Environmental Reporting in the UK Oil and Gas Industry

Subject: Industry
Pages: 9
Words: 2625
Reading time:
10 min
Study level: College

Introduction

Corporations have been increasingly responsive to stakeholder pressure for societal and environmental information, especially on important matters like carbon disclosure and social programmes (Stanny & Ely 2008). Demand from stakeholders has focused on environmental and social disclosures.

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Stakeholders have complained of lack of disclosures about environmental impact of corporate activities, and so they go direct to the firms. Some authors consider CSER as the firms’ reaction to stakeholder demands. But this is not the primary cause of firms’ social environmental disclosures. The literature provides theories and instances on its evolution and importance to firms.

In a nutshell, corporate social and environmental reporting (CSER) is defined as ‘the process of communicating the social and environmental effects of an organization’s economic actions to particular interest groups within society and to society at large’ (Gray et al. 1987 as cited in Sobhani, Amran, & Zainuddin, 2009, p. 168).

Corporate environmental reporting refers to the disclosure of relevant information about a corporation’s environmental performance whereas social responsibility reporting is the disclosure of information on societal performance (Othman & Ameer 2009, p. 298). Other authors define corporate social disclosures as reporting of ‘environmental, ethical, and human issues’ (Gray et al 1995; Hackston & Milne 1996; Adams et al. as cited in Tagesson et al., 2009, p. 352).

Corporate social and environmental reporting (CSER) provides disclosures on organisation-community interactions and the extent of social disclosures varies in organisations (Tagesson et al. 2009). Firms used to be active in corporate social responsibility reporting. Because of environmental disasters caused by corporations, particularly those in the oil and gas industry, which have caused damage to ecological habitats and tarnished the relations of corporations and communities, stakeholders are now more interested in CSER (Othman & Ameer 2009).

However, many business people believe that environmental and social responsibility practices are effective ethical business framework. In other words, whether there is demand or not from stakeholders, they have to provide social and environmental disclosures. CSER refers to terms like ‘sustainability, corporate citizenship and socially responsible investment’ (Othman & Ameer 2009, p. 299).

In addition to annual financial statements, corporations use other channels of reporting and one of these is through the Internet, which has become a very popular form of information disclosure and dissemination. Company interaction is encouraged in many websites, with customers posting their complaints and suggestions in the space provided. Emails are also used in customer-organisation interactions but website features are very promising as they offer direct comments and responses from both sides.

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The Internet-based corporate disclosure and financial reporting have the advantage over other types of reporting because of the Internet’s versatility and scope. Moreover, the Internet has an international audience and the contents are read anytime (Ashbaugh et al. 1999; Craven & Marston 1999; Debreceny et al. 2002; Oyelere et al. 2003; Xiao et al. 2004 as cited in Tagesson et al., 2009, p. 353).

Firm size and industry affect social and environmental disclosures (Tagesson et al. 2009), whereas culture and nationality are used in the process of disclosures (Maignan & Ralston 2002; Golob & Bartlett 2007 as cited in Tagesson et al., 2009). Many corporations use annual reports in disclosures, known as ‘The Directors’ Report,’ which emphasises what has happened during the past year with a focus on the current situation and future programmes (Guthrie & Abeysekera 2006).

The Global Reporting Initiative (Global Reporting Initiative: G3 guidelines 2014) endorsed what is known as the ‘triple-bottom-line,’ which incorporates social and environmental activities and contents of the traditional financial disclosures. This type of reporting is comprehensive as it provides a lot of information about the firm’s social and environmental activities.

Researchers have also noted that social disclosures are related to profitability (Patten 1991; Hackston & Milne 1996 as cited in Tagesson et al., 2009), with the view that those firms who had detailed disclosures were more profitable than those with limited disclosures.

A CSER may not have a direct financial impact but some accounting scholars have cited positive accounting theory in explaining the substance of social and environmental accounting (Stanny & Ely 2008). The relation is implicit as we see how oil and gas companies pay countries for the oil spill they have done, as demonstrated in BP’s paying oil spill claimants the amount of approximately $4.5 billion, and many more scheduled to be paid (Guenther, Hoppe, & Poser 2006, p. 8).

The United Kingdom has legislated social and environmental reporting. Since 2006, CSER performance has been a major part of company policies. Environmental disclosure is part of a UK law known as the Climate Change Act 2008 (Committee on climate change: Climate Change Act and UK regulations n.d.).

Environmental impacts of oil and gas /Petroleum development and the environment

Oil has a chemical composition that impacts on biota. Oil and natural gas come from biological materials which have been altered and modified by natural process spanning millions of years. It produces a complex combination of hydrocarbon and non-hydrocarbon compound to produce fossil fuels. Molecular hydrocarbon composition of crude oils is almost the same, but the proportion of specific molecules in crude oil from a particular reservoir relies on the reservoir itself, with respect to its ‘location, depth, and age’ (Mendelssohn et al. 2012, p. 564).

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The petroleum sector plays an important role in the world economy, but it causes environmental problems and threatens all forms of organism. In the Gulf of Mexico alone, there are more than six thousand oil platforms and many oil tankers roaming around and transporting oil from the Gulf to many parts of the world. Environmental risks continue to threaten the seas around the world, despite the safety measures and environmental programmes formulated by oil and gas companies.

The Barnett Shale in Texas has caught increased attention from environmentalists because of the presence of hazardous air pollutants (HAPs). In 2009, an organisation known as the Wolf Eagle Environmental sampled some air pollutants in Dish, Texas and found high concentration of pollutants due to oil and gas activities in the area. Toxic air pollutants aid in the formation of smog in the Dallas-Fort Worth (Olaguer 2012, p. 966).

Deepwater Horizon (BP Spill)

The BP oil spill has been described as an environmental catastrophe. Millions of barrels of crude oil were spilled on the Gulf of Mexico, creating one of the worst environmental disasters in human history. One of the victims was the Mississippi River Delta ecosystem, an ecological habitat which comprise approximately 48 percent of the U.S. coastal wetlands, and home to the United States ecosystem services like storm warning and protection, water preservation services, animal life services, and carbon capture (Mendelssohn et al., 2012, p. 562).

The Deepwater Horizon is not the first to deliver environmental impact on coastal wetlands. There have been multiple smaller oil spills in the United States each year, but large spills can occur periodically. Two of the global spills include that of the West Falmouth spill which gave out 4,400 barrels of oil from the barge Florida to the mouth of Buzzards Bay, Massachusetts.

The other one was the spill committed by Amoco Cadiz, the tanker that spilled about 1.6 million barrels of crude along the coast of Brittany, France. Coastal marshes were impacted by the spill. Animals and plants were severely affected by the Amoco Cadiz spill (Mendelssohn et al., 2012).

The Macondo Well, from which BP owned the contract for oil exploration, was about to be sealed and completed for oil production when the blow out occurred. Steel pipe and casing were lowered into the cylindrical well borehole and cement was pumped to seal the rock from the surface, but the cement seal produced a leak and the pressurised oil and gas surged into the wellbore. It took the maintenance crew months to cap the leak.

BP tried to show the world that it was true to its responsibilities as a corporate citizen. First, it announced that it was going to donate its share of selling recovered oil (65%) to a fund for the restoration and rehabilitation of habitats along the Gulf Coast. BP also paid all legitimate costs associated with the oil spill. By late June 2010, it was scheduled to pay $2.35 billion and was to pay more for drilling two relief wells plus other work to reduce the oil leak and the clean up.

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It had to pay more than 2,600 vessels, mostly fishing and pleasure boats, to put up the oil booms to protect coastlines. The boats were named ‘vessels of opportunity’ as they earned between $1,200 and $3,000 daily, plus $200 for every deckhand. An estimated 2.4 million cubic feet of booms had been laid by the boats in cooperation with the U.S. Coast Guard ships. Airplanes were also hired to spray thousands of gallons of dispersant on the sea surface to reduce the environmental impact of the spilled oil.

Not only the BP oil spill but other environmental disasters triggered the trend and corporate practice on environmental reporting. Pressures from environmental activists forced legislators to include corporate environmental reporting a part of their agenda.

UK mandatory greenhouse emission reporting

The UK’s strategy to deal with climate change is not merely reducing GHG emissions; rather, the government has redesigned the country’s economy to be far less dependent on carbon fuels (The United Kingdom [UK] climate policy: lessons for Canada 2012).

The Climate Change Act 2008 is the UK’s response to climate change, requiring companies to comply with mandatory reporting of its greenhouse gas programmes. The law requires all companies listed in the London Stock Exchange and UK companies conducting business with the New York Stock Exchange to incorporate GHG emissions in their yearly Directors’ Report. There are benefits for the UK and the companies complying with the law.

In 2009, it was estimated that the UK gained a combined savings in the amount of £23 billion due to lower energy consumption and resource efficiency. Additionally, knowledge of the provisions of the Act helped companies deal with the challenges posed by climate change, and improved their green portfolio among competitors. Stakeholders of many organisations, investors, the business world and the world in general are looking at annual reports with environmental and socially-responsible programmes.

Large organisations, even micro-businesses, are mandated by law to report environmental plans, annual activities and environmental risks they have caused, or will cause; if not, they may lose in the stiff competition where environmental performance is a primary measure of success (Department for Environment, Food & Rural Affairs 2013).

The legal framework for the Climate Change Act 2008 is the ‘Companies Act 2006,’ which mandates ‘quoted companies’ on the annual reporting of GHG emissions that they cause during their operational activities. A quoted company is a legally recognised UK corporation listed in the London Stock Exchange.

The Climate Change Act provides that the reported data and information are correct information about environmental realities caused by the organisation’s operations which influence the stakeholders’ decision. The law also provides that ‘key performance indicators’ (KPIs) should be clear and can be measured, where relevant environmental issues can be reduced, and usefulness of company policies regarding environmental issues can be measured and authenticated. Environmental reports should be based on facts and not inventions of management.

Statement of research problem

Societal and environmental issues refer to issues in sustainability and corporate social responsibility. Oil and gas companies have significant impacts on sea, land, and air, or the world around us. When these companies operate, they create potential environmental damage because the minerals they extract are hidden in land or under water. Environmental reporting is a method to program their budget for the year, or for the future. They have to separate a large portion of their budget for whatever happens in the future, and the finances can be expressed not just in millions but billions of dollars.

A corporation can express its social and environmental performance reporting in several ways because there is no specific pattern, except that one on the Directors’ Report and the GRI ‘triple-bottom-line’ formula.

Each firm can still create its own way of artistic reporting or disclosure. For instance, most firms, if not all, have websites reporting and discussing about and formulating corporate social and environmental reporting. We can browse many websites, particularly those affected by the BP oil spills, and they have their own way of societal and environmental disclosures. Each firm reports uniquely the way they affect the environment. Firms have been attracted to a number of social causes. These issues have become parts of CSER literature.

In the early 1970s, annual reports focused on environmental issues but did not touch on corporate performance. Since 1980, CSER has been provided in several formats, with some quantitative and qualitative approaches and based on themes in company annual reports. The 1980s was considered the second phase in CSER and the contents had issues on social audits, which referred to corporations’ relationships with communities, employees, customers and those involved in the supply chain.

The next phase covered the 1990s which improved social auditing with the introduction of benchmarks or standards. According to Gray et al. (1995 as cited in Othman & Ameer, 2009, p. 302), in the 1990s, CSER ‘increased while consumer-related disclosure has decreased in the United Kingdom’.

In Singapore, disclosure about employees and employee performance increased, due primarily to the importance of training endorsed by the government. In developing countries, environmental reporting is more on descriptive type of information about the environmental impact of corporations. Accounting researchers focus on the amount and content of CSER based on the principle of social accounting and in narrative form.

When the GRI was formed, a common framework for UK companies was introduced. The GRI (2014) has four standard disclosure guidelines influenced by the oil spills, mostly by the BP Gulf of Mexico oil spill. Social disclosure emphasises the organisation’s impact on labour practices, human rights, and society; whereas environmental reporting relates to inputs (material, energy, water) and outputs (emissions, effluents and waste), and other issues about the environment.

Aims and objectives

  1. Main objective is to examine and explore the current level of corporate social and environmental disclosures by oil and gas companies and assess whether recent events such as BP’s Gulf of Mexico oil spill have affected the level of corporate environmental and social reporting.
  2. To explore the status of corporate social and environmental reporting (CSER) within the selected oil and gas companies;
  3. To assess the awareness of the new regulation which requires compulsory corporate reporting of greenhouse emission and to establish the understanding of opinions on how to resolve the challenges facing carbon reporting by UK oil companies.
  4. To investigate the important motivations that encouraged these oil companies to disclose their environmental information and social information.
  5. To make recommendations for future corporate environmental and social reporting in the UK oil and gas industry.

Justification of the study

There are many issues still to be resolved in the contexts of corporate social responsibility reporting (CSRR) and corporate environmental reporting (CER) as parts of corporation policies and as a way to observe government requirements. The literature reveals that CSRR and CER started out because of shareholder pressure, then these were legislated, and now they are parts of corporation policies and activities. The scope of CSRR and CER is quite wide and comprehensive. The provisions of the Climate Change Act 2008 alone require a lot of time to discuss.

Corporate social and environmental reporting practices can be considered a large part of a course or subject and discussing this and the related subject and topics are an interesting and challenging task. Doing the research and reading the vast journals and articles about CSRR and CER gave this Researcher a new perspective and concept of accounting. The literature on these subjects is extensive but never boring to read.

References

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Committee on climate change: Climate Change Act and UK regulations n.d. Web.

Department for Environment, Food & Rural Affairs 2013, Environmental reporting guidelines: including mandatory greenhouse gas emissions reporting guidance. Web.

Global Reporting Initiative: G3 guidelines 2014. Web.

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