The effect of social and ethical practices on environmental disclosure: evidence from an international ESG data

• DOI: https://doi.org/10.1108/CG-03-2020-0087
• Published date: 2021-27-08
• Date: 2021-27-08
• Pages: 1293-1317
• Subject Matter: Strategy,Corporate governance
• Author: Salim Chouaibi,Habib Affes

The effect of social and ethical practices

on environmental disclosure: evidence

from an international ESG data

Salim Chouaibi and Habib Affes

Abstract

Purpose –Given the risingglobal interest in the environmental, socialand governance (ESG) index, the

purpose of this paper is to investigate the impact of social and ethical practices on the firm’s

environmentaldisclosure level.

Design/methodology/approach –To test the study’s hypotheses, the authors applied linear

regressions witha data panel using the Thomson Reuters ASSET4and Bloomberg database from seven

countries in analyzing data of 523 listed companies selected from the ESG index between 2005 and

2017. Similarly, as an extensionof the research and to address the potential unobserved heterogeneity

and the dynamic endogeneity, the authors exploitedthe dynamic dimension of the data set through the

generalized moment method (GMM) and estimated the impact of the one-year lagged value of the

environmentaldisclosure.

Findings –The empirical resultsindicate a growing interest in corporatesocial responsibility (CSR) and

ethical practicesover the past decade. Besides, companieswith a strong social and ethical commitment

obtain significantly higher environmental disclosure scores. The results foundwith the GMM technique

indicatethe existence of dependence and continuity in environmentaldisclosure over time.

Practical implications –The research enables the information user to assess the transparency of the

company as well as the quality of the information disclosed on its environment and its future growth

opportunitiesin a context where the approachof business ethics occupies a central position in business

valuation. The reached results suggest that the institutional and/or cultural factors affect top

management’senvironmental reporting behaviorregarding the quality of published information.

Originality/value –This paper explores,for the first time, the effect of the social and ethicalpractices of

ESG companies with seven different nationalities as well as its dynamic effect on the adoption of an

environmentaltransparency strategy.

Keywords Corporate social responsibility (CSR), Environmental disclosure, Ethical behavior,

Dynamic effect, Environmental, social and governance (ESG)

Paper type Research paper

1. Introduction

Over the past few decades, the effect of the social and ethical practices on decision-

making transparency and environmental disclosure has attracted increasing academic

interest. Besides, given the weaknesses in accounting information that focuses mainly

on financial data and neglect non-financial ones, investments in ethics and social

engagement are increasingly considered to be a strategic element for the growth,

profitability and competitiveness of a company (Akisik and Gal, 2017;Arslanagic-

Kalajdzic and Zabkar, 2017;Tomo and Landi, 2017;Ongsakul et al., 2020). In this

regard, corporate social responsibility (CSR) can be perceived as an excellent tool for

enhancing the legitimacy of the company to its stakeholders and developing a faithful

image of what is going on within it.

Salim Chouaibi is based at

the Department of

Accounting, University of

Sfax, Sfax, Tunisia.

Habib Affes is based at the

Faculty of Economic

Sciences and Management

of Sfax, Research

Laboratory of Information

Technologies, Governance

and Entrepreneurship

(LARTIGE), University of

Sfax, Sfax, Tunisia.

Received 3 March 2020

Revised 17 June 2020

20 July 2020

2 October 2020

21 November 2020

Accepted 2 December 2020

The authors would like to thank

the Editor and the two

anonymous referees of the

“Corporate Governance: The

International Journal of

Business in Society” for their

insightful comments that have

greatly benefitted the paper.

DOI 10.1108/CG-03-2020-0087 VOL. 21 NO. 7 2021, pp. 1293-1317, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 1293

A stream of this literature has also addressed the determinants of the firm’s environmental

disclosure and attempted to measure the impact of ethics and CSR factors. In this paper,

we investigated the relationship between social and ethical practices and the environment-

related disclosure of companies selected from the environmental, social, and governance

(ESG) index.

In this regard, previous studies have reported the importance of the ethical and social

practices as an indicator of performance and good management for the various partners of

the company (Yusuf et al., 2014;Fatemi et al.,2017;Herrera and de las Heras-Rosas, 2020;

Murashima, 2020;Bacha and Ajina, 2020). One argument is that firms should treat all

stakeholders more or less equally and should make similar investments in different CSR

activities (Ongsakul et al., 2020). Consequently, executives are sometimes obliged to

intervene in the process of social and environmental information disclosure to improve the

stock market value of the company, which motivates the partners of their companies and

also reduces the risks to which they are exposed (Akisik and Gal, 2017;Welbeck et al.,

2017;Baalouch et al., 2019;Wonget al., 2020;Murashima, 2020).

At the level of investment and financing decisions, the disclosure of accounting information

constitutes the first informational source for the various actors of the company (investors,

financial backers, public bodies and financial analysts). Goel and Ramanathan (2014)

argue that business ethics, as a moral concept, pushes the company to respect social

norms to ensure the reliability and relevance of the information disclosed. In other words,

ethics is a strategy that takes into account the social and environmental interest rather than

the personal interest of the company’s stakeholders. Indeed, the commitment to business

ethics requires large companies to be more transparent and thus to disclose more

information. Moreover, in the current business context, it is essential to set a benchmark for

social and ethical practices,namely, environmental disclosure (Ma

¨kela

¨et al.,2017).

The research question this paper aims to answer is as follows: Are social and ethical

practices contingent on the environmental information disclosure policy adoptedin the ESG

companies?

Based on these premises, the present paper aimed to analyze the effect of socially

responsible and ethical behavior on firm’senvironmental transparency.

The paper contributes to the existing literature in several ways. First, this research

contributes to the literature on social and ethical practices by providing evidence that

companies need to take into account not only the interests of their shareholders but also

those of their environment. To fill this gap in the literature, we explored the effect of CSR on

information disclosure. We also contribute to the literature on environmental disclosure,

especially in the context of ESG companies, by examining how and to what extent

companies use practices related to corporate social responsibility and ethical behavior to

improve environmental transparency. Overall, this paper posits that ESG companies, which

take social interests into account when developing their strategies, will be able to move

toward better environmental information quality. Furthermore, our research extends the

literature on corporate governanceby investigating the effect of good governance practices

on environmental disclosure. We demonstrate that more effective governance lead to a

higher quality of the information disclosed.

Finally, the absence of time variation in firm strategies may be problematic. Indeed,

identifying the antecedents and the consequences of the implementation of a socially

responsible policy in the company requires taking into account the dynamic effect and the

principle of continuity of the exercises (the lagged dependent variable, at least). Thus, it is

asserted that the environmental disclosure at period tdepends necessarily on the

disclosure of this type of information at period t-1, and the social and ethical practices. We

explore this relationship using the generalized moment method (GMM), as proposed by

Arellano and Bond (1991).

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