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The natural environment is declining—are companies doing their part to save it?

The natural environment across the globe is deteriorating, leading to crises like climate change, biodiversity loss, and water scarcity. Companies and industries play a major role in this decline, and they are expected to take responsibility for their environmental impact.

A recent study by Probal Dutta from the University of Vaasa, Finland, suggests that companies can meet these expectations by openly sharing reliable, credible information about their activities, environmental performance, and effects on nature.

Dutta's at the University of Vaasa examines the relationship between the environmental performance of companies and different types of disclosures about company activities having effects on the natural environment. For his dissertation, Dutta conducted statistical analyses using data on Finnish companies.

"Finnish companies' environmental performance is reflected in their disclosures relating to environmental issues," says Dutta, who will be defending his dissertation on 8 November 2024.

How companies are addressing their environmental impact

The results of the doctoral study show that companies are discharging their responsibility and accountability by providing accurate, reliable, and credible information on their effects on the natural environment and their actions to protect it.

"Companies, irrespective of their performance in terms of their impact on the natural environment, are found to be disclosing environment-related information that is verified by independent verifiers, also known as external assurance providers," says Dutta.

However, companies that are relatively poor environmental performers are more inclined to seek independent verification of their information in order to gain public trust.

According to Dutta's dissertation, the verification of environment-related information by external assurance providers increases the accuracy of disclosed information and makes it reliable and credible to stakeholders.

Furthermore, the results confirm that companies whose environment-related information is verified by an external assurance provider tend to disclose a higher amount of information than those that do not implement independent verification. For instance, companies implementing carbon assurance tend to disseminate more climate change-related information.

Finally, the results provide evidence of an association between environmental performance of companies and their decision to disclose information on the impact of their activities on biodiversity, as well as actions taken to preserve it.

From policymakers to investors: How this research can help

Policymakers, regulators, managers and eco-friendly investors can all benefit from the results of this doctoral study.

"For instance, policymakers can use the findings of the study to develop standards for disclosing information on companies' effects on and actions against climate change. Eco-friendly investors can use the findings to support biodiversity by investing in environment-friendly. Regulators can act as watchdogs to ensure transparency in companies' environmental disclosures. Finally, corporate managers can apply the findings to be attentive to improve the accuracy, dependability, and credibility of their ecological information," says Dutta.

The results of Dutta's doctoral dissertation are based on three published sub-studies that examined various types of associations among different aspects of environment-related disclosure of information by companies, environmental performance of companies and the implementation of external verification of environment-related information disclosed by companies in Finland.