Financial Performance, Pollution Measures and the Propensity to Use Corporate Responsibility Reporting: Implications for Business and Legal Scholarship

Abstract

Thousands of companies around the world, including a majority of the Global Fortune 250, voluntarily report on their environmental, societal, and economic impacts, a practice known as corporate responsibility (CR) reporting. The practice is alternatively known as corporate social responsibility (CSR) reporting, sustainability reporting, citizenship reporting, or triple bottom line (TBL) reporting. A brief history of regulation-by-disclosure and CR reporting is presented. The authors then review related business and legal scholarship. Two broad lines of inquiry emerge: first, are CR disclosures associated with businesses that perform well financially, and, second, are CR disclosures associated with businesses that perform well environmentally. The authors test both of these relationships simultaneously using logistic regression. The authors discuss the results of the statistical testing and conclude with suggestions for future lines of research. This article therefore makes a significant contribution to legal and management scholarship by determining the impact that financial and environmental variables have on whether or not a company utilizes CR reporting. The results should provoke further research in the fields of both business and law.

Full text

Electronic copy available at: http://ssrn.com/abstract=1436184
revised 11 November 2009
FINANCIAL PERFORMANCE, POLLUTION MEASURES AND THE PROPENSITY TO USE
CORPORATE RESPONSIBILITY REPORTING: IMPLICATIONS FOR BUSINESS AND
LEGAL SCHOLARSHIP
Adam Sulkowski, M.B.A., J.D.*
Assistant Professor of Management & Business Law
Charlton College of Business
University of Massachusetts Dartmouth
285 Old Westport Road
North Dartmouth, MA 02747 USA
Tel: 508.999.8037
asulkowski@umassd.edu
D. Steven White, D.B.A.
Professor of Marketing & International Business
Charlton College of Business
University of Massachusetts Dartmouth
285 Old Westport Road
North Dartmouth, MA 02747 USA
Tel: 508.999.8267
swhite@umassd.edu
* Corresponding author

Electronic copy available at: http://ssrn.com/abstract=1436184
FINANCIAL PERFORMANCE, POLLUTION MEASURES AND THE PROPENSITY TO USE
CORPORATE RESPONSIBILITY REPORTING: IMPLICATIONS FOR BUSINESS AND
LEGAL SCHOLARSHIP
ABSTRACT
Thousands of companies around the world, including a majority of the Global Fortune 250,
voluntarily report on their environmental, societal, and economic impacts, a practice known as corporate
responsibility (CR) reporting. The practice is alternatively known as corporate social responsibility
(CSR) reporting, sustainability reporting, citizenship reporting, or triple bottom line (TBL) reporting.
A brief history of regulation-by-disclosure and CR reporting is presented. The authors then
review related business and legal scholarship. Two broad lines of inquiry emerge: first, are CR
disclosures associated with businesses that perform well financially, and, second, are CR disclosures
associated with businesses that perform well environmentally. The authors test both of these
relationships simultaneously using logistic regression. The authors discuss the results of the statistical
testing and conclude with suggestions for future lines of research.
This article therefore makes a significant contribution to legal and management scholarship by
determining the impact that financial and environmental variables have on whether or not a company
utilizes CR reporting. The results should provoke further research in the fields of both business and law.

FINANCIAL PERFORMANCE, POLLUTION MEASURES AND THE PROPENSITY TO USE
CORPORATE RESPONSIBILITY REPORTING: IMPLICATIONS FOR BUSINESS AND
LEGAL SCHOLARSHIP
I. INTRODUCTION
Thousands of companies around the world, including a majority of the Global Fortune 250,
voluntarily report on their environmental, societal, and economic impacts, a practice known as corporate
responsibility (CR) reporting. The practice is alternatively known as corporate social responsibility
(CSR) reporting, sustainability reporting, citizenship reporting, or triple bottom line (TBL) reporting.
While this practice has expanded rapidly, a consensus does not exist as to the drivers nor the impacts of
these disclosures.
The goal of this study is to test two urgent questions in the field of management and legal
scholarship: first, are CR disclosures associated with businesses that perform well financially, and,
second, are CR disclosures associated with businesses that perform well environmentally. A brief history
of regulation-by-disclosure and CR reporting is presented. The authors then review existing
management and legal scholarship of the issue. The literature review leads to the research goals stated
above. The authors then statistically test both of these relationships using logistic regression. The
authors discuss the results of this test and conclude with suggestions for future lines of research.
This study is the first in the field of legal scholarship to statistically test both the relationship
between financial performance and the CR reporting behavior of corporations and the environmental
performance and the CR reporting behavior of corporations. This article therefore makes a significant
contribution to legal and management scholarship by generating observations that ought to provoke
further research in the fields of business and law.
II. BACKGROUND
A history of regulation-by-disclosure and CR reporting
The stock market collapse of 1929 revealed the risk of market failures due to lack of
information.1 The event catalyzed an appreciation of the fact that investors and society as a whole would
be better served by requiring publicly traded companies to issue regular disclosures about their finances
under a set of rules administered by a government agency.2 The Securities Acts of 1933 and 1934
(hereinafter the 1933 Act and 1934 Act) and the Securities and Exchange Commission (SEC) resulted.3
Half a century later, the concept of a mandatory disclosure regime was applied in the context of
the environmental regulation of companies. The Bhopal tragedy of 1984 catalyzed what has been called
the third generation of environmental legislation, known as informational regulation or regulation-by-
disclosure.4 The most directly associated piece of legislation is the Emergency Planning and Community
Right-to-Know Act (EPCRA) of 1986,5 which, rather than limiting behavior, only requires companies to
1 Allen L. White, Why We Need Global Standards for Corporate Disclosure, 69 LAW AND CONTEMP. PROBS. 167, 175 (2006).
2 Steve Thel, The Original Conception of Section 10(b) of the Securities Exchange Act, 42 STAN. L. REV. 385, 409 (1990).
3 David Monsma & Timothy Olson, Muddling Through Counterfactual Materiality and Divergent Disclosure: The Necessary
Search For a Duty to Disclose Material Non-Financial Information, 26 STAN. ENVTL. L.J. 137, 145 (2007).
4 David W. Case, Corporate Environmental Reporting as Informational Regulation: a Law and Economics Perspective, 76 U.
COLO. L. REV. 379, 384 (2005).
5 42 U.S.C. §§ 11001-50 (2000).

provide emergency response plans and the disclosure, through the Toxic Release Inventory (TRI), of
inventories of specified dangerous chemicals.6
In the ensuing decades, the idea that voluntary reporting of social, environmental, and economic
impacts could both benefit companies and ameliorate negative externalities gained traction; John
Elkington popularized this concept in the 1990s.7 As mentioned above, the practice came to be known
by many names, and CR reporting has since become widely adopted.8
As revealed by the triennial KPMG survey of CR reporting, of the largest 250 corporations in the
world (the Global Fortune 250, or G250), 79 percent issued a stand-alone CR report in 2008 (up from
52% in 2005).9 An additional four percent disclosed CR information in their annual reports.10 This
means that the number of companies in the G250 who had engaged in CR reporting (either in a stand-
alone report or within the context of an annual report) grew from 64 percent in 200511 to 83 percent in
2008 (or 207 out of the G250).12 In 2008, 45% of a sample consisting of the largest 100 companies by
revenue in each of 22 developed and developing economies (a sample therefore consisting of 2200
companies, hereinafter referred to as the N100) engaged in CR reporting (ranging from 93 percent in
Japan, 91 percent in the United Kingdom, and 74 percent in the United States to 24 percent in Denmark,
17 percent in Mexico, and 14 percent in the Czech Republic).13
The predominant standard for disclosures has been developed by the Global Reporting Initiative
(GRI); over 75 percent of the G250 use GRI guidelines, as do almost 70 percent of the N100.14 The GRI,
a multi-stakeholder network of experts, began as a project of two U.S. non-profit organizations, CERES
and Tellus, in the 1990s.15 It expanded under the auspices of the United Nations (UN) and in 2002 be-
came an independent non-profit organization based in Amsterdam.16 The GRI guidelines are intended as
a framework for not only reporting, but also for engaging with external stakeholder groups.17
Several countries have mandated some CR disclosures by businesses, including Denmark since
1995, and, since then, the Netherlands, Norway, and Sweden, followed by France in 2003.18 However,
the French rules have been criticized as relatively lacking in environmental disclosure requirements, and
no penalties have been established for non-compliance.19 In the United States, securities laws have been
6 See id. §§ 11003, 11022-23.
7 John Elkington popularized the concept of TBL reporting in his 1997 book, Cannibals with Forks: The Triple Bottom Line
of 21st Century Business. Elkington has been authoring books on green business and sustainability since 1980.
8 The authors are part of a small but hopefully growing community who believe that the term CSR reporting is overly narrow,
inasmuch as many corporate non-financial disclosures dedicate equal or greater attention to environmental rather than social
impacts. The choice of the authors to instead use the term CR reporting is supported by KPMG’s decision to use it in the title
of their triennial survey of the practice. See infra note 9.
9 KPMG, KPMG International Survey of Corporate Responsibility Reporting 2008, 15 (hereinafter KPMG Int’l Survey 2008),
available at http://www.kpmg.com/SiteCollectionDocuments/International-corporate-responsibility-survey-2008_v2.pdf.
10 Id.
11 KPMG, KPMG International Survey of Corporate Responsibility Reporting 2005, 4 (hereinafter KPMG Int’l Survey 2005),
available at http://www.kpmg.nl/Docs/Corporate_Site/Publicaties/International_Survey_Corporate_Responsibility_2005.pdf.
12 KPMG Int’l Survey 2008, supra note 9, at 14.
13 Id. at 16.
14 Id. at 21.
15 GRI, Sustainability Reporting 10 Years On, 1, available at http://www.globalreporting.org/NR/rdonlyres/430EBB4E-
9AAD-4CA1-9478-FBE7862F5C23/0/Sustainability_Reporting_10years.pdf (last visited May 31, 2009).
16 Id. at 2.
17 Id. The third generation of GRI guidelines, or G3, are available at www.globalreporting.org (last visited May 31, 2009).
18 Lucien J. Dhooge, Beyond Voluntarism: Social Disclosure and France’s Nouvelles Régulations Économiques, 21 ARIZ. J.
INT’L & COMP. L. 441, 446 (2004).
19 Id. at 487.

interpreted to require environmentally-related disclosures inasmuch as such information is relevant to
financial performance, material regulatory compliance, and material legal proceedings.20 A summary of
this perspective is presented in the following literature review, along with evidence that existing SEC
guidance on disclosing environmental risks and liabilities is largely ignored by companies.
Recent actions by the EPA have been characterized as steps forward in regulation-by-information,
though they do not mandate any further disclosures by companies.21 Instead, some of these steps only
involve the EPA compiling publicly-available lists; also, these lists only include enforcement activities,
not data on environmental impact.22 In 2001, the Environmental Protection Agency (hereinafter EPA)
announced its intent to share information with the SEC about environmental enforcement actions, with
the aim of helping to spot companies that fail to report enforcement actions against them.23 The effort
has been characterized as a failure, partly because the EPA tracks violators by facility while the SEC
tracks registrants by company.24 A debate continues about whether and how a heightened and
standardized form of reporting CR information should be implemented.25
III. LITERATURE REVIEW
CR reporting as an example of “soft law” theory
As articulated by Cynthia Williams, the theory of soft law holds that norms of conduct are
enforced by a desire to avoid shame rather than a desire to avoid sanctions, yet may achieve the ultimate
aim of hard law, which, as she puts it, is “to coordinate action to a focal point”.26 CR reporting is one
example of a soft law approach. Williams suggests that soft law approaches – such norms that involve
no official punishment by a public agency – be taken seriously.27 Others agree, as discussed below, that a
soft law measure such as greater disclosure of information has great potential, but point out that to be
effective, a hard law framework is needed to assure uniformity and reliability.28
David Case explains how economic theories support the notion of soft law and specifically
regulation-by-disclosure: more information should allow stakeholders to more efficiently negotiate with
polluters to achieve desired goals.29 After a review of existing scholarly works, Case concludes that the
economic literature on regulation-by-disclosure is “young” and legal scholarship related to the topic is in
its “infancy”.30 Mitchell Crusto echoes this conclusion, stating that there is “little, if any, critical analysis
of increased corporate environmental disclosure in the academy.”31 As of 2009, the state of theoretical
20 See, e.g., Michael J. Viscuso, Note: Scrubbing the Books Green: a Temporal Evaluation of Corporate Environmental Dis-
closure Requirements, 32 DEL. J. CORP. L. 879, 879-880 (2007).
21 Id. at 886-892.
22 Id. at 886-888. For example, the EPA’s Enforcement and Compliance History Online (ECHO) lists present and past en-
forcement actions and penalties. Id. at 887-888.
23 Id. at 886-892.
24 Id. at 891.
25 Id.
26 Cynthia A. Williams, Civil Society Initiatives and “Soft Law” in the Oil and Gas Industry, 36 N.Y.U. J. INT'L L. & POL.
457, 496 (2004).
27 Id.
28 See, e.g., Larry Catá Backer, From Moral Obligation to International Law: Disclosure Systems, Markets and the Regulation
of Multinational Corporations, 39 GEO. J. INT'L L. 591 (2008).
29 Case, supra note 4, at 415-427.
30 Id. at 427.
31 Mitchell F. Crusto, Endangered Green Reports: “Cumulative Materiality” in Corporate Environmental Disclosure After
Sarbanes-Oxley, 42 HARV. J. LEGIS. 483 (2005).

and applied knowledge has improved, allowing for the following review of empirical data and business
and legal scholarship.
Drivers of CR reporting
The growth of the practice of voluntary CR reporting suggests that companies see some real
value in at least appearing to keep up with the trend of providing greater transparency than what is
mandated.32 Such a conclusion is supported by the triennial KPMG survey of CSR reporting, which
offers evidence that a majority of executives at companies that report CR information see economic
motivations as a driver of the practice.33
Some observers attribute the spread of CR reporting to the growth of socially responsible
investment, pointing out that twelve percent of managed assets are invested in stocks that are currently
screened based on ethical criteria.34 The investors and fund managers associated with these funds are
making investment decisions partially based on the non-financial disclosures, and firms may be
responding to this market demand for more information. Such investors are becoming more vocal: in
June 2006, twenty-seven investors, including state treasurers and collectively representing more than $1
trillion in assets, demanded more disclosures of companies with regard to their risk exposure due to
climate change.35 Similarly, firms may be engaging in CR reporting in response to demands from
customers and other stakeholders; empirical evidence has established that the early adopters of CR
reporting tended to be firms in polluting industries.36
The triennial KPMG study of CR reporting may be the best source of data on the specific drivers
of CR reporting as identified by executives of companies that publish such disclosures.37 In response to
the question of why they implemented CR reporting, executive respondents from the G250 could choose
multiple responses. 55 percent of respondents selected innovation and learning (up from 53 percent in
2005), exactly the same percentage that chose impact on reputation or brand (up from only 27 percent in
2005), and roughly the same percentage that chose employee motivation (52 percent, up from 47 percent
in 2005).38 In the next most popular tier of responses, 35 percent chose risk management or reduction in
2008 (47 percent in 2005), 32 percent chose strengthened supplier relationships (13 percent in 2005), and
29 percent chose access to capital or improving shareholder value (39 percent in 2005).39 Finally,
increasing market share was identified by 22 percent in 2008 (21 percent in 2005) while 21 percent
chose improved relationships with government (9 percent in 2005), and 17 percent chose cost savings (9
percent in 2005).40
Several observations are noteworthy. Two of the top three drivers – motivating employees and
encouraging innovation – involve the impact of the practice on employees; both of these motivations
were identified by more than 50 percent of respondents as key drivers. A concern for brand management
was the third of the top three motivations, tying for first place with innovation and learning. However,
brand management was only the sixth most commonly identified impact in 2005, and therefore cannot be
32 See Roberta S. Karmel, Reform of Public Company Disclosure in Europe, 26 U. PA. J. INT'L ECON. L. 379 (2005).
33 KPMG Int’l Survey 2008, supra note 9 at 18.
34 Jeroen Derwall et al., The Eco-Efficiency Premium Puzzle, 61 FIN. ANALYST J. 51, 51 (2005).
35 Monsma & Olson, supra note 3 at 163.
36 Minna Halme & Morten Huse, The Influence of Corporate Governance, Industry and Country Factors on Environmental
Reporting, 13 SCANDINAVIAN J. MGMT, 137, 137 (1997).
37 KPMG Int’l Survey 2008, supra note 9 at 18.
38 Id.
39 Id.
40 Id.

characterized as one of the primary drivers of the practice in 2005. It is also noteworthy that less than
one in three respondents identified relations with investors and less than one in four chose increasing
market share as a key driver. This calls into question the theory that CR reports are issued primarily as a
response to market demands, either from investors or from consumers. A minority of executives – less
than one in five – believe that measurement of non-financial impacts will lead to cost savings, which
somewhat challenges the theory that reporting alters internal processes. Taken together, the data on the
ranking of motivations indicates that CR reporting has not been solely a public relations exercise,
especially in the early years of adoption in the period leading up to 2005, and that it continues to be
driven in part by a desire to stimulate innovation and motivate employees.41
In a related finding, a 2003-2004 survey conducted by the Center for Corporate Citizenship at
Boston College, the US Chamber of Commerce, and the Hitachi Foundation found that 82 percent of
executives acknowledged the importance of social and environmental responsibility to the bottom line,
59 percent to their companies and reputations, and 53 percent to their customers.42 The study also
concluded, however, that there is considerable variation among businesses in terms of their embedding
these values into their functions and in the effective implementation of meaningful practices to further
the causes of social and environmental responsibility.43
CR reporting in a global context
Another vein of scholarship has taken into account the spread of CR reporting as a global
phenomenon that is intended to address global problems; this has led authors to consider other drivers
and cultural factors that might impact CR reporting.44 One recent study introduced the notion that
cultural values could color how managers even discussed their motivations, with Western executives
being more inclined to state that they engage in CR reporting for the sake of their shareholders.45 In a
study of the motivations of Japanese companies, close relationships with foreign share owners and
foreign customers appeared to be a stronger influence on a firm adopting CR reporting than its links to
domestic owners.46 In the same study, country-specific cultural sensitivities were found to be salient to
CR reporting, inasmuch as CR reports address the issues that are of greatest concern to a particular
society.47 For example, Western CR reports disclose more data on gender equity issues while Japanese
CR reports disclose relatively more data on environmental impacts.48
The idea that the successes of CR initiatives are “strongly dependent” on their footing in society
41 The following observation is harder to explain: economic considerations were selected as a driver of CR reporting by 68
percent of respondents, which, though a majority, was down from 74 percent in 2005, while the percent choosing ethical con-
siderations actually grew from 53 percent to 69 percent of respondents. KPMG Int’l Survey 2008, supra note 9 at 18. The
2008 KPMG report suggested that the growth in ethical considerations as a stated driver may be related to “dozens of scan-
dals in accounting, environment, governance, and human rights”. Id.
42 Philip Mirvis & Bradley Googins, The Best of the Good, 82 HARV. BUS. REV., 20, 21 (2004).
43 Id.
44 See, e.g., Lu Wei et al., The Relationships between Environmental Management, Firm Value and Other Firm Attributes:
Evidence from Chinese Manufacturing Industry, INT’L J. ENV’T & SUST. DEVELOPMENT (forthcoming).
45 See Adam J. Sulkowski, S.P Parashar & Lu Wei, Corporate Responsibility Reporting in China, India, Japan and the West:
One Mantra Does Not Fit All, 42 N. ENGLAND L. REV. 787 (2008).
46 Kanji Tanimoto & Kenji Suzuki, Corporate Social Responsibility In Japan: Analyzing The Participating Companies In
Global Reporting Initiative, 7-8 (The European Inst. of Japanese Studies, Working Paper No. 208, 2005), available at
http://ideas.repec.org/p/hhs/eijswp/0208.html#provider (last visited May 31, 2009).
47 Id.
48 Id.

has also been posited.49 Supporting studies have been carried out in many countries including Pakistan.50
In Spain, Brazil, and Argentina, current business realities such as corruption were observed to have an
effect on the efforts of firms to behave responsibly; extra efforts are ironically sometimes made in
regions deemed to be more corrupt.51 Other studies have documented the tendency of CR initiatives at
some Indian companies to be driven by individual executives because of cultural norms.52 Finally, the
success of CR and CR reporting initiatives may be impacted by the reticence of managers in collectivist
societies to publicly reveal shortcomings out of concerns for their superiors or company losing face.53
In summary, it is possible that values other than financial interests in some way affect the drivers
and the practice of CR reporting. Conversely, the same financial motivations may really be driving CR
reporting everywhere, with cultural values only affecting the choice of language and shaping the rhetoric
of CR dialogue.54 At any rate, the role of culture and other non-financial factors in the global spread of
CR reporting is a noteworthy facet of the larger scholarly debate about the drivers of CR reporting and
its relationship with financial and environmental performance.
Does financial performance influence CR reporting?
There is growing if not yet conclusive evidence of a demonstrable positive relationship between
successful management of commitments to corporate responsibilities and good financial performance.55
Studies have endeavored to test the correlation between greater disclosures and greater profitability;
companies that disclose more non-financial information have been found to be more profitable.56 Stock
price volatility was reduced in the 1960s when greater disclosures were mandated.57 A co-founder of the
GRI, Allen White, points out that a moderately positive correlation exists between the use of the GRI
framework and lower price share volatility, higher operating profits, and greater revenue growth.58 These
findings are consistent with those of a 2002 Standard and Poor’s analysis of 1500 companies that
concluded that greater disclosures were related to market risk and valuations and led to a higher price-to-
book ratio and the ability to lower the cost of capital.59
Large companies have found that CR reporting can boost profitability by, for example, prompting
corporations to make socially- and environmentally-conscious investments that rapidly pay for
themselves and contribute to the bottom line by reducing energy costs or the costs of absenteeism and
worker errors.60 Why, then, did less than 20 percent of executives in the 2008 KPMG study choose cost
49 Reinhard Steurer, Markus E. Langer, Astrid Konrad & André Martinuzzi, Corporations, Stakeholders and Sustainable
Development I: A Theoretical Exploration of Business-Society Relations, 61 J. BUS. ETHICS, 263-282 (2005).
50 Peter Lund-Thomsen, Towards a Critical Framework on Corporate Social and Environmental Responsibility in the South:
The Case of Pakistan, 47 DEVELOPMENT , 106-114, (2004).
51 Domènec Melé, Patricia Debeljuh & M. Cecilia Arruda, Corporate Ethical Policies in Large Corporations in Argentina,
Brazil and Spain, 63 J. BUS. ETHICS, 21, 33-34 (2006).
52 Bimal Arora & Ravi Puranik, A Review of Corporate Social Responsibility in India, 47 DEVELOPMENT, 93, 96-97 (2004).
53 Y. Ling, Steven Floyd & David Baldridge, Toward a Model of Issue-Selling by Subsidiary Managers in Multinational
Organizations, 36 J. INT'L BUS. STUD. 637, 644-45 (2005).
54 See Sulkowski et al., supra note 45.
55 Terra Pfund, Corporate Environmental Accountability: Expanding SEC Disclosures to Promote Market-Based Environ-
mentalism, 11 MO. ENVT’L. L. & POL’Y REV. 118, 119 (2004).
56 See, e.g., Diana C. Robertson & Nigel Nicholson, Expressions of Corporate Social Responsibility in U.K. Firms, 15 J. BUS.
ETHICS 1095, 1097-1106 (1996).
57 Allen Ferrel, Measuring the Effects of Mandated Disclosure, 1 BERKELEY BUS. L.J. 369, 377 (2004).
58 White, supra note 1, at 177. The study involved more than 800 GRI-utilizing companies in over forty countries. Id.
59 Sandeep A. Patel & George Dallas, Standard & Poor’s, Transparency and Disclosure: Overview of Methodology and Study
Results – United States, 4 (2002), available at http://www.securitization.net/pdf/sp_trans_101602.pdf.
60 See, e.g., Anita Roper, Proving the Case for Sustainability at Alcoa, 1 CORP. RESP. MGMT. 34, 34-37 (2004).

savings as a driver of the practice of CR reporting? Perhaps, as indicated by David Case, public
reporting functions best when it is deployed in tandem with environmental managements systems that
use measurements as part of a process of reducing resource usage and unnecessary pollution, which
results in lower costs.61 This conclusion is supported by empirical evidence from China, where the
amount of CR disclosure was not found to automatically result in better financial performance metrics.62
Integrating concepts such as total quality management (TQM) and cost of poor quality (CPQ) with CR
reporting has been suggested as a logical next step to maximize the potential of CR reporting to help
businesses realize cost savings.63 Richard Ellis, Head of Corporate Social Responsibility at Boots, a UK-
based health and beauty products company, has found that cooperation between himself and the Chief
Financial Officer and the practice of tracking environmental impact data has resulted in significant cost
savings.64
Large MNCs in developed economies are not the only enterprises that have observed positive
outcomes as a result of the adoption of CR reporting. Small and medium-sized enterprises (SMEs)
located in developing countries and engaged in textile manufacturing and the tanning of leather – both
highly-polluting activities – were shown to mitigate their harmful activities upon adoption of CR
reporting.65 The same study found that, even in developing countries, these SMEs became more
profitable when they implemented CR reporting.66
Among CEOs who have implemented CR reporting, there is a consensus that the internal
intellectual capital, technology, and culture of a firm can influence whether CR reporting yields benefits
to a reporting company.67 Put another way, the knowledge management that turns CR reports into
sustainable performance improvements involves people, process, and technology.68 In general, there is a
growing trend of making a strictly “business case” in favor of CR reporting, with the understanding that
resulting benefits to a company may depend on other factors.69
Legal scholarship of CR reporting
As mentioned above, legal scholars have characterized regulation-by-disclosure as the third
generation of regulation of environmental and societal impacts.70 In this view, the first generation of
regulation consisted of rule-based systems and the second involved command-and-control regulation.71
61 See David W. Case, Changing Behavior Through Environmental Management Systems, 31 WM. & MARY ENVT’L. L. & POL’Y
REV. 75, 111 (2006).
62 See Lu Wei et al., supra note 45.
63 See Raine Isaksson, Economic Sustainability and the Cost of Poor Quality, 12 CORP. SOC. RESP. &
ENVT’L. MGMT. 197, 197-209 (2005).
64 Telephone Interview with Richard Ellis, Head of Corporate Soc. Responsibility, Boots (June 29,
2006).
65 Ralph Luken & Rodney Stares, Small Business Responsibility in Developing Countries: A Threat or An Opportunity?, 14
BUS. STRATEGY & ENV'T 38, 43-52 (2005).
66 Id.
67 See Pamela Ruebusch, The Triple Bottom Line: What It Means and Why We Need to Embrace It, 105 CAN. TRANSP. LOGISTICS
18 (2002), available at http://www.ctl.ca/columnists/ruebusch/2002/feb.asp (last visited June 4, 2009).
68 Carol Gorelick & Brigitte Tantawy-Monsou, For Performance Through Learning, Knowledge Management Is the Critical
Practice, 12 LEARNING ORG. 125, 125-29 (2005).
69 See Björn Stigson, Foreword to Charles O. Holliday, Jr. et al., Walking the Talk: The Business Case
for Sustainable Development 8-9 (2002); Marc Gunther, Tree Huggers, Soy Lovers, and Profits, 147
FORTUNE 98, 98-105 (2003) Oliver Salzmann et al., The Business Case for Corporate Sustainability:
Literature Review and Research Options, 23 EUR. MGMT. J. 27, 27-35 (2005).
70 See Case, Corporate Environmental Reporting as Informational Regulation, supra note 4 at 428.
71 Id.

As mentioned above, David Case provides a review of the economic and legal theories that suggest that
greater disclosure of non-financial data should bring about the same outcomes as traditional regulatory
approaches, inasmuch as companies manage what they measure and inasmuch as markets with better
information ought to more efficiently lead to either constructive negotiated solutions or bad actors being
punished by investors and consumers for creating risks and liabilities.72
Daniel Esty is among those who argue that many of the shortcomings of current environmental
policies stem directly from information gaps.73 In the context of discussing the promise of technology to
fill these gaps, however, he notes that the U.S. regulatory approach is to allow activities until they are
proven to be harmful.74 Therefore, current legislation and regulations discourage companies from even
measuring negative impacts of products and processes, for the discovery of such knowledge could
trigger reporting obligations and regulation of their activities.75 Even when reporting requirements of
environmental liabilities do exist, such as those established by the Federal Accounting Standards Board
and the Securities and Exchange Commission, they are not rigorous and are likely to be ignored.76 A key
element of his greater thesis, therefore, is that more information can assist in stakeholders negotiating
acceptable solutions with polluting companies, but only if governmental regulation of disclosures
becomes more stringent and demanding.77
As mentioned above, David Case has also argued that external CR reporting has the greatest
potential to reduce the environmental harms related to corporate activity when it is deployed in tandem
with internal environmental management systems.78 This makes intuitive sense; measuring and
generating reports with data is a useful step, but the data, as in any context, must be acted upon to change
behaviors and outcomes. Informational regulation has also been shown, especially when other
governmental intervention has been lacking, to help consumers make decisions to avoid exposing
themselves to risk. 79 Finally, a key means through which CR reporting is intended to ameliorate
negative externalities is by catalyzing more dialogue with stakeholders; there is evidence that CR
reporting can indeed facilitate this dialogue.80 This evidence supports the economic theories mentioned
above that hold that CR reporting should lead to more efficiently negotiated agreements between
companies and stakeholders.
However, there is no unanimity that more mandated disclosure, on its own, will lead to better
behavior.81 Allison Snyder suggests that informational regulation alone will be inadequate to improve
corporate societal and environmental performance, and that more conventional enforcement mechanisms
will be required to either reduce negative externalities or generate positive externalities.82
Some have focused more on the question of what existing regulatory structures require. Perry
72 Id. at 415-427.
73 Daniel C. Esty, Environmental Protection in the Information Age , 79 N.Y.U. L. REV. 115, 115 (2004).
74 Id. at 203.
75 Id. at 204.
76 Id. at 206.
77 Id. at 210.
78 Case, Changing Behavior Through Environmental Management Systems, supra note 61 at 111.
79 Katherine Renshaw, Student Article, Sounding Alarms: Does Informational Regulation Help or Hinder Environmentalism,
14 N.Y.U. ENVTL. L.J. 654 (2006).
80 Timothy Riley, Unmasking Chinese Business Enterprises: Using Information Disclosure Law to Enhance Public
Participation in Corporate Environmental Decision Making, 33 HARV. ENVTL. L. REV. 177 (2009).
81 See Allison M. Snyder, Survey, Holding Multinational Corporations Accountable: Is Non-Financial Disclosure the
Answer?, 2007 COLUM. BUS. REV. 565 (2007).
82 Id.

Wallace has argued that, given the likely catastrophic consequences of climate change and existing
fiduciary duties of managers, companies should, given existing rules and principles, be making greater
non-financial disclosures.83 This line of reasoning, as also presented by David Monsma and Timothy
Olson, holds that company responses to climate change are material knowledge to investors and that
regulation S-K, correctly interpreted, require related disclosures.84 Jeffrey McFarland agrees with this
logic, stating that U.S. securities laws should be interpreted as requiring at least a disclosure of liability
exposure, including amounts of emissions and actions taken to reduce the risk of related possible
losses.85
Despite the compelling arguments that current legislation and SEC rules already require more CR
disclosures, and despite predictions that greater mandatory environmental disclosures are inevitable86,
neither Congress nor the SEC have mandated more CR disclosures in the 1990s nor first decade of the
current millennium. Based on studies by government, academia, and the private sector, it appears that
companies ignore existing SEC reporting guidance on environmental issues a majority of the time. A
1992 Price Waterhouse survey found that the financial statements of 62 percent of respondents failed to
follow SEC rules and did not disclose fines for environmental illegalities in excess of $100,000.87 A
1996 academic study found that 54 percent of companies with potential liabilities for hazardous waste
sites failed to disclose this in their initial public offering registration statements and 61 percent of
currently registered companies known to have potential liabilities for hazardous waste sites failed to
disclose this fact.88 A governmental study found that 74% of corporations in its sample fail to comply
with disclosure requirements.89 The SEC has effectively done nothing to investigate or penalize such
failures to disclose large environmental liabilities; for example, no investigation followed when liabilities
of $270-300 million related to hazardous waste sites were not mentioned in Viacom’s 10-K report.90
Therefore, most legal scholars conclude that new disclosure rules and better enforcement are
needed. Mitchell Crusto is most categorical in declaring that regulators, the investment community, and
voluntary corporate initiatives have failed in systematically changing corporate behavior; corporate
structure and law are similarly characterized as hindering environmental protection.91 Crusto concludes
that a comprehensive reporting of environmental risks and liabilities should gradually become mandatory
and adhere to a standard – the cumulative materiality standard (CMS) – suggested by the American
Society of Testing and Materials (ASTM).92 Others have focused specifically on the urgent need for the
SEC to issue specific and mandatory guidelines for disclosures related to climate change risks, urging
83 Perry E. Wallace, Climate Change, Fiduciary Duty, and Corporate Disclosure: Are Things Heating Up in the Boardroom?,
26 VA. ENVTL. L.J. 293 (2008).
84 Monsma and Olson, supra note 3 at 147-161.
85 Jeffrey M. McFarland, Warming Up to Climate Change Risk Disclosure, 14 FORDHAM J. CORP. & FIN. L. 281, 285-292
(2009).
86 See Risa Vetri Ferman, Note, Environmental Disclosures and SEC Reporting Requirements, 17 DEL. J. CORP. L . 483 (1992).
87 Price Waterhouse, Accounting for Environmental Compliance: Crossroads of GAAP, Engineering
and Government - Second Survey of Corporate America's Accounting for Environmental Costs, 10-
11 (1992).
88 Case, Corporate Environmental Reporting As Informational Regulation, supra note 4 at 410 n.187 (citing to Memor-
andum from Mary Kay Lynch, Director, EPA Office of Planning and Policy Analysis, and Eric V.
Schaeffer, Director, EPA Office of Regulatory Enforcement, to Office of Enforcement and Compliance
Assurance Directors, et al. (Jan. 19 2001)).
89 Id. at 410 n.188.
90 Id. at 410-411. Potentially more worrisome are the illegalities themselves and the admissions by a majority of corporate
legal counsels that their corporate clients have been in violation of environmental laws. See, e.g., Marian Lavelle, Environ-
mental Vise: Law, Compliance, NAT’L L. J., Aug. 30, 1993, at S1.
91 Crusto, supra note 31 at 490-493.
92 Id. at 503-509.

that it should at least match its efforts in the years leading up to the year 2000 and attendant risks and
preparations to overcome Y2K problems with company computers.93 David Sand argues that greater
standardization, oversight, and enforcement of non-financial disclosures would bring about greater
benefits for both shareholders and stakeholders.94 David Case explicitly sides with this view.95 Lucien
Dhooge, in his review of the content and limitations of the French regulations, concludes that such
government-imposed reporting requirements are a positive step, but that verification and enforcement
structures are needed if disclosure regimes are to fulfill their potential.96 Wendy Wagner likewise arrives
at a similar conclusion, concluding that there must be penalties for failure to disclose negative
information.97 Allen White argues for global uniformity in disclosure standards.98 Larry Backer further
argues that the new rules and enforcement mechanisms must be supranational.99
A key common question uniting all of the business and legal scholarship above, either implicitly
or explicitly, is whether more disclosures are associated with companies that better serve the interests of
either investors or stakeholders or both. Whether substantiated or assumed, whether arguing for more
reporting or not, or suggesting that more disclosure is already required or not, the same relationships (or
lack thereof) are at the root of all of these lines of inquiry and argument: the associations between CR
reporting, financial performance, and environmental performance.
IV. RESEARCH QUESTION, METHODOLOGY, AND VARIABLE SELECTION
Based on the literature review above and stated in its broadest terms, the holy grail of business
and legal scholarship related to CR reporting is to establish whether and how the use of CR reporting is
influenced by financial and environmental performance. Some are interested in this research question
because of the potential, ultimately, for improving the financial performance of companies and returns
for investors. Others appear to be interested in this research question because of the potential of non-
financial disclosures to encourage companies to minimize negative impacts on society and the
environment. Still others are concerned with the drivers of CR reporting and whether CR reporting
serves its intended role as providing a signal to markets as to the intent and actions and riskiness of
companies. Finally, legal scholars are concerned with this central theme, because it undergirds any
discussion of whether CR reporting needs to be mandated.
Consistent with the broad question outlined above, the authors chose a statistical analysis
technique that has been proven, in other fields, to deal well with a binary dependent variable: logistic
regression. A binary dependent variable is a characteristic of an entity that either is true or is false; for
example, one such characteristic is whether a firm engages in CR reporting or not. The independent
variables in a logistic regression equation, such as measures of relative financial performance or relative
amounts of a polluting activity, are not binary, but rather metric and represent a value along a continuum.
For example, market capitalization is such a variable.
Logistic regression takes the form
93 McFarland, supra note 85 at 307-310.
94 David F. Sand, Environmental Disclosure and Performance: The Benefits of Standardization, 12 CARDOZO L. REV. 1347
(1991).
95 Case, Changing Behavior Through Environmental Management Systems, supra note 4 at 439-442.
96 Id. at 488-490.
97 Wendy Wagner, Commons Ignorance: The Failure of Environmental Law to Produce Needed Information on Health and
the Environment, 53 DUKE L. J. 1619, 1745 (2004).
98 See White, supra note 1.
99 See Backer, supra note 28.

logit p = β0 + β1x1 + β2x2 + ….... βkxk
where the dependent variable (logit p) represents the range of probability from 0 to 1 (No versus Yes).
The goal of logistic regression is to develop an equation designed to predict the probability
(propensity) of membership in one of the two groups given the variables examined. The data was ana-
lyzed using the R statistical package module for generalized linear models.100
The largest 250 companies in the S&P500 provide the basis for analysis.101 This sample popula-
tion is large enough to yield statistically significant results while not presenting an overwhelming data
gathering challenge. Additionally, recent secondary data (2008) for these companies is available through
a variety of sources.
The next step after choosing the sample population was to select independent and dependent
variables. The dependent variable is defined as GRI reporting (0=no, 1=yes). The independent
variables, for reasons explained below, included three financial measures (market capitalization, total
equity, and total liabilities), two financial ratios (price-to-book and Tobin's q) and two measures of
pollution (total metric tons of carbon and a newly proposed ratio, carbon-to-equity). The final measure,
carbon-to-equity, is proposed, as explained below, to serve as an indicator of the relative environmental
efficiency of companies.
Clearly, since the ultimate goal is to explore the impacts of CR reporting, the authors needed to
choose a dependent variable that reflects whether or not a company made any serious attempt at a CR
report. The measures had to be uniform across companies to make any meaningful comparison. Since,
as mentioned above, the GRI guidelines are the most commonly adopted standard by those companies
issuing CR reports, the dependent variable is whether a company issued a GRI report. This is a binary
measure: either a company issues a GRI report or it does not. The source of this data was the GRI
website.102
The variables for financial performance are both broad and specific, since this is one of the
associations at the heart of the inquiry. In addition to market capitalization, total equity and total
liabilities, there are several ways to measure financial performance, including ROE (return on equity),
ROA (return on assets), P-to-B (price to book) ratio, P/E (price/earning) ratio, EPS (earnings per share),
and Tobin’s q (the ratio of the market value of the firm to the replacement cost of its assets). Tobin’s q
is a good measure for making comparisons between firms because accounting measures or the
application of other ratios based on stock return requires risk-adjustment or normalization among firms
for comparison.103 Moreover, firm value is fundamentally related to share value as decided by stock
exchanges.104 Consistent with Larry Lang’s and Rene Stulz’s definition of Tobin’s q, Kee Chung and
Stephen Pruitt offer a simplified Tobin’s q model which yields similar results but depends on fewer
financial variables.105 The simpler means of calculating Tobin’s q is as follows:
100 The R statistical package is a free and open-source set of software tools is available at http://www.r-project.org/ (last visited
May 31, 2009).
101 The list of the S&P500 is available at http://www.indexarb.com/indexComponentWtsSP500.html (last visited May 31,
2009)
102 GRI Reports List is available at http://www.globalreporting.org/GRIReports/GRIReportsList/ (last visited May 31, 2009).
103 Larry Lang L. & René Stulz, Tobin’s Q, Corporate Diversification, and Firm Performance, 102 J. POLITICAL ECON., 1248,
1248-1280 (1994).
104 Id.
105 Kee Chung, & Stephen Pruitt, A Simple Approximation of Tobin’s q, 23 FINANCIAL MGMT, 70, 70–74 (1994).

q = (MVE + PS + DEBT)/TA
where MVE is the product of share price and the number of common stock shares outstanding, PS is the
liquidating value of outstanding preferred stock, DEBT is the value of the firm's short-term liabilities net
of its short-term assets plus the book value of the long term debt, and TA is the book value of the total
assets. For the reasons above, Tobin’s q was calculated for each company and entered as a variable in
the model. Likewise, the Price-to-Book ratio is a quick indicator of whether or not a company is
overvalued or undervalued. Tobin's q overcomes some of the limitations of the Price-to-Book ratio by
including a debt component in its calculation. The source of the needed data was company financial
disclosures.106
The final independent variables selected reflect relative environmental performance because that
is the other association at the heart of the inquiry. These were also the most challenging variables to
decide upon. Many measures of environmental performance were considered, and some might
eventually be tested in future studies. These included several measures that theoretically were appealing,
but that practically would fail to measure environmental performance fairly across companies in the
sample universe. For example, measures involving fines and litigation are faulty because some
environmentally-related harms may be undetected or resulting disputes may be quietly settled. As
mentioned above, while SEC guidance requires that litigation and fines above proscribed thresholds be
disclosed, scholarly, business, and government sources all agree this guidance is ignored in a majority of
cases.107 Further, parsing-out solely environmentally-related liabilities out of the information in annual
reports is often impossible.
A solution was found in the form of both carbon dioxide release statistics. The carbon disclosure
project is a voluntary disclosure practice adopted by a majority of the G250. This measure could be
critiqued as being too narrowly focused on one aspect of environmental harm. Another potential
criticism is that some industries, such as software, are inherently less polluting of the air than, say,
automobile production, such that comparing companies on the basis of carbon dioxide emissions is not
fair. There are four responses to this line of criticism. First, carbon dioxide emissions have been
identified as a leading cause of global climate change and hence constitute one of the most concerning
forms of pollution and one which likely will be subject to regulation and a disclosure regime.108 Second,
some industries will always and inherently appear to be less polluting than others, regardless of the
metric that is chosen. Third, it has previously been observed that companies in more polluting industries
are the first and most likely to adopt the practice of CR reporting.109 This yields a hypothesis: namely,
that companies with greater carbon dioxide emissions will be more likely to engage in CR reporting.
Finally, as a practical matter, measures for such studies must be based on a reliable dataset that includes
most of the entities in the sample population. The carbon disclosure project meets this criterion.110 The
authors also tested a novel ratio as an independent variable: the ratio of carbon dioxide emissions to
equity. The amount of carbon dioxide generated relative to the equity of a company is an indicator of
comparative environmental efficiency among firms.111 The concept of environmental efficiency – the
106 Company financial data is available at www.thestreet.com (last visited May 31, 2009).
107 See infra notes 87-90.
108 See McFarland, supra note 85.
109 See, e.g., Minna Halme & Morten Huse, The Influence of Corporate Governance, Industry and Country Factors on Envir-
onmental Reporting, 13 SCANDINAVIAN J. MGMT, 137, 137 (1997).
110 PriceWaterhouseCoopers, The Carbon Disclosure Project Report 2008 S&P500, available at
http://www.cdproject.net/download.asp?file=67_329_142_CDP%20SP500%20Report%202008.pdf.
111 Environmental or ecological efficiency, the concept of gauging the amount of negative environmental impact per unit of
economic activity, is a developing but accepted and valuable measure for comparing countries, or, in this case, firms. See
Justin Kitzes et al., A Research Agenda for Improving National Ecological Footprint Accounts, ECOLOGICAL ECONOMICS (in
press), available at http://www.brass.cf.ac.uk/uploads/fullpapers/Kitzes_et_al_M65.pdf (last visited May 31, 2009).

amount of negative impact on the environment generated per unit of size or production – is increasingly
appearing in sustainability-related research; comparing companies based on their ratio of carbon dioxide
to equity builds on this concept.112
V. RESULTS AND DISCUSSION
Testing the impact of financial and environmental variables on a firm's propensity to use GRI
reporting required gathering data from nearly 250 companies. The end result was a total of 113
companies in the database for which complete data on all desired variables was available. Of the 113
companies examined, 78 do not use GRI reporting and 35 use GRI reporting. Thus, given the size of the
two groups (78 versus 35), limitations associated with small sample size are reduced.
The results of the statistical analysis are included in the table below (Table 1):
TABLE 1
Variable Estimate Std. Error z value Pr(>|z|)
Intercept -1.35E+000 4.97E-001 -2.73 0.01
MKTCAP 6.88E-003 1.33E-002 0.52 0.61
EQUITY -8.39E-003 1.70E-002 -0.5 0.62
LIABILITIES 1.95E-004 1.09E-003 0.18 0.86
PRICE-to-BOOK 1.65E-001 2.31E-001 0.71 0.48
TOBIN'S Q 9.62E-002 1.02E-001 0.94 0.35
CARBONTMT 2.61E-008 1.76E-008 1.48 0.14
CARBON/EQUITY -9.83E-002 9.37E-002 -1.05 0.29
As indicated in Table 1, none of the seven variables investigated significantly discriminates
between companies that use GRI reporting and those who do not. Neither market capitalization, total
equity, total liabilities, price-to-book ratio, Tobin's q ratio, total metric tons of carbon dioxide released
nor carbon-to-equity ratio significantly impact the likelihood that a firm will engage in the most widely-
embraced type of CR reporting. Despite the lack of individual discriminant power, a predictive function
emerges:
GRI Probability = -1.35E+000 + 6.88E-003(MKTCAP) + -8.39E-003(EQUITY) +
1.95E-004(LIABILITIES) + 1.65E-001(PRICE-to-BOOK) + 9.62E-002(TOBIN'S Q) +
2.61E-008(CARBONTMT) + -9.83E-002(CARBON/EQUITY)
Those seeking to predict the probability of a company using GRI reporting need only to plug in the
values in parentheses, perform the mathematical functions and interpret the results. The calculated result,
when multiplied by 100, provides a measure of the propensity of the firm being investigated to utilize
GRI reporting.
The findings of this study are relevant to the scholarship described in the first sections of the
112 See, e.g., John C. Dernbach and Seema Kakade, Climate Change Law: An Introduction, 29 ENERGY L.J., 1, 1-31 (2008).

literature review; specifically, the scholarship that seeks to determine the drivers of CR reporting and its
relationship to financial performance. Some research suggests that the drivers are related to executives
pursuing better financial performance for their firms. Some research, especially the scholarship that
examines CR reporting from a global perspective, raises the possibility that there are other variables that
may also impact the adoption of CR reporting.113 This study suggests that, whatever the managers might
say or perceive in other studies, there is not a correlation between firms with superior financial
performance and firms that engage in the most widely adopted form of CR reporting. This, in turn,
ought to provoke further business scholarship: there are possibly variables related to management, rather
than financial and environmental variables, that affect the probability of a company adopting CR
reporting. Potentially there are characteristics of managers or firms or their relationships with investors,
customers, employees or other stakeholders that merit further investigation. Potentially such research
would lead to a better understanding of what kinds of firms perceive a greater benefit in more CR
reporting, and, conversely, what kind of firms apparently do not see value in the practice.
This finding ought to also provoke further legal scholarship. As also described in the literature
review, legal scholars have largely embraced the theory that soft law practices such as CR reporting
serves a valuable function in the marketplace and ultimately is related to companies behaving in a
manner that is desired by society.114 The question of whether CR reporting is correlated with a firm
being a good or bad actor ultimately undergirds any discussion of whether the practice ought to be
mandated. This study shows that being relatively less polluting and being a GRI adopter are not
correlated. It also shows that a company’s comparative environmental efficiency – in this case, the
amount of carbon dioxide emissions relative to a firm’s value – is also not significantly correlated to
whether a firm is a GRI adopter.
These outcomes could therefore be interpreted to indicate that informational regulation is
ineffective in producing its intended ends. That would be an error, since the causal association tested
was whether financial performance and environmental performance affected the probability of GRI
adoption. Nothing can be imputed about the opposite causal relationship: namely, does GRI reporting
affect financial performance or environmental performance or both. Even if one were tempted to make
this interpretive error, the study’s results represent a snapshot – they describe reality at one moment in
time, rather than the potential relationship of the variables over a period of time. For these reasons, the
results suggest nothing about whether GRI reporting is effective at producing improved financial and
environmental performance.
However, the results are evidence that GRI reporting should not be taken, at any given point in
time, to necessarily be a signal to the marketplace that a company is a good actor relative to non-
reporting firms. Because CR reporting is optional and not all firms have adopted the practice, there may
be a perception among investors that being a GRI reporter is a proxy for a firm being relatively
environmentally efficient and benign compared to non-reporters. This study disproves that inference.
Such a misleading indicator is undesirable for a variety of reasons: it prevents investors from
fulfilling their investment strategies and it prevents the marketplace – meaning both the stock markets
and relevant markets for goods and services – from punishing bad actors and rewarding companies that
satisfy the expectations of society. Finally, such a misleading indicator may misdirect enforcement
agencies from investigating companies that are actually in breach of environmental regulations; indeed,
better relations with governmental authorities is one of the motivations for reporting cited in the
literature review above. Therefore, the outcome that better financial and environmental performance is
113 See supra, notes 44-54.
114 See supra, notes 26-31 and 70-99.

not correlated with GRI reporting is a valuable gleaning for legal scholars. It contributes to the growing
body of literature that suggests that CR reporting should be mandated, universal, and uniform. This
would eliminate voluntary CR reporting as a misleading signal to markets and assure that CR reporting
fulfills its potential by allowing fair comparisons between companies.
VI. CONCLUSIONS AND IMPLICATIONS FOR BUSINESS AND LEGAL SCHOLARSHIP
This article has reviewed the history of regulation-by-disclosure and voluntary CR reporting and
the relevant business and legal scholarship. Based on this review, it identified a major theme underlying
research related to the phenomenon: namely, whether the use of CR reporting can be predicted by
financial and environmental performance.
The authors, by testing a wide array of financial measures and two measures related to the impact
of companies on climate change, thereby make a valuable contribution to existing business and legal
scholarship. This study suggests that financial and environmental performance does not affect the
propensity of a company to engage in CR reporting.
The authors suggest that business scholars turn their attention to developing theories and testing
hypotheses that may better explain what kinds of firms are more likely to engage in CR reporting. The
authors suggest that business law scholars turn their attention to exploring what kind of regulatory
framework best encourages meaningful, universal, and uniform disclosures by all companies, with an
understanding that voluntary CR reporting may function as a misleading signal to the marketplace that a
company is comparatively benign in its societal and environmental impacts. This study should thus
provoke further theoretical work, stimulate further empirical testing, heighten an appreciation for the
importance of mandatory CR reporting to the marketplace and stakeholders, and catalyze the
development of a legal framework that achieves that end.