Section One
Question 1
Disclosure of Environmental and Social Information
A large number of companies disclose their social and environmental information for attracting new investors and customers to the business and for creating positive image in front of their customers. It has been reported that the companies with more than 500 employees need to disclose their environmental and social information on regular basis (Aldrugi and Abdo, 2014). It is important for the companies to disclose their environmental and social information in order to promote accountability and sustainability in their business activities. Moreover, it is also observed that it incurs a huge cost to the companies to maintain their social and environmental information and then disclose it to their stakeholders.
It is the fact that the companies disclose their social and environmental information for building positive brand image in front of public. The disclosure of social and environmental information is necessary for all those companies whose brand image or reputation got damage in the past. Besides that, the companies which have faced damages to their brand name previously are more concerned about the laws and regulations of the environment and they implied them in their environmental practices (Mallin et al., 2013. They disclose their environmental and social information to meet the social and environmental expectations of the society and to operate in more ethical way. To some extent, companies are using their social and environmental information for marketing their brand but most of the companies are using this information for building their reputation.
Question 2
ESG and Sustainability Reports
There are a number of factors which impact the investment decisions of the stakeholders and investors in different organizations. The ESG (environmental, social and governance) and sustainability reports of a company considered as a communication and engagement tool between the stakeholders and the company. The profit and loss statements of the companies explain the investment returns and financial performance of the companies. The ESG reports of the organizations explain the environmental, social and corporate governance practices of the organization which motivates the investors and stakeholders of the company towards future investments.
The ESG and sustainability reports of the companies should be aligned with the strategic objectives of the organization because these reports reflect the overall business activities of the organization (Kocmanova et al., 2012). Companies, sometimes, do not provide a clear picture of the company’s performance and mislead their stakeholders and investors which develop some risks and difficulties for the companies. The failure in authentic and relevant ESG reports develops misalignment issues, bad relations with the investors and stakeholders and the negative image of the company. Therefore, the companies need to ensure that the information they are providing in their ESG and sustainability reports are according to their social and environmental practices and they are not misleading their stakeholders and investors for company’s interest.
Section 2
Question 1
Cost and Benefits of Private Disclosure
The companies are providing private information to their key stakeholders in order to avoid future risks and uncertainties in the business. Companies choose some key stakeholders and investors of the business and share the private information of the business with them such as the profit and loss statements, risks in the business, future opportunities and fraudulent activities (Holland, 1998).
The benefit of increased use of private disclosure is that the key investors and stakeholders can support company in bad situations. The companies conduct confidential meeting with their key stakeholders and investors and provide them confidential information related to business operations. It is very important for the companies to take their key stakeholders and investors in confidence for avoiding future business issues.
The increased use of private disclosures also incurs significant cost to companies in some cases because there are chances of risk for the companies while sharing their important and confidential information with their stakeholders and investors. It is also possible that some of the key stakeholders and investors refuse to invest in the business by knowing about current situation of the business. There is also a possibility that the investors and stakeholders share the company’s current performance with the competitors which may impact the current operations of the company in some way or the other.
Question 2
Limitations in Mandatory Company Disclosures
The mandatory disclosures are effective for the companies to improve their performance in the market and to avoid criticism from investors and stakeholders (Galani et al., 2011). Mandatory disclosures can play important role in the business operations of the companies as they provide all the relevant and accurate information which is needed by the market. The mandatory disclosures of a business are used by investors for evaluating the current and future performance of the company and the risks associated with the business operations.
Mandatory disclosures are considered to add significant value to the stakeholders; however, mandatory disclosures are faced with significant limitations. For instance, a group of the scholar claims that mandatory disclosures rules are made by the federal government and the monopoly of the federal government in this domain is a questionable. The regulations are then defined to be generally applicable across the states. This situation, limits the ability of the stakeholders in collecting company specific information that is more relevant in a particular state as compared to the other. Further, the current state of the disclosure is based on the judgment of the regulators with respect to the competitive market. Such disclosures may not be true for every situation in the long term. Therefore, such disclosures are essential for the smooth performance of the company and for attracting investors for the future investments.
List of References
Aldrugi, A. and Abdo, H., (2014). Determining the Motives or Reasons that Make Companies Disclose Environmental Information. Journal of Economics, Business, and Management, vol. 2, no. 2, pp. 117-121
Galani, D., Alexandridis, A. and Stavropoulos, A. (2011). The association between the firm characteristics and corporate mandatory disclosure the case of Greece. World Academy of Science, Engineering and Technology, vol. 77, pp. 101-107.
Holland, J.B. (1998). Private disclosure and financial reporting. Accounting and Business Research, vol. 28, no. 4, pp. 255-269.
Kocmanova, A., Němeček, P. and Dočekalová, M. (2012). Environmental, social and governance (ESG) key performance indicators for sustainable reporting. In The 7th International Scientific Conference (pp. 655-663).
Mallin, C., Michelon, G. and Raggi, D. (2013). Monitoring intensity and stakeholders’ orientation: how does governance affect social and environmental disclosure?. Journal of business ethics, vol. 114, no. 1, pp. 29-43.
