Multi-level analysis of environmental disclosure by Brazilian and German firms.

AutorAmorim, Karla Vanessa Nogueira Maia

1 Introduction

The 1970s saw the emergence of collective concerns which would eventually coalesce into the concept of corporate environmental and social responsibility (CSR) (Kolk, 2010). These concerns were initially social in nature, but in 1990, once environmental issues had become more widely acknowledged, they culminated in the so-called 'triple bottom line'--a social, environmental, and economic framework. As pointed out by Kraemer (2001), this new understanding of the role of private enterprises has increased external pressure on firms. In response, many have adopted CSR disclosure as a form of accountability.

With the growing ecological awareness of government agents, company executives, and society at large, environmental preservation initiatives have been woven into the patchwork of corporate strategy. Thus, more and more firms make public their stance on environmental issues through disclosure in corporate reports (Kraemer, 2001; Ribeiro, Bellen, & Carvalho, 2011).

CSR disclosure may take different forms in different countries due to the distance between expectations and social reality (Grecco, Milani Filho, Segura, Sanchez, & Dominguez, 2013). Moreover, Abreu, Cunha, and Barlow (2015) and Soares, Sa de Abreu, Pinheiro Marino, and Reboucas (2020) believe the institutional environment also determines how firms respond to social responsibility demands. In fact, Matten and Moon (2008) see country-level differences in CSR as reflecting institutions historically rooted in national business systems (NBSs) in the long term. In other words, firms develop their social and environmental policies under the influence of the national institutional environment.

Investigations into how country-level differences affect business practices can be highly rewarding. In this study, we chose to evaluate environmental disclosure by Brazilian and German firms in view of the stark difference between these two countries. The World Bank Group classifies Germany as 'high-income' and Brazil as 'upper middle income' (World Bank, 2018), but many other important differences apply, as we shall see in the Methods section.

Based on the concept of NBS, Whitley's framework (1999) may be used to analyze the influence of the institutional environment on firms in their respective countries. Whitley divided the NBS into four subsystems: political, financial, cultural, and educational/labor. Some authors (e.g., Jensen & Berg, 2012) add an economic system to the classification. Several investigators, including Matten and Moon (2008), Jensen and Berg (2012), Ioannou and Serafeim (2012), and Soares, Sa de Abreu, Pinheiro Marino, and Reboucas (2020), have found a significant association between the NBS and CSR using Whitley's framework (1999).

In an attempt to understand what drives business organizations to adopt CSR practices, Aguilera, Rupp, Williams, and Ganapathi (2005) and Lattemann, Fetscherin, Alon, Li, and Schneider (2009), among others, have used multilevel models to evaluate factors at the micro (firm), meso (sector), and macro (country) level.

In the present study, the macro level is represented by the NBS, while the meso level was included to determine to what extent the business sector (or industry) influences the level of corporate environmental disclosure. This level of influence was studied by Young and Marais (2012), Li, Fetscherin, Alon, Lattelmann, and Yeh (2010), Silveira and Pfitscher (2013), Gamerschlag, Moller, and Verbeeten, (2011), Amorim (2015), Viana Junior and Crisostomo (2019), and Campbell (2007), all of whom found an association between sector and disclosure, whether environmental, socioenvironmental, or overall CSR.

The micro level involves aspects of the organization itself which may affect the level of environmental disclosure. Institutional pressure and company variables interact to determine the adoption of environmental management practices. Managers' perceptions of institutional pressure depend on the characteristics of each firm (Delmas & Toffel, 2004). Factors such as company size, CEO/ chairman duality, and the participation of external directors on the board can also influence the level of CSR disclosure, as shown by Lattemann et al. (2009), Mascena, Barakat, Isabella, and Fischmann (2020), and Li et al. (2010).

The purpose of the present study was to evaluate the influence of variables at three levels (macro, meso, and micro) on environmental disclosure--one of the pillars of the triple bottom line. The study was exploratory, considering the scarcity of research conducted in the area, and used a multi-level approach to compare firms from two countries with regard to environmental disclosure. The study is intended to generate new knowledge, subsidize discussions, and support future research efforts.

Assuming environmental corporate practices are influenced by the NBS, business sector, and firm variables, we set out to answer the following question: How do factors at the macro (NBS), meso (sector), and micro (firm) level affect the level of environmental disclosure by Brazilian and German firms in environmentally sensitive sectors?

In other words, our aim was to evaluate the influence of factors at multiple levels on the disclosure of environmental practices adopted by firms in Brazil and Germany. To do so, we measured the environmental performance of the sampled firms with GRI indicators (Global Reporting Initiative, 2017) and the NBS indicators proposed by Whitley (1999), Matten and Moon (2008), and Jensen and Berg (2012). We also identified environmentally sensitive sectors and company characteristics for both countries.

Our results provide a significant input to the current understanding on a whole set of factors that potentially influence the adoption and subsequent disclosure of corporate practices related to the environment--a hotly debated topic among academics due to its direct bearing on the management of natural resources. In addition, the application of the hierarchical linear model (HLM) method to a social science problem, assessing the explanatory power of factors at multiple levels, represents a significant advance in this field of study.

Several national and international authors have investigated the impact of institutional, sector-related, and organizational factors on the environment (de Mascena, Barakat, Isabella & Fischmann 2020; Kolk, 2010; Abreu, Cunha & Barlow, 2015; Soares et al. 2020; Matten & Moon, 2008; Lattemann et al., 2009; Amorim, 2015; Delmas & Toffel, 2004; Viana Junior & Crisostomo, 2019), but the present study takes one step further by comparing the institutional environments of two widely different economies (Germany and Brazil) while evaluating disclosure-related factors at multiple levels (country, sector, firm).

2 theoretical framework

2.1 Influence at the macro level (NBS)

Organizational characteristics to some extent determine how institutional pressure is perceived by managers. Examples include companies' financial and environmental performance, organizational structure, and strategic policies (Delmas & Toffel, 2004).

The concept of NBS was proposed by Whitley (1999) in order to investigate national institutional factors. As explained by Tempel and Walgenbach (2007), knowledge of the NBS makes it possible to show to what extent firms are influenced by the institutional environment.

2.1.1 The financial system

In this study we analyzed the financial system from the perspective of financial market development, using the Global Competitiveness Index (GCI) of the World Economic Forum (WEF, 2018).

According to Jensen and Berg (2012), in economies with high ownership dispersion, such as market-oriented financial systems, firms are controlled by anonymous investors. This increases the need for both financial and CSR disclosure (Mayer, 1990; Jensen & Berg, 2012).

Moreover, as pointed out by Matten and Moon (2008), since the stock market is the most important source of corporate funds, firms are required to display a high level of transparency and accountability to attract investors. Based on these considerations, the following hypothesis was formulated:

H1a: The level of environmental disclosure is positively associated with financial market development.

2.1.2 The political system

We analyzed the political system using the WEF indicator described in GCI: Institutions. The indicator measures the development of private and public institutions in a country. This development is proxied by the level of corruption, among other aspects. The more widespread corruption is, the less developed the institutions are.

Likewise, Lattemann et al. (2009) concluded that in environments with high levels of corruption, firms are unable to maintain high levels of CSR and therefore tend to engage in less disclosure of this type.

Ioannou and Serafeim (2012) also made the claim (supported by our results) that firms in countries with high levels of corruption engage in less CSR-related disclosure. According to those authors, in countries with a predominantly neoclassical ethos, projects benefiting stakeholders in detriment to the owners (such as CSR initiatives) are considered a waste of shareholder wealth. In such environments, laws for investor protection may be created, thereby discouraging investments in CSR. Based on this, the following hypothesis was formulated:

Hib: The level of environmental disclosure is positively associated with national institutional development.

2.1.3 The education and labor system

We used two WEF indicators to assess the education and labor system: higher education and training, and labor market efficiency.

Matten and Moon (2008) found that major European business schools or institutions of higher learning offer CSR disciplines, often as mandatory modules. This would go a long way to explaining the high level of CSR observed in Europe.

Interestingly, Meireles (2014) concluded that firms in countries with overall high levels of schooling engage in...

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