Climate Change Disclosures in the Annual Reports: A Study on the MNCs in Bangladesh

Amirus Salat & Mahadi Hasan
Department of Accounting & Information Systems
University of Dhaka, Dhaka, Bangladesh.

1. Introduction:

The business community is now facing challenges from its stakeholders’ group for their negative impact of climate change. Corporations have the responsibility to lessen the effect of climate change because of their emission of Greenhouse Gases (Downie and Stubbs, 2013). One of the important means to increase transparency is to inform stakeholders about company strategies and actions on climate change (Freedman and Jaggi 2009).

Reporting of climate change issues in developing countries like Bangladesh is at very infancy stages. Lack of regulatory support and low culture of corporate social accountability among the companies contribute to a shallow level of disclosure on climate change in Bangladesh (Nurunnabi, 2016). There is no country-specific regulatory requirement in Bangladesh to disclosures the climate change issues. However, multinational corporations face pressure from their stakeholders particularly from their home country and international organizations to report the issues on climate change (Comyns, 2016). Given the variety of national and international pressures faced by multinational companies on the issue of climate change, this paper comes with the question of MNCs Green House Gas(GHG) disclosures in Bangladesh. We try to find whether large MNCs are likely to produce resultant corporate GHG reporting in Bangladesh, where reporting on climate change is at infancy stage. Based on international reporting guidelines and scholarly articles, we develop lists of disclosures issues and make a content analysis on the annual reports of eight large MNCs in Bangladesh from the year 2014 to 2017. The overall result of our exploratory study shows that reporting of climate change by MNCs is lagging. This research has a significant contribution to the literature of climate change issues in developing countries like Bangladesh by the MNCs. It demonstrates that stakeholder theory should be given further insights into explaining the GHG reporting practices of multinational companies in the developing countries. 

The remainder of the paper is organized as follows. Section 2 addresses the significance of climate change issues for Bangladesh. Section 3 reviewed previous literature on the disclosures on climate change issues and identifies the research gap. Section 4 outlines the research design. Section 5 discusses our findings. Finally, the last section presents our conclusions, recommendations, and limitations.

• Climate change and Bangladesh:

There are devastating effects of global warming. Those effects are likely to arrive much sooner than previously thought. Jaffe (2018) identified two significant impacts of recent global warming which would sooner reach than that of the previous predictions. First, GHG emission at the current rate will cause global temperatures will rise 1.5 degrees Celsius by 2040, and then by 3 degrees by 2100. In the Paris Agreement in 2015, it was agreed that global warming to keep well below 2 degrees preventing the devastating effect. Second, many of the most destructive consequences for global warming like storms, floods, fires, droughts, and other extreme weather—will manifest more rapidly than previously thought. However, the effects of climate change will not be spread equally. Bangladesh is one of the very few who are going to face the devastating impact of global warming.  Geographic location, the dominance of floodplains, low elevation from the sea, high population density, high levels of poverty, and overwhelming dependence on nature, these cause Bangladesh to become in a vulnerable position of climate change. Glennon (2017) stated that a three-foot rise in the sea level would sink almost to 20 percent of the entire Bangladesh and displace more than 30 million people. There is a prediction that five-to-six foot rise by 2100, which would displace perhaps 50 million people (Glennon, 2017). So, Bangladesh is in a dangerously vulnerable position to climate change.

• Literature review:
  • Theoretical background of Climate Change Reporting by MNCs:

The literature suggests that multinational companies (MNCs) are part of a global class of organization that shares common values and patterns. Because of their transnational nature, MNCs face local as well as global pressures which can be incredibly diverse. According to Kostova, Roth, and Dacin, (2008, p. 998) “MNCs across countries and industries belong to an institutional class or field that operates according to particular rules, logic, and norms.” 

Social, political theories are widely used to explain sustainability reporting practices. Two major widely used socio-political theories are stakeholder theory and legitimacy theory. Stakeholder theory stated the process of stakeholder’s control over the resources of the organizations. Their expectation should be reflected in corporate reporting. Studies found that companies may change their reporting practices because of the pressures from the stakeholders (Degan, 2002). However, not all stakeholders have the same control over the resources and not all organizations have the same visibility in the societies. It is found that more visible organizations are subject to more scrutiny from the stakeholders. Moreover, larger MNCs are more visible in the community, so they need to provide more sustainability disclosures because of the informational needs (Brammer and Millington 2006). Many previous studies showed that MNCs have excellent reporting practices of climate change issues. Companies face pressure from the media due to its broad reach and ability to influence the public agenda especially on environmental matters (Ader 1995).  Media coverage and other stakeholders’ pressure increase the corporate visibility of MNCs. There is a variety of national and international pressure faced by MNCs to disclose GHG practices (Comyns, 2016). Despite operating in a less regulatory environment, MNCs are expected to disclose climate change policies and practices because of various stakeholders’ pressure.    

• Climate Change Reporting in developing countries:

There are number of studies which have been made on the reporting of climate changes issue in developing and underdeveloped countries. In a study on the Malaysian companies, Ahmed and Hossain (2015) found that despite no mandatory requirement, companies disclose the issue on climate change, but those are at the introductory stage.  Sovacool, D’Agostino, Meenawat, & Rawlani (2012) made a study on the companies operating in Bangladesh, Bhutan, Cambodia and the Maldives. They found that the response to climate change issues is a complex process in developing countries. They argued that the ongoing adaptation process should be more robust and that legitimate organizations should be put in place to enable more disclosures on climate changes. Tien (2013) investigated firms’ actions and responsibility in resisting climate change in Taiwan. He found that only 8.1 % of firms had undertaken corporate social responsibility measures when dealing with climate change and energy consumption while 81.4 % of firms had not done so. The study also found that respondents’ opinions were mixed on renewable energy reducing GHG emission, energy and environmental tax, oil and power subsidies and green tax systems.

 In summary, studies on developing countries perspective concluded that climate change reporting practices by the companies are still very minimal.

• Prion research on  Climate Change Reporting In Bangladesh:

Climate change reporting is very infancy stage in Bangladesh. A very few studies have been made on climate change discourses in Bangladesh. Belal, Cooper, & Khan (2015) made a substructures questionnaire survey to the various stakeholders’ group of various corporation regarding their environmental responsibilities. They concluded that environmental consideration is not a priority and cost of environment is prohibited if they are to remain competitive in the global market. They found that though Bangladesh paid a high fee of the global climate, a weak regulation, widespread corruption, and proximities of the business leader to the power, is less likely to protect the common interest of the vulnerable stakeholders.  Nurunnabi (2016) made a study on the market response to the corporate accountability of climate change in Bangladesh. He did a 32 semi-structured interview and evaluated 71 annual reports and found that Bangladeshi companies reported climate change information on an average of 2.23% which is very poor, not even MNC companies are saying climate changes issues. In a most recent study,  Dey, Nakib, & Dutta, (2017) made a content analysis in the corporate annual reports of the 88 listed companies of Dhaka Stock Exchange for the year 2014. Their study provides the comprehension of below average climate change disclosure practices by the Bangladeshi companies. They also found that four industries out of selected 17 industries have not offered any climate change disclosure.    

From the review of prior literature presented above, we see that there is a minimal, but growing, academic research investigating corporations’ climate change-related disclosure practices within the Bangladesh context. As yet, no research has investigated whether and how MNCs in Bangladesh address climate change-related practices disclose relevant information.  Specifically, there is a complete absence of a study that investigates how MNCs companies’ practices demonstrating that stakeholder theory can give further insights into explaining the GHG reporting practices of multinational companies operating in the developing countries like Bangladesh. Based on the literature gap, we try to address the issue of legitimacy of MNCs in Bangladesh to report the climate change issues to the stakeholders.

• Methodology

This study investigates the current climate change-related disclosures by the eight major MNCs over a 4-years period (2014-2017). Eight companies are Bata BD (Tannery), GlaxoSmithKline, Chevron Bangladesh (Fuel & Power), Grameen Phone (telecommunication), Lafarge (Cement), Linde BD (Fuel & Power), and Marico Bangladesh (Pharmaceuticals & Chemicals).  The selection of companies was based on the criteria that the company would be in an industry likely to be highly affected by the impacts of climate change.  

Content analysis has been done in this study to find the nature and extent of climate change disclosures MNCs in Bangladesh. Content analysis is a common and accepted methodology in climate change disclosure literature. Many scholarly articles on the disclosure of climate change are based on the content analysis research (See, Prado-Lorenzo et al., 2009; Freedman and Jaggi, 2011).

There are various climate change related guidelines by the international organization. Internationally, reporting guidelines including the global reporting initiative (GRI) guidelines (Global Reporting Initiative 2006, 2002, 2013, 2016), the Greenhouse Gas protocol Standard, and industry-specific reporting guidelines (for example IPIECA). Based on the guidelines of GRI about the climate change and scholarly publications (See, Prado-Lorenzo, Rodriguez-Dominguez, Gallego-Alvarez, and Garcia-Sanchez, 2009; Freedman and Jaggi, 2011; Ahmed and Hossain, 2015), we developed specific issues related to the disclosures of climate change.  Here we  addressed 14 specific issues of climate changes disclosures under the five generals issues of Board oversight, Management Responsibility, Emission accounting, Reporting Benchmark and   Research & Development . Table 1 presents those issues.

[Insert Table 1 here]

In developing those disclosures issues, we do not go for the details guidelines which would ultimately give no findings at all. And since most of the stakeholders in Bangladesh are not aware of the climate change-related disclosures, it is apparent that companies operating in the countries would not go for many details disclosures. In developing the score from the content analysis, binary values are used here i.e. 1 for disclosures and 0 for non-disclosures of any item. This a common and accepted methodology used in the climate change related disclosures literature (Prado-Lorenzo et al., 2009; Freedman and Jaggi, 2011; Ahmed and Hossain, 2015). It is argued that this list of disclosure issues represents a means of evaluating the ‘quality’ of disclosures made by the MNCs concerning the reporting information about the climate change. Organizations that score more highly using the list (the maximum possible score is 56 which is 4 years multiplied by 14 disclosures items) are considered by the researcher to be providing relatively higher ‘quality’ disclosures A total of 32 annual reports of the eight MNCs formed the basis for the results of this paper.

• Findings and Analysis: 

[Insert Table 2 here]

The summary view of the disclosure of climate change-related issues of eight MNCs in Bangladesh from 2014 to 2017 has been presented in Table 2.The numbers in parentheses indicate the year in which particular disclosures were made.

• Disclosures by total:

The findings show that GP and Chevron have higher quality disclosures followed by GSK, Lafarge, and Marico. Bata, Berger and Linde BD have very poor disclosures on climate changes in their annual reports. Across the period of analysis, GP made the highest number of disclosures, 47 in total out of maximum possible 56 disclosures. Bata disclosed the lowest number of disclosures items which is 6 in total out of maximum possible items of 56 disclosures. Figure one depicts the overall percentages of disclosers of eight sample companies for four year sample period. The graph shows only GP has 84 percent of total requisite disclosures. Chevron (69%), GSK (65%) Lafarge (59%) and Marico (59%) can be said to above average disclosures. Unfortunately, Bata, Linde and Berge disclosure percentages are abysmal which are 12.5%, 11%, and 7% respectively.    

• Disclosures over time:

Figure 2 represents the trend time series disclosures for the sample companies from the year 2014 to 2017. The finding shows that at the beginning of the period, i.e. 2014, of analysis all the companies made fewer disclosures compare to later years Bottom three companies such as Berger, Bata and Linde BD do not show much improvement in reporting of climate change disclosures over the time. Of the excellent reporting companies, Chevron, GP does not show outstanding progress over this four-year analysis. Marico and GSK reporting get a good jump after the year 2014 and then steadily increases for the rest periods.

• Disclosures by categories

The trends in disclosures in the five broad categories over the period from 2014 to

2017 are represented in Figure 3 below.

The reporting of the climate change-related issues under all categories appeared to increase across time, but the trend is shallow. The figure depicts a very negligible upward trend of disclosures for four broad disclosures categories (for example Board oversight, Management responsibility, Reporting Benchmark and Research and Development) across time. The disclosures related to the category ‘emissions accounting’ show good progress of upward trend across time. However, the overall increasing trend of the five general issues of climate change disclosures is not very good across the period of analysis.

• Discussion and Conclusion:

This explorative study concludes that climate change reporting by the MNCs in Bangladesh is still a very poor level except for GP which have a disclosures percentage of more than 80 percent. Our sample companies do not show outstanding progress of reporting throughout the analysis. Several items have been relatively well disclosed, for example, issues under ‘emissions accounting. None of the companies has provided disclosures across all, or nearly all, of the issues identified from our review of ‘best practice.’

These findings give further insight into Stakeholders theory from the developing country perspective. It is argued that although reporting quality in a particular institutional context mainly by the multinational companies being driven by global rather than local pressures. Previous studies revealed that stakeholders pressure (Such as Media, NGOs) makes the companies alter reporting practices (Islam and Deegan 2010).  Interestingly findings of this study contradict with the previous research findings. Possible explanations of these poor disclosures by the MNCs in Bangladesh are two folds:  First, there may be the absence of sufficient stakeholders’ pressure such as pressure from parent company and media which would induce the companies to disclose on climate change issues. Second: despite the stakeholders’ pressure, MNCs are not willing to publish because of the less regulatory environment. However, both the possible explanation requires further studies.

This study will contribute to the environmental accounting literature on developing country perspective is it offers an overview of the reporting practices of MNCs operating in Bangladesh. The findings of this exploratory research suggest that overall reporting of climate change by MNCs is lagging. The results of this study will also be useful to inform policymakers showing the necessity of regulations to improve the GHG reporting practices of multinational companies in developing countries.

This study is not beyond limitations. It only investigates the extent of disclosures by the MNCs in Bangladesh. The study doesn’t further investigate the reason for these poor disclosures. It requires further research the outcome would give an exciting insight into stakeholders’ theory.

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Appendix:

Table 1: Climate change-related disclosures issues

General issues	Specific issue
Board oversight	The company has a separate environment , health and safety plan
The organization has a specific board committee for the environment and other related affairs
Management responsibility	CEO/chairperson expresses the organization’s views on the issue of climate change through publicly available documents such as annual reports, sustainability reports and websites.
Emission disclosures	Mention anything about the Kyoto protocol or Paris Agreement
Organization  report GHG in CO2 equivalent
Reporting of Scope 1 (direct) and Scope 2 (Indirect) CO2 emissions
Report total quantity of energy consumed in company operation
Report any qualitative statement about energy consumption in the operation
Disclosures anything about the sourcing and use of materials like renewable and non-renewable materials, recycled materials etc.
A section devoted to climate change or global warming.
Issues/initiatives related to preserving biodiversity
Disclosures of anything about the hazardous waste disposal
Reporting benchmark	The organization has the policy to comply with GRI or other related environmental guidelines.
Research & Development	The organization has the policy to develop  alternative/ renewable energy

Table 2: Climate change-related disclosures within annual reports (2014 to 2017)

General issues	Specific issue	Bata BD	GSK	Chevron	Berger	GP	Lafarge	Linde BD	Marico
Board oversight	The company has a separate environment, health, and safety plan	4	4	4	4	4	4	4	4
The organization has a specific board committee for the environment and other related affairs	0	4	4	0	4	0	3(15,16,17)	0
Management responsibility	CEO/chairperson expresses the organization’s views on the issue of climate change through publicly available documents such as annual reports, sustainability reports and websites.	1(17)	0	4	0	4	0	0	0
	Mention anything about the Kyoto protocol or Paris Agreement	0	0	4	0	2(16,17)	0	0	0
Emission disclosures	The organization  reports GHG in CO2 equivalent	0	3(15,16,17)	4	0	4	3(15,16,17)	0	3(15,16,17)
Reporting of Scope 1 (direct) and Scope 2 (Indirect) CO2 emissions	0	3(15,16,17)	4	0	1(17)	3(15,16,17)	0	3(15,16,17)
Report total quantity of energy consumed in company operation	0	0	4	0	4	3(15,16,17)	0	3(15,16,17)
Report any qualitative statement about energy consumption in the operation	2(16,17)	4	4	0	4	3(15,16,17)	0	4
	Disclosures anything about the sourcing and use of materials like renewable and non-renewable materials, recycled materials etc.	0	3(15,16,17)	1(17)	0	4	3(15,16,17)	0	3(15,16,17)
	A section devoted to climate change or global warming.	0	4	2(16,17)	0	4	4	0	1(17)
	Issues/initiatives related to preserving biodiversity	0	3(15,16,17)	0	0	0	1(17)	0	3(15,16,17)
	Disclosures of anything about the hazardous waste disposal	0	4	4	0	4	3(15,16,17)	0	3(15,16,17)
Reporting benchmark	The organization has the policy to comply with GRI or other related environmental guidelines.	0	0	0	0	4	3(15,16,17)	0	3)15,16,17)
Research &Development	Organization has the policy to develop  alternative/ renewable energy	0	4	0	0	4	3(15,16,17)	0	3(15,16,17)
Total		6	36	39	4	47	33	7	33

( ) = Year