84***

Environmental performance indicators total score 186 664 7.44 26.56*** (A4) Environmental spending (max score is 3) 1. Summary of dollar savings arising from environment initiatives to the company (0-1) 5 23 0.20 0.92*** 2. Amount spent on technologies, R&D and/or innovations to enhance environmental performance and/or efficiency (0-1) 7 19 0.28 0.76***

3. Amount spent on fines related to environmental issue s(0-1) 2 5 0.08 0.20 Environmental spending total score 14 47 0.56 1.88***

Hard disclosure items total score 298 946 11.09 37.84***

12 The scoring scale of environmental performance data is from 0 to 6. A point is awarded for each of the following items: (1) Performance data is presented; (2) Performance data is presented relative to peers/rivals or industry; (3) Performance data is presented relative to previous periods (trend analysis); (4) Performance data is presented relative to targets; (5) Performance data is presented both in absolute and normalized form; (6) Performance data is presented at disaggregate level (i.e., plant, business unit, geographic segment).

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Panel B Soft disclosure items Total score Average score2

U.S. South Korean

U.S. N = 25

South Korean N = 25

(A5) Vision and strategy claims (max score is 6) 1. CEO statement on environmental performance in letter to shareholders and/or stakeholders (0-1) 19 25 0.76 1.00*** 2. A statement of corporate environmental policy, values and principles, environ. codes of conduct 25 25 1.00 1.00 3. A statement about formal management systems regarding environmental risk and performances (0-1) 12 22 0.48 0.88*** 4. A statement that the firm undertakes periodic reviews and evaluations of its environmental performance (0-1) 6 19 0.24 0.76*** 5. A statement of measurable goals in terms of future environmental performance (if not awarded under A3) (0-1) 12 16 0.48 0.64

6. A statement about specific environmental innovations and/or new technologies (0-1) 18 20 0.72 0.80 Vision and strategy claims total score 92 127 3.68 5.08***

(A6) Environmental profile (max score is 4) 1. A statement about the firm’s compliance (or lack thereof) with specific environmental standards (0-1) 5 21 0.20 0.84*** 2. An overview of environmental impact of the industry (0-1) 9 10 0.36 0.40 3. An overview of how the business operations and/or products and services impact the environment (0-1) 16 21 0.64 0.84 4. An overview of corporate environmental performances relative to industry peers (0-1) 6 5 0.24 0.20

Environmental profile total score 36 57 1.44 2.28*** (A7) Environmental initiative (max score is 6) 1. A substantive description of employee training in environmental management and operations (0-1) 3 22 0.12 0.88*** 2. Existence of response plans in case of environmental accidents (0-1) 2 14 0.08 0.56*** 3. Internal environmental awards (0-1) 0 5 0.00 0.20** 4. Internal environmental audits (0-1) 5 17 0.20 0.68*** 5. Internal certification of environmental programs (0-1) 2 17 0.08 0.68*** 6. Community involvement and/or donations related to environ. (if not awarded under A1.4 or A2.7) (0-1) 11 24 0.44 0.96***

Environmental initiative total score 23 99 0.92 3.96***

Soft disclosure items total score 151 283 6.04 11.32***

TOTAL DISCLOSURE ITEMS SCORE 449 1229 17.96 49.16***

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Table 3 Comparison of disclosure index (based on Patten and Crampton, 2004) scores assessing the content of voluntary and required environmental disclosures for U.S. and South Korean firms Panel A Positive/Neutral Disclosures Total score Average score2

U.S. South Korean

U.S. N = 25

South Korean N = 25

Economic 1. Current or Past Capital Expenditures for Pollution Abatement or Control 4 21 0.16 0.84*** 2. Current or Past Operating Costs for Pollution Abatement or Control 2 20 0.08 0.80*** 3. Projection of Future Expenditures for Pollution Abatement or Control 0 5 0.00 0.20** 4. Projection of Future Operating Costs for Pollution Abatement or Control 0 3 0.00 0.12*

Economic total score 6 49 0.24 1.96*** Pollution Abatement 1. Air Emission Information is Provided 19 25 0.76 1.00*** 2. Water Discharge Information is Provided 9 22 0.36 0.88*** 3. Solid Waste Disposal Information is Provided 7 24 0.28 0.96*** 4. Pollution Control or Abatement Facilities or Processes are Discussed 12 23 0.48 0.92*** 5. Compliance Status is Mentioned or Discussed 6 23 0.24 0.92***

Pollution abatement total score 53 117 2.12 4.68*** Other Disclosures 1. Discussion or Mention of Environmental Regulations or Requirements 11 22 0.44 0.88*** 2. Statement of Environmental Policies or Company Concern for the Environment 23 25 0.92 1.00 3. Conservation of Natural Resources Discussed 8 11 0.32 0.44 4. Mention or Discussion of Environmental Awards 13 17 0.52 0.68 5. Recycling Information Provided 16 24 0.64 0.96*** 6. Disclosure of an Office or Department for Environmental Control 4 18 0.16 0.72*** 7. Discussion of Environmental Attributes of Products 16 21 0.64 0.84 8. Discussion of Environmental Audit Activities 4 17 0.16 0.68***

Other disclosures total score 95 155 3.80 6.20***

Positive items total score 154 321 6.16 12.84***

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Panel B Negative Disclosures Total score Average score

U.S. South Korean

U.S. N = 25

South Korean N = 25

Negative Environmental Disclosures 1. Discussion of Exposures Due to Past or Present Remediation Problems 1 5 0.04 0.20* 2. Specific Disclosure that the Company Has Been Named as a Potentially Responsible Party 1 4 0.04 0.16 3. Disclosure of Monetary Accruals and/or Expenses Incurred for Remediation 1 3 0.04 0.12 4. Discussion of Exposures Due to Other, Non-Remediation-Related Environmental Problems 5 13 0.20 0.52**

Negative items total score 8 25 0.32 1.00**

TOTAL DISCLOSURE ITEMS SCORE 162 346 6.48 13.84***