**1. Introduction**

There is an increasing tendency for organizations worldwide to disseminate information regarding their social and environmental measures [1]. The concept of corporate environmental responsibility has gained considerable attention as a result of growing concern of public over the sustainability of natural environment. This concern has become particularly

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

noticeable over the past four decades [2]. In addition the concept of Triple Bottom Line Reporting (i.e. reporting regarding economic, environmental and social activities) introduced by Elkington [3] during the mid-1990s and global reporting initiative in 2002 gained substantial attention and has recommended certain guidelines on three dimensions of corporate accountability and responsibility, i.e. economic responsibility, social responsibility and environmental responsibility.

of the current study is to fill up the gap by investigating the impact of corporate governance elements on the environmental information disclosure of the companies listed on Pakistan Stock Exchange (PSX). The present study is expected to make noteworthy contribution to the existing accounting literature by imparting updated information on the extent of environmental reporting practices in Pakistan and by presenting empirical evidence on the relationship between corporate governance characteristics and environmental reporting in the annual

The Relationship between Environmental Reporting and Corporate Governance: Empirical…

http://dx.doi.org/10.5772/intechopen.75228

147

The findings suggest a positive association between board size and environmental reporting as larger board characterized by more qualified individuals acquires an efficient reporting system including ER. It is also found that independent directors effectively monitor board activities, stimulate autonomy within board and are positively associated with environmental disclosure practices. Likewise, separate leadership structure enhances the efficiency of board in monitoring management activities and ensures high level of transparency. Finally the study proves that institutional investors actively voice their concern over the firm's strategies and board governance and compel management to reveal more information regarding

After the introduction, the rest of this chapter is arranged as follows. Section 2 discusses the corporate governance and environmental reporting nexus. Section 3 presents the literature review and explains the hypotheses development. Section 4 shows in detail the research methodology followed by the results of the empirical analysis to test the stated hypotheses in Section 5. Finally, Section 6 presents the conclusion, implications, limitations and areas for

"Environment Reporting" offers an opportunity for firms to apprise stakeholders that their corporate operations and efforts are environmental friendly. Environmental reporting should be embraced by corporation as an opportunity rather than an impediment to the growth of business. However, it is a real challenge in a country like Pakistan, where pervasive control and command systems invade the governance of country. Regulatory framework often tends to target the disciplinary behavior of corporations, instead of providing them with a facilitating environment for better compliance on ecological and social standards. Sustainability reporting also known as triple bottom-line reporting, corporate social responsibility reporting or non-financial reporting addresses the ability of organizations to formally reveal information about their economic, social and environmental operations [36]. In this perspective, sustainable approach, i.e. to fulfill the requirements of current generation without compromising the capacity of upcoming generations to fulfill their requirements is an emerging concern among the global community. In Pakistan, sustainability reporting of which environment

Globalization is the process of economic integration of multinational and national companies. These include listing of companies at international and national stock exchanges. This cross

**2. Corporate governance and environmental reporting**

reporting is a significant category is in its infancy but gradually growing.

reports of 50 companies listed on PSX.

environmental activities.

future research.

Parallel to this, corporate governance has enormously engrossed attention in recent years. It is generally emphasized that sound corporate governance is associated with enhanced transparency, accountability and plausible disclosure [4–7]. Agency theory and other corporate governance guidelines recommend a sound corporate governance structure for an effective and transparent disclosure mechanism about the corporations.

Moreover, the notion of sustainable development stipulates firms to be accountable not only financially or economically but to be sound and reliable socially and environmentally [8]. The strong connection between corporate governance mechanisms and the level of voluntary disclosure has been reported by the authors in [9–17]. Likewise, the authors in [18–22] documented a significant connection between corporate social responsibility disclosure and determinants of corporate governance. Whereas the authors in [2, 23–26] have acknowledged that sound corporate governance is associated with enhanced environmental disclosure practices.

The literature suggests diverging views regarding association between corporate governance and information disclosure. Studies conducted by the authors in [21, 22, 25, 27] suggested that larger board leads to more efficient reporting system. On the contrary, the authors in [19, 23] found a lack of association between board size and environmental reporting. In addition, the authors in [10, 17] suggested a need for a separate leadership structure for enhanced transparency and disclosure whereas, Ho and Wong [9] found a lack of relationship between the nondual leadership structure and the level of corporate reporting.

The authors in [14, 20, 25] found a positive association between board independence and environmental reporting. Likewise, the authors in [22, 25] endorsed that female directors exhibit socially responsible behavior and firms with more female directors tend to disclose more information.

Audit committee independence is also documented to be positively associated with corporate disclosure practices by Oscar and Juliet [26]. On the other hand, Alhazaimeh et al. [16] found no link between audit committee independence and voluntary disclosure. For institutional ownership, the authors in [12, 25] reported a positive relationship between institutional ownership and environmental reporting. On the contrary, Alhazaimeh et al. [16] argued that effectiveness of board is reduced due to the presence of institutional investors.

CSR has been well examined in Pakistan. The prior studies support the notion that sound CSR practices improve the financial performance of firm [28–32] and corporate image [33–35]. Likewise, studies conducted by the authors in [20–22] documented a substantial association between CG and level of corporate disclosure, but so far limited empirical work has been carried out to analyze whether this also relates to environmental reporting. The key motivation of the current study is to fill up the gap by investigating the impact of corporate governance elements on the environmental information disclosure of the companies listed on Pakistan Stock Exchange (PSX). The present study is expected to make noteworthy contribution to the existing accounting literature by imparting updated information on the extent of environmental reporting practices in Pakistan and by presenting empirical evidence on the relationship between corporate governance characteristics and environmental reporting in the annual reports of 50 companies listed on PSX.

noticeable over the past four decades [2]. In addition the concept of Triple Bottom Line Reporting (i.e. reporting regarding economic, environmental and social activities) introduced by Elkington [3] during the mid-1990s and global reporting initiative in 2002 gained substantial attention and has recommended certain guidelines on three dimensions of corporate accountability and responsibility, i.e. economic responsibility, social responsibility and envi-

Parallel to this, corporate governance has enormously engrossed attention in recent years. It is generally emphasized that sound corporate governance is associated with enhanced transparency, accountability and plausible disclosure [4–7]. Agency theory and other corporate governance guidelines recommend a sound corporate governance structure for an effective

Moreover, the notion of sustainable development stipulates firms to be accountable not only financially or economically but to be sound and reliable socially and environmentally [8]. The strong connection between corporate governance mechanisms and the level of voluntary disclosure has been reported by the authors in [9–17]. Likewise, the authors in [18–22] documented a significant connection between corporate social responsibility disclosure and determinants of corporate governance. Whereas the authors in [2, 23–26] have acknowledged that sound corporate governance is associated with enhanced environmental disclosure

The literature suggests diverging views regarding association between corporate governance and information disclosure. Studies conducted by the authors in [21, 22, 25, 27] suggested that larger board leads to more efficient reporting system. On the contrary, the authors in [19, 23] found a lack of association between board size and environmental reporting. In addition, the authors in [10, 17] suggested a need for a separate leadership structure for enhanced transparency and disclosure whereas, Ho and Wong [9] found a lack of relationship between the

The authors in [14, 20, 25] found a positive association between board independence and environmental reporting. Likewise, the authors in [22, 25] endorsed that female directors exhibit socially responsible behavior and firms with more female directors tend to disclose more

Audit committee independence is also documented to be positively associated with corporate disclosure practices by Oscar and Juliet [26]. On the other hand, Alhazaimeh et al. [16] found no link between audit committee independence and voluntary disclosure. For institutional ownership, the authors in [12, 25] reported a positive relationship between institutional ownership and environmental reporting. On the contrary, Alhazaimeh et al. [16] argued that effec-

CSR has been well examined in Pakistan. The prior studies support the notion that sound CSR practices improve the financial performance of firm [28–32] and corporate image [33–35]. Likewise, studies conducted by the authors in [20–22] documented a substantial association between CG and level of corporate disclosure, but so far limited empirical work has been carried out to analyze whether this also relates to environmental reporting. The key motivation

and transparent disclosure mechanism about the corporations.

nondual leadership structure and the level of corporate reporting.

tiveness of board is reduced due to the presence of institutional investors.

ronmental responsibility.

146 Globalization

practices.

information.

The findings suggest a positive association between board size and environmental reporting as larger board characterized by more qualified individuals acquires an efficient reporting system including ER. It is also found that independent directors effectively monitor board activities, stimulate autonomy within board and are positively associated with environmental disclosure practices. Likewise, separate leadership structure enhances the efficiency of board in monitoring management activities and ensures high level of transparency. Finally the study proves that institutional investors actively voice their concern over the firm's strategies and board governance and compel management to reveal more information regarding environmental activities.

After the introduction, the rest of this chapter is arranged as follows. Section 2 discusses the corporate governance and environmental reporting nexus. Section 3 presents the literature review and explains the hypotheses development. Section 4 shows in detail the research methodology followed by the results of the empirical analysis to test the stated hypotheses in Section 5. Finally, Section 6 presents the conclusion, implications, limitations and areas for future research.
