Environmental Reporting Quality of Japanese Companies

Environmental communication through sustainability or environmental reporting has become common practice in many countries. However, current reports are less useful for decision-making purposes (UNEP, 2015) and leading scholars consider that environmental reporting quality has not significantly improved (Deegan, 2017). Therefore, there is a need to enrich our understanding of its influential factors to improve this reporting quality. As Fujitsu Research Institute (n.d.), Burritt, Christ, and Omori (2016), and Kawahara (2017) admit, Japan adopts the voluntary approach. Interestingly, under this approach, several surveys have reported that Japan is a country that has extensive sustainability reporting rates (KPMG, 2002, 2005, 2008, 2011, 2013, 2015, 2017; WBCSD, 2019) for a long time. Several studies also point out the extensiveness of Japanese companies’ environmental disclosures compared to companies from other advanced countries (Freedman and Jaggi, 2011; Ho and Taylor, 2007; Kolk, 2005). Therefore, it is important to explore and examine Japanese companies’ environmental reporting to understand their reporting quality and factors influencing the reporting quality. This study aims to analyze Japanese companies’ environmental reporting and what factors affect this practice, especially their reporting quality. The main research questions analyzed are how is Japanese companies’ environmental reporting quality and what factors have influenced it? The influencing factors studied cover general contextual factors, internal context, and corporate characteristics. As part of this objective, this study also tries to provide a new environmental reporting quality measurement, which has several essential features differentiating it from existing measurements. The measurement of environmental reporting quality proposed and used in this study is corresponded to Kolk (1999) and Solomon (2000), as scholars, and FEE (2000) and CICA (1994), as professional accounting bodies, who suggest developing qualitative characteristics for environmental reporting based on the financial reporting framework. The reasons to shadow the financial reporting are the similarity of the objective, which is to provide useful information (CICA, 1994), and the achievement of its qualitative characteristics in establishing credible financial information (FEE, 2000). Therefore, the qualitative characteristics for useful environmental information included in the quality index are relevance, faithful representation, comparability, verifiability, timeliness, and understandability. They are operationalized based on CDSB (2018), GRI (2016), United Nations Environment Programme/UNEP (2015), WRI and WBCSD (2004) to cover essential concepts in environmental reporting. As a result, this measurement has several essential features differentiating it from existing measurements.