What Makes Oil and Gas Companies Report on Emissions

Sustainability reporting is often viewed as a deliberate action by companies with management deciding on what and what not to report. However, reporting practices may be shaped not only by company management but also by the institutional environment in which the company is located.

Multinational organizations face pressures both internationally as well as in their home countries on the issue of climate change reporting. In this article, rather than considering climate change reporting only from the point of view of the local firm, hypotheses are developed based on institutional theory, to determine whether the institutional environment in which multinational companies operate is important in terms of the quality and quantity of climate change reporting in the oil and gas industry.

A recent study published in the Journal of Business Ethics shows that the overall quality of Greenhouse Gas (GHG) reporting by the oil and gas industry is poor and lagging behind when compared to best practice reporting requirements. In this article, Professor Breeda Comyns of Kedge Business School also finds that regulation under the EU Emissions Trading Scheme (EU ETS) and reporting according to the Global Reporting Initiative (GRI) guidelines lead to better quality and more extensive reporting. Although generally adopting proactive climate change strategies, European companies do not have superior GHG reporting practices. Moreover, corporate media visibility does not impact GHG reporting practices, which may be a reflection of the obscure portrayal of climate change in the print media or the fact that coverage is generally positive.

The article explains how the quality and quantity of reporting by companies on climate change can be influenced by the institutional environment. It also shows that although climate change is a pressing issue, companies in the oil and gas industry generally continue to produce poor quality reports despite the fact that the quantity of information reported has increased. Surprisingly, unlike other environmental issues, media visibility around climate change does not impact the quality of reporting by companies.

The results are interesting because they highlight the fact that climate change reporting by oil and gas companies, who have a major impact on this global problem, is of poor quality.  The results also show that although reporting is a deliberate action by companies, the quality and quantity of reporting is determined by the particular institutional environment, namely multinational companies. In this context, companies mimic the behavior of their peers so that the quality and quantity of reporting on climate change in the industry sector is likely to converge over time. In this way reporting is driven by global rather than local pressures.

The implications of this study are to highlight to companies and stakeholders that corporate reporting practices around the climate change issue are poor and need to improve. The results may be useful to inform policy makers showing that global standards and transnational regulations improve the GHG reporting practices of multinational companies.