Disclosure Tone in Environmental Reports ?A study of companies in the energy sector
Background and problem discussion: Sustainability reporting has recently risen in importance and a rising number of companies choose to issue voluntary stand-alone sustainability reports. Their non-regulated nature increases the opportunity for management to angle the information in these disclosures to their own advantage. Lately the focus has shifted from examining what kind of information is provided in environmental disclosures, to analyzing how the information is presented.Purpose: The purpose is to examine if managers in the energy sector use optimistic tone when issuing sustainability reports. The aim is to find out if the tone applied in environmental disclosures is in congruence with either the environmental or economic performance or if an excessively positive tone is being used to mislead readers.Limitations: This study is limited to information found in environmental disclosures from private companies in the energy sector, issued in 2012 or 2013. Environmental performance is defined as the amount of CO2e emissions and economic performance refers to annual company revenues.Methodology: The quantification of optimistic tone is conducted using a content analysis, relying on a pre-specified wordlist and a pilot study. A quantitative methodology, more specifically statistical tests, is then used to answer the hypotheses for this paper.Results and conclusions: More than half of the companies included in this study use a positive tone in their environmental disclosures. The results show that worse environmental performers use more optimistic tone than better performing companies, indicating that tone is used to influence stakeholder perceptions upward. This study further shows that companies with a better economic performance use a higher level of positive tone than worse performing companies.Suggestions for further research: Since this study does not attempt to explain why there is a correlation between optimistic tone and economic performance, this might be an interesting subject to investigate further. Another suggestion is to examine these narratives in greater detail, testing textual complexity using a measure such as the FOG-index. One additional idea is to expand this study by doing a comparison on the use of optimistic tone with another sector.