Government Reform, Regulatory Change and Carbon Disclosure: Evidence from Australia

Abstract

This paper examines the effect of two Australian environmental regulatory changes, specifically the Clean Energy Act (CEA) 2011 and the National Greenhouse and Energy Reporting (NGER) Act 2007 with reference to voluntary corporate carbon disclosure practices. In doing so, it describes the brief history of this carbon-related regulatory change, its scope, enforcement criteria and corporations’ disclosures. This is a longitudinal analysis of 219 annual reports of 73 listed corporations in Australia which were subjected to carbon tax and report carbon emissions as per the CEA 2011 and NGER Act 2007 accordingly. Any corporation or facility that emitted scope 1 emissions of 25,000 tonnes of carbon dioxide equivalent (CO₂-e) or more were liable for a carbon tax in accordance with CEA 2011. Drawing on stakeholder theory and legitimacy theory, this study uses content analysis to examine corporate carbon disclosure. The findings suggest there is a considerable increase in the number of carbon-related disclosures following these regulations being enacted as law. In addition, carbon-specific communication has become much more prevalent and accounts for a larger proportion of the sampled organisations’ reported environmental information. The results of this study enrich the validity of the hypothesis that organisations would seek to legitimise their operations to stakeholders by increasing their environment-related declarations. The evidence presented in the analysis confirms the assertion that government environmental legislation/regulation has a positive impact on corporate behaviour and accountability. These findings have significant consequences for the government, decision-makers and the accounting profession, indicating that regulatory guidance enhances both mandatory and voluntary disclosure. It also offers key insights into the possible impacts of the carbon regulatory change for future research to consider.

1. Introduction

Organisations and especially large corporations play a large part in sustainable economic progress and alleviating poverty. At the same time, many of their actions are responsible for producing all types of greenhouse gases (GHG) emissions which pose a serious danger to society and environment [1,2]. Carbon emissions have risen sharply since the Industrial Revolution and are widely blamed for global climate change [3]. Climate change is responsible for frequent bushfires, longer droughts, a spike in the number of hurricanes, tornadoes and floods, the transmission of diseases and much socio-economic unrest in many parts of the world [3,4]. Climate change poses a serious threat to sustainable development goals (SDGs) by threatening our economic growth (SDG 8), leaving millions of people below the poverty line (SDG 1) and increasing inequality (SDG 10) [4,5]. A substantial reduction of anthropogenic carbon emissions is required to reach net zero emissions by 2050 to limit warming to 1.5 °C compared to pre-industrial levels [2,3,6,7]. Hence, urgent action is required at the international, national and organisational levels to reduce huge amounts of carbon emissions to avoid the catastrophic impact of climate change.

Carbon emissions have been a contentious issue for policymakers worldwide, and Australia is no exception. Climate change mitigation is now a major political issue in Australia’s public policy discourse [8,9]. In contrast to the base year (1990), carbon-emissions-related global warming is predicted to lift Australia’s annual average temperature by 2 °C by 2030 [10]. Australia has recently experienced reduced levels of average annual rainfall, as well as prolonged and more intense bushfires and weather conditions. Australia’s economy is still heavily reliant on fossil fuels, making it more difficult for the government to commit to reducing them. Despite these challenges, Australia has introduced and implemented a number of laws and regulatory measures intended to reduce carbon emissions—many of which put additional pressure on the highest carbon-emitting firms. This is conducted by imposing financial penalties and endangering their image or reputation by revealing their practices in the media and informing the general public.

However, there is a lack of research on the effect of government reform and subsequent regulatory changes on the whole spectrum of carbon-related disclosure. This study addresses this gap by investigating whether a regulatory reform has influenced the carbon disclosure. With this in mind, the primary aim of this research is to look at the effect of two core pieces of Australian regulation on corporate carbon disclosure practices. Accordingly, this study examines the impact of the Clean Energy Act (CEA) 2011 and the National Greenhouse and Energy Reporting (NGER) Act 2007 on corporate voluntary carbon emission disclosure. This study selected corporations that were responsible for carbon tax under the CEA 2011 and required to publicly report their emission under the NGER Act 2007 as well as were listed on Australian Securities Exchange from 2006 to 2013. What follows is a brief history of carbon emissions regulatory reform, as well as its nature, compliance requirements and business practices.

The aim of carbon disclosure regulations is to provide information about how companies execute their corporate social responsibility (CSR) programs and particularly in relation to carbon emissions and making their environmental sustainability disclosures more accessible to stakeholders. To investigate the changes in organisational practices of carbon emissions disclosures, the stakeholder theory and legitimacy theory were used. Organisations’ accounting disclosure decisions depend on legislative frameworks that result in the most reliable picture of their CSR and environmental sustainability performance. Other theories have attempted to explain organisations’ disclosure activities in many ways. Contexts such as standards, ethics, traditions and stakeholders are described throughout the accounting literature [11,12,13]. However, most prior research focused on the voluntary nature of sustainability disclosure, considering the fact that it is expensive for businesses, and was related to the principle of CSR and organisations’ zeal about transparency and accountability [11,14,15]. Thus, stakeholder theory and legitimacy theory are useful in accounting research that help to understand why organisations want to disclose issues about environmental sustainability information in their annual reports.

In spite of the rising number of studies on climate change and carbon disclosures [16,17,18,19], there is still a lack of research on the role of government reform and regulatory change in the disclosure of carbon emissions. Moreover, reference [20] called for further studies to look at climate change accounting and accountability by examining climate change-related disclosures. Refs. [16,17] made a similar call, noting that carbon emissions disclosure has not been properly discussed in the context of reform and regulatory change. This paper addresses these calls in part.

A mixed-method approach with a longitudinal design was applied. Data were collected from corporate annual reports between 2006 and 2013. To define and measure carbon disclosure, a content interpretation testing methodology was employed. The extent of carbon disclosures before and after the regulatory change was measured using statistical techniques.

The study adds to the carbon emissions disclosure literature by providing empirical evidence as to how companies strive to operate in such a way as to improve environment-related activities and disclosures while being encouraged to adhere to new government regulations. The study helps to understand whether environmental regulations can improve corporations’ environmental conduct and their accountability to stakeholders. In addition, it has practice and policy implications for the governments, policymakers, managers and other stakeholders of corporations, as well as the accounting profession. The rest of the study is organised as follows: Section 2 presents the relevant literature on sustainability disclosure with a specific focus on carbon-related disclosure. Section 3 discusses the regulations introduced by the Australian federal government to curb carbon emissions. Section 4 highlights the theoretical framework and hypothesis development of the study. Section 5 explains the methods employed in the study. Section 6 discusses the data analysis and hypothesis testing, while Section 7 concludes the paper.

2. Literature Review

Social and environmental accounting (SEA) has become an active research area in accounting since the 1970s [21,22,23]. However, environmental or ecological concerns really gained prominence through stakeholders’ attention and the usefulness of information concerns during the 1990s [24], resulting in many organisations putting an increased emphasis on SEA disclosure to stakeholders. Subsequently, those practices resulted into social and environmental values, norms and expectations that later develop into CSR or environmental, social and governance (ESG) disclosures which continued to grow. Consequently, in the 1990s and 2010s, researchers observed a significant increase in social and environmental disclosures [25]. This growth has been sustained in the 2020s through the non-binding or non-regulatory initiatives such as Global Reporting Initiatives (GRIs) and integrated reporting. Due to the fact that corporations frequently cause environmental damage through their business processes, which has the potential to undermine public trust, they are obliged to enhance their environmental performance and make relevant information available to the public [26]. Furthermore, environmental information has become useful for investors, activists, governments, policymakers and other stakeholders [27,28].

The various dimensions of an organisation’s environmental sustainability programs have been evaluated using different measures published in many studies. Environmental disclosure has been examined in annual reports and other disclosure platforms (websites and media platforms) in order to better understand the extent and quality of environmental disclosure, as well as the use of environmental information to manage the pressures applied by various stakeholders and to legitimise the actions of corporations [11,21,29]. Reference [30] research looked at the direct effect of sustainability news reported in the media on share prices. Several other reports, such as [31,32], have shown that organisations that claimed to act responsibly towards the environment are experiencing a substantial increase in stock prices and vice versa. It also showed that the negative reaction of the stock market to environmentally damaging actions has increased over time due to increased public awareness of the issue.

Prior research has demonstrated that corporations expand the scope of SEA issues in their annual reports by including information on climate change, water, biodiversity conservation and ecosystems [33]. However, recent evidence showed that the issue of climate change has received considerable attention which triggered distinctive aspirations worldwide over the last decade [16,17]. Climate change and its associated carbon emissions have piqued the interest of world leaders, researchers, organisations and the wider community. Carbon emissions have now become a contentious issue in a variety of disciplines over the last few years, for example, environmental studies [34], public health [35] and accounting [16,36,37]. Additionally, it is argued that government reforms regulations, and policies may compel organisations to disclose additional but voluntary environmental information [38]. Consequently, it is anticipated that Australian organisations will follow suit following the passage of carbon-related legislation, a critical question addressed in this study.

While there is a lot of civic pressure and demand from investors for carbon-related disclosure [17,39], only a few studies in accounting have explored corporate carbon disclosures in relation to environmental legislation [40,41,42,43]. In many countries, including Australia, the treatment of carbon information in corporate annual reporting is still voluntary, and analysis related to its disclosure is an active and ongoing research agenda. Nevertheless, Refs. [37,43] have drawn more public attention globally. Ref. [44], for example, show that international policy has had an impact on carbon disclosure level. It compared pollution- and carbon-specific reports from 2000 to 2002, including those from both the promulgated and unratified Kyoto Protocols, provided by the world’s largest publicly listed corporations and reported that the former disclosed a high level of carbon being produced. The same study with a larger sample size was then carried out by [33,44], and the same results were obtained.

Since the inception of the Kyoto Protocol and Paris Agreement, the carbon emissions literature has focused on four major streams: carbon emissions disclosure, management, performance and assurance, and established carbon accounting as a new or distinct discipline [37]. Prior research related to carbon disclosure heavily focused on capital market and corporate governance characteristics [17,37,45,46]. Existing studies found that the capital market does value carbon disclosure [46] and corporate boards’ characteristics can affect voluntary carbon disclosure [17,45,47]. Prior studies also explored the extent and quality of carbon disclosure and suggested that the extent and quality of disclosure are regularly influenced by organisational and governance characteristics including size, profitability, independent directors and gender of board of directors [46,48]. Although scholars have explored corporate carbon disclosure in several countries, there has been limited focus on Australian organisations despite some of the organisations being major carbon emitters.

The discourse of carbon emissions disclosure is relatively new for Australian companies compared to the United Kingdom (UK), Denmark and other European countries. Furthermore, Australian organisations lag well behind their European equivalents of communicating emissions-related threats [49]. Subsequently, it is widely accepted that Australian businesses must improve their information disclosures to stakeholders’ decision usefulness [50]. However, limited research has been undertaken in Australia to examine companies’ carbon disclosure prior to and after the implementation of the National NGER Act 2007 and the CEA 2011 [49]. Before the reform and regulatory change, reference [51] investigated the level of disclosing of carbon greenhouse gases information by Australia’s publicly traded corporations in 2005, discovering that less than 10% of publicly traded companies in Australia included carbon-specific information in their annual reports, with only 7 of 1485 including a full carbon disclosure. One could argue that prior to the passage of the NGER legislation and CEA, Australian businesses disclosed very little information about carbon emissions.

More recent studies in Australia explored the quality and comparability of carbon-related information as well as the link between carbon-related disclosure and corporate performance in relation to carbon emissions [27,46,52,53,54]. Reference [46] examined the effect of carbon emissions on corporation’s value in the stock market and found negative effect in the corporations with low carbon disclosure. Ref. [52], using one year of observation only, investigate the relationship between carbon performance and the level of carbon disclosure by comparing organisations in the US, the United Kingdom and Australia, finding that good carbon performers disclose more information. Reference [54] examine voluntary climate-change-related data for 2016 and 2017 of 150 Australian organisations subject to the NGER Act 2007 and provide evidence of potential greenwashing by poor environmental performers (high carbon emitters). Their results suggest a low level of climate-related disclosure by most high-carbon-emitting Australia organisations [54].

A study undertaken by [55] explores the relationship between carbon-emissions-related disclosure by organisations that are subject to the NGER Act 2007 and the level of voluntary environmental disclosures. They find that legislation-affected businesses disclose a lot more compared to non-affected organisations. Several prior studies suggested that organisations may provide more carbon-related disclosure following the passing of the NGER Act 2007 [27,48]. However, these studies did not explicitly explore and compare the level of carbon disclosure before and after the NGER Act 2007 and CEA 2011. Reference [55] refer in their study to the NGER legislation in order to determine whether there is a correlation between corporations’ voluntary carbon disclosures in their annual and sustainability reports and their carbon emissions reporting to the Australian Commonwealth Government. They did not discover any associated externalities. However, their study did not explore the level of carbon disclosure following the NGER and CEA. This is a gap in our knowledge that this study seeks to fill and makes an important contribution to by examining the effects of these two important Australian carbon regulations on corporate environmental disclosure activities.

3. Government Reform and Regulatory Changes to Carbon Emissions Disclosure

Numerous high-profile environmental problems, including the Bhopal gas tragedy (1984), the Chernobyl catastrophe (1986), the Alaska oil spill (1989) and the Deepwater Horizon oil leak (2010)—when now coupled with the climate change controversy—have sparked widespread public interest in environmental issues. Climate change is now recognised as a crucial contemporaneous environmental problem, capturing the interest of many researchers and policymakers [8,56]. Globally, the United Nations has been troubled about the possible outcomes of carbon emissions since the 1970s, and in 1988 formed the Intergovernmental Panel on Climate Change (IPCC) to address the issue [57]. Thus, the critical nature of addressing carbon emissions has attracted particular attention from foremost national and international organisations, non-governmental organisations (NGOs), community interest groups, activists, business and government policymakers, and academics [11,37,58,59,60].

While the questions remain over whether the government should intervene to reduce carbon emissions by legislating corporate environmental management activities, the alternative appears to be to leave corporations to regulate themselves in this area. However, the majority of the largest and most powerful corporations are involved in the fossil fuel industry, and numerous studies indicate that they have a vested interest in discrediting the effect of carbon emissions and lobbying against the implementation of stricter government laws [59,60,61]. Despite these multinationals’ persistent lobbying, numerous international negotiations and collaborative partnerships have been established over the years to recognise the implications of carbon emissions. Without a doubt, the Kyoto Protocol and Paris Agreement are the most significant global consensus addressing the economic problem of carbon emissions by establishing legally binding emission targets for industrialised countries [62]. Additionally, the Kyoto Protocol and the Paris Agreement have prompted numerous governments to build their own laws and regulations [37,62]. To date, almost all countries have made international commitments to limit their emissions under the United Nations Framework Convention on Climate Change (UNFCCC), in conjunction with the Kyoto Protocol and the Paris Agreement [37,63].

In 2008, Australia ratified the Kyoto Protocol and established a national policy for carbon emission reductions [40]. Since that time, the Australian government has advanced its Australian Emission Trading Scheme (AUETS) and announced its intention to launch thorough climate change methodologies, including carbon mitigation [64]. It has pledged to reduce greenhouse gas emissions by 26–28% by 2030, below 2005 levels [65]. Previously, in 2007, the Coalition government initiated the NGER Act, the first carbon-specific legislation, which established a national regulatory regime for the reporting and dissemination of carbon emissions-related information. Hence, Australian organisations that produce certain amounts of carbon emissions must provide information to the clean energy regulator (CER), especially with reference to carbon projects, energy consumption and energy production. The primary objectives of this information are to help in government policy formulation, inform the Australian public, meet Australia’s international reporting requirements and help local and national government programs and activities.

The Labour government announced the CEA 2011, the second part of carbon-specific regulation, to establish a carbon-pricing strategy to help with the conversion to a low-carbon economy. The objects of this statute were to: firstly, support the development of an effective global response to climate change, consistent with Australia’s national interests in ensuring that average global temperatures increase by not more than 2 °C above pre-industrial levels; secondly, take action directed towards meeting Australia’s long-term target of reducing Australia’s net carbon emissions to 80% below 2000 levels by 2050; and thirdly, put a price on carbon emissions [66]. This legislation lasted from 1 July 2012 until 1 July 2014 when it was abolished by the new Coalition government [67]. Both the NGER Act and the CEA aimed to reduce carbon emissions by establishing a regulatory regime which requires high-carbon-emitting organisations to report their carbon emissions-related information to the CER and pay the price for emissions. Neither one of those statutes mandate corporations to include information about their carbon emissions in their annual reports. However, one of the objectives of these regulatory changes was to make public the names of the top carbon emitters and their carbon emissions and emissions-related activities in order to increase public concern about what these emitters were doing. This could jeopardise organisational legitimacy, particularly for high polluters, but is expected to persuade the Australian public by requiring these corporations to publicly report on their carbon-emissions-related activities and performance.

Public scrutiny has been applied to the observable actions of carbon emitters because of these government policies. It could be argued that a company’s legitimacy is under threat if it cannot respond to the demands of a low carbon economy. According to legitimacy theory, when organisations are concerned about being accused of illegitimate operations, they are more likely to provide environmental information in order to justify their activities [29,53,68,69]. Numerous prior studies show that after a significant environmental event or legislative change, the level of disclosure rises. Researchers predict that with the introduction of these two legislations then under consideration, Australian corporations will be more forthcoming with their environmental information, especially with regard to carbon-related disclosures.

4. Theoretical Framework and Hypothesis Development

In prior research, the stakeholder and legitimacy theories have been used to describe the reasoning behind environmental and sustainability disclosure, such as carbon emissions [55,70,71]. On this matter, Reference [29] argued that there is always a crossover between different theories; therefore, having more than two theories is helpful, which is not uncommon in SEA studies. Following the work of [29,72,73,74,75] and, we use stakeholder theory and legitimacy theory to examine the impact of government reform and regulatory change in Australia, such as the role of NGER 2007 and CEA 2011 in influencing organisations to report carbon emissions.

4.1. Stakeholder Theory

Stakeholder theory explains how an organisation deals with multiple stakeholders, such as shareholders, customers, employees, media, creditors, community and the interests of future generations. Organisations face pressure from various stakeholders, including investors, financial risk managers, insurance companies, customers, general public, environmental activists and carbon traders, to measure and disclose sustainability information including carbon-emissions-related information. We use the stakeholder agency theory which was devised by [72] and cite more recent research by [74] to clarify how corporate governance seeks to balance stakeholder priorities with the disclosure of carbon emissions. Reference [75] argued that environmental and sustainability reporting by organisations is aimed not just at shareholders but also other stakeholders. What obliges managers to justify themselves to these stakeholders is the need for sustained access to essential resources that could be managed by the latter [72]. It is this shared resource reliance that allows interested parties, rather than owners of companies, a fair right to the distribution of capital, including those relevant to voluntary disclosure [74,75]. Therefore, in stakeholder theory, the partnership with the principal agent is generalised to mean a relationship that occurs between the organisations and its stakeholders [74,75]. The stakeholder theory forms, in part, the basis for the rules of government regulation (e.g., NGER 2007 and CEA 2011).

A normative and descriptive variant of stakeholder theory believes that environmental sustainability disclosure should be customised to meet the needs of key stakeholders. In other words, the more critical a stakeholder is to the organisation’s achievement of its objectives, the more effort it can make to sustain that interest. According to [11,73], an organisation’s public disclosure must be geared to current stakeholders’ requirements. That is, there would be an incentive to disclosure voluntary information on how the organisation operates on specific environmental and sustainability issues. According to [76] and [77], using sustainability awareness as a communication tool strengthens organisations’ interactions with their customers and enhances transparency.

Studies on how sustainability is expressed in corporate disclosure have looked at whether consumers consider sustainability information as important or useful [15]. The findings suggested that awareness of sustainability is essential to an organisation’s success and thereby greater sustainability disclosure is advantageous to stakeholders, particularly to investors. In contexts or industries where climate change issues are taken less seriously; less environmental disclosure is published. In addition, organisations in environmentally sensitive industries pay more attention to their sustainability disclosure to stakeholders, as they need to consider market share, and market value and perceptions of integrity.

4.2. Legitimacy Theory

Legitimacy theory is widely accepted in social and environmental disclosure studies, where scholars argue that the intention of social and environmental disclosure is to legitimise organisations’ actions with reference to various environmental issues such as carbon emissions [49,78,79,80,81]. Many scholars have adopted legitimacy theory to explore and explain the practice of SEA disclosures [49,78,79]. Reference [68] (p. 574) defines legitimacy as a “generalised perception or assumption that the actions of an entity within a socially constructed system of standards, values, beliefs and definitions are desirable, proper or appropriate”. Ref. [49] find that although carbon disclosures have increased during the implementation period of the Australian National Pollutant Inventory, these disclosures appear to have been provided as a purely reactive exercise. It has been introduced to reduce the legitimacy discrepancy between community and government expectations of carbon emissions levels and corporate carbon performance.

Legitimacy is like a resource a company needs to operate. It is also a powerful tool for understanding the voluntary environmental information of large companies [82]. Organisational legitimacy can rise or fall according to their environmental actions and events [82]. In order to understand organisations’ disclosure behaviour, many researchers have relied on the concept of legitimacy where they explained the existence of a ‘social contract’ between an organisation and the society in which it operates [83]. Thus, legitimacy theory takes social standards, values, norms, customs, beliefs and attitudes into account [83] (p. 256) in explaining corporations’ environmental sustainability and carbon emissions disclosure.

From the perspectives of legitimacy theory, an organisation can continue to operate in a society if its values, routines and assumptions reflect those of the wider society [84,85]. Organisations may also lose legitimacy if new information is not disseminated to the public appropriately [20]. It is critical that organisations act within the framework of socially acceptable behaviour, as they must constantly persuade the public that their activities align with society’s generally accepted values and norms. In line with this argument, it can be posited that an organisation’s activities and behaviours must be responsive and consistent with societal and political expectations. In other words, carbon emission disclosure develops as a consequence of government reform and regulation; otherwise, a legitimacy gap emerges. For example, social and environmental incidents, disasters or scandals as well as unethical management behaviour and corporate greed or hypocrisy can jeopardise corporations’ legitimacy [8] in a given society. On the other hand, corporations may also forfeit legitimacy aspiration if public expectations have changed. According to Reference [86] (p. 384), this can occur as a result of changes in social and political consciousness, media influences, pressures from lobby groups, institutional sources and regulatory demands.

4.3. Hypothesis Development

Based on previous research in relation to chosen theories, carbon disclosure is expected to play an important role for stakeholder engagement. The results from various CSR studies have demonstrated, for the most part, that sustainability disclosures, in addition to financial accounting, offer value-relevant information to stakeholders. These studies also indicate that societal expectations about environmental sustainability disclosure have increased over time. This research examines a case in which the degree of societal awareness and expectations altered as a result of governmental reform for regulatory changes made on carbon emissions disclosure. However, sustainability reporting (in our case, carbon emission disclosure) is still voluntary in most countries, which means that more analysis on how regulatory change impacts the societal value in relation to the extent and amount of sustainability disclosure is crucial.

Australia’s NGER Act and CEA establish a regulatory framework for obtaining information about the business carbon emissions that was previously difficult to obtain. The NGER Act requires businesses to disclose carbon emissions data to the government regulator. Similarly, the CEA drew public attention to large carbon emitters by exposing their identities and imposing financial penalty for their carbon emissions. These two pieces of legislation brought large (any corporations that emitted 25,000 tonnes of carbon emissions are considered to be large GHG emitting corporations in this study) carbon polluters into the public spotlight. As a result, these tranceworks suggested that the public’s access to the carbon information could jeopardise organisational credibility and effect legitimacy. It was assumed that current and future investors would be interested in receiving more carbon-related information (such as total carbon emissions and emissions reduction strategies and activities) from the corporations which might lead to the legitimacy gap.

To reduce the legitimacy gap with the public, corporations employ numerous techniques accounting and accountability disclosures, to inform and engage with diverse stakeholders about their financial and non-financial (social and environmental) performance [87]. The annual report is one of the mechanisms of such public disclosure. The annual report is the principal platform for a corporation to engage with and manage their stakeholders [88]. Hence, using stakeholder and legitimacy theory, this study hypothesises that there would be an upsurge in carbon-related disclosures in selected Australian organisations’ annual reports following the adoption of the NGER Act 2007 and the CEA 2011. On this basis, the following two hypotheses are posited:

Hypothesis 1 (H1).

There will be an increase in the number of carbon-specific disclosures by Australian organisations after the enactment of the NGER Act 2007.

Hypothesis 2 (H2).

There will be an increase in the number of carbon-specific disclosures by Australian organisations following the enactment of the CEA 2011.

5. Research Instrument and Data Analysis

It is common in SEA research to select organisations for examination with a specific purpose in mind [43,89]. Similarly, in order to collect data for this study, a purposive sampling approach was utilised to understand the carbon disclosure of Australian’s high emitters following the carbon-related legislation compared to the disclosure practices prior to these laws being statute. Australian top carbon emitters are required to report under NGER Act 2007 and were subjected to a carbon tax under the CEA 2011 but also subjected to the 2013 carbon price under the latter. The sample organisations were drawn from a variety of industry groups, including the materials, utilities, energy, bank and insurance, retail, transport, food and beverage, medical and telecommunication sectors.

The CER identified 316 organisations and facilities in October 2012 possibly liable for carbon tax due to their excessive carbon emissions. However, only 73 out these 316 were found to be listed in Australian Securities Exchange (ASX) in 2006, 2009 and 2013, and annual reports were publicly available for all three years. This study selected the year 2006 as the proxy for the year prior to the implementation of the NGER legislation, while 2009 following the NGER legislation represents the baseline for years before the CEA. The year 2013 represents the year following the implementation of the carbon price.

Although in recent years, more and more organisations are preparing standalone sustainability reports to provide social and environmental information, many of the selected organisations chosen for this study did not have separate sustainability reports. For example, Kagara Ltd. and Focus Minerals Ltd. did not produce any separate sustainability reports during the research period. Moreover, some are inconsistent in producing sustainability reports. Iluka Resources Limited, for example, produced a sustainability report in 2006 but not in 2009. By contrast, publicly listed organisations produce annual reports every year. As this study compared the same organisations’ disclosure level before and after two events, comparable and consistent information sources were crucial. As such, using any other report or communication medium other than annual reports for this study would result in incomplete data and inconsistent content analysis. Hence, using annual reports as the only source of carbon disclosure is justified.

In regard to data collection and analysis, SEA research overwhelmingly uses content analysis, a data-identifying method to examine SEA disclosure [85,90,91]. According to [92] (p. 21), content analysis is “a method of classifying the text (or content) of a piece of written work into various categories on the basis of selection criteria”. The content analysis method is one of the most common and popular strategies for examining sustainability or environmental information documented in the annual report [93,94]. Many prior research relied heavily on corporations’ annual reports as the primary source of sustainability or environmental data for SEA research [95,96,97]. As such, this study employs a content analysis method to extract carbon-specific data from the sampled corporations’ annual reports.

It is critical to first define what needs to be examined in content analysis [85,91]. Carbon-related information is identified as the central theme for this study’s content analysis. The scope of this information is based on several prior studies [49,71,98,99,100] and on the G4 Sustainability Reporting Guidelines of Global Reporting Initiative (see Appendix A:

Table A1. Criteria used to gather carbon-specific information from annual reports.

Carbon/carbon emissions/emission trading scheme information stated or discussed, carbon price scheme mechanism Facilitated NGER, Clean Energy Act and carbon tax information Discussed carbon emission reduction measures (see note below) Provision of fuel efficiency information, energy efficiency and renewable energy information Statements submitted indicating that the operations of the company are not polluting or comply with pollution legislation and regulations (including the NGER and carbon tax)

Note: The use of new technologies, product reorientation/processes/services, certifications for carbons, energy conservation (consumption reductions), energy utilisation, energy and fuel efficiency, cooling and air-conditioning enhancements, travel cuts, the use of alternative types of transport, sponsorship for training/research, and partners could be the result of actions.

). Second, the location or source of the carbon disclosure needs to be defined. While environmental information, including carbon emissions information, can be found in annual reports, sustainability reports, websites, press notices and magazines, many prior studies used annual reports as the principal source [37,85,91]. Third, it is crucial to establish how to measure the data after confirming the data source. Prior studies measured the data or disclosure based on the number of pages, number of sentences, number of words, percentage of pages and percentage of total disclosure [94,95]. Reference [85] and [91] argued that words have the benefit of lending themselves to more exclusive analysis (are categorized more easily). Therefore, the numbers of words were used to measure the amount of carbon-related disclosure.

A set of criteria (see Appendix A: Table A1) was used to collect carbon-specific information from selected organisations’ annual reports. For example, researchers read through the annual reports and searched for whether selected organisations mentioned or discussed anything about carbon emissions, emissions reduction targets, emission trading schemes, carbon pricing mechanism, NGER, CEA legislations, energy efficiency and so on. Once relevant information was identified from annual reports of 2006, 2009 and 2013 for each organisation, information was copied to a word file. Subsequently, the total number of carbon-related words was counted for each organisation for each selected year to compare the increase or decrease in carbon-related words following the enactment of each piece of legislation. For example, when examining Rio Tinto’s Annual Report of 2013 to identify carbon-related information, it was found that the following paragraph discussed carbon emissions. Thus, the total number (amount) of carbon-related words from this paragraph was 55.

“In 2008 we set a target of ten per cent reduction in total greenhouse gas emissions intensity, to be achieved by 2015. Current performance exceeds this target. We will continue to seek opportunities to maintain and improve our performance and will establish a new target beyond 2015 that takes account of our performance to date” (Rio Tinto’s Annual Report of 2013, p. 13). This study has taken the necessary steps to address the reliability issues of content analysis [101]. In order to demonstrate the reliability of the data collected, a reproducibility test was conducted for this study through two coders. Two coders collected the data from the annual reports of same seven organisations before and after both the CEA 2011 and NGER 2007 became law. Two coders then compared the pre-test results and discussed any discrepancies in coding and reached an agreement on the correct information. Milne and Adler [101] urged that the coefficient of agreement is the simplest measure of reliability. Hence, inter-coder reliability was tested using Holsti’s formula of coefficient of reliability

$$Reliability=\frac{2M}{\left(N1+N2\right)}$$

M is the number of cases coders agreed on. N1 is the number of cases the first coder coded, and N2 is the number of cases the second coder coded. More than 80% agreement between two coders can be considered as an acceptable level [101]. Inter-coder reliability gives the result of 87% agreement in this study.

6. Data Analysis and Hypothesis Testing

Hypothesis (H1) states “there will be an increase in the number of carbon-specific disclosures by Australian organisations after the enactment of the NGER Act 2007”. This study examined 73 selected organisations’ annual reports and found that that 30 of them in 2006 and 57 in 2009 provided carbon-specific information. This suggests that 41% of the selected organisations provided carbon-specific information before the NGER Act, whereas around 78% did so after the NGER Act. Regarding the amount of carbon-related disclosure, 9598 words and 28,392 were recorded in 2006 and 2009, respectively (see

Table 1. Summary statistics for GHG words before and after NGER Act 2007 and CEA 2011.

Legislations	N	Min	Max	Sum	Mean	Std. Deviation
Before NGER Act	73	0	1199	9598	131	260
After NGER Act	73	0	2554	28,392	388	534
Before CEA	73	0	2554	28,392	388	534
After CEA	73	0	2828	37,162	509	621

). Aggregate results demonstrate that the average number of carbon-specific words increased with the passage of the NGER Act (mean = 388, standard deviation, s = 534) compared to the preceding period (mean = 131, standard deviation, s = 260). Hence, carbon-related information is increased by almost 196% (388 − 131= 257) after the NGER legislation.

A paired t-test served to determine whether there was a statistically significant increase in the amount of carbon-related information following the passage of the NGER Act; the findings are shown in

Table 2. Paired samples t-test for carbon-related words before and after NGER Act 2007 and CEA 2011.

	Paired Differences		t	df	Sig. (One-Tailed)
	Mean	Std. Error Mean
NGER Act 2007	257	55.13	4.67	72	0.0000
CEA 2011	120	66.67	1.80	72	0.0378

. The mean difference (increase) in Table 2 was 257 (rounded). A paired t-test indicates that there was a statistically significant rise at 1% level in the number of carbon-related words following the implementation of the NGER Act (t (72) = 4.67, p = 0.0000). The findings give adequate proof to substantiate the study’s first hypothesis (H1).

Hypothesis two (H2) states that “there will be an increase in the number of carbon-specific disclosures by Australian organisations following the enactment of the CEA 2011”. Hence, 73 organisations’ annual reports were examined before and after the passage of CEA 2011, which resulted in carbon-related disclosure provided by 57 organisations in 2009 and 65 organisations in 2013. According to the analysis, the average number of carbon-specific words was higher following the passage of the CEA where the mean was 509 (rounded) with a standard deviation (s) of 621 (rounded) compared before the passage of the CEA where the mean was 389 (rounded) with s equal to 534 (see Table 1). Hence, carbon-related information increased by almost 31% (509 − 389 = 120) after the NGER legislation. A sample paired t-test result (see Table 2) shows that the increase in carbon-related disclosure was statistically significant (t (72) = 1.80, p = 0.037) at 5% significant level. This result confirms that there is a significant increase in the number of carbon-specific disclosures by Australian organisations following the enactment of the CEA 2011 (H2). The result of the paired t-test shows that there is a significant increase (at a 5% significant level) in the number of carbon-related words following the enactment of each legislation.

Further analysis shows that only two organisations mentioned the NGER Act, and one of them provided a discussion of the legislation before its introduction, whereas 39 organisations commented on the NGER Act, and 21 remarked on it after its legislation. More organisations also provided the information around total carbon emissions and emissions reduction actions and targets, following the introduction of both legislations being compared before they came into being. The study also examined the total carbon disclosures reported from the sampled companies with the total reporting by the same organisations of the environmental information (Environmental information may include: Information related to environmental policy, environmental auditing, business activities including product impact on the environment, environmental breaches and environmental awards, pollution control in the conduct of business operations including capital, operations and research and development expenditures for pollution abatement, statements indicating that the company’s operations are non-polluting or that they are in compliance with pollution laws and regulations (including the NGER Act and Clean Energy Act); statements indicating that pollution from operations has been or will be reduced; prevention or repair to the environment resulting from pollution, emissions to land, air or water, conservation of natural resources, such as recycling glass, metals, oil, water paper and use of other recycling materials, efficient use of materials and any carbon-related information (see Appendix A: Table A1) before and after the NGER and CEA legislations. The findings demonstrate that the proportion of carbon-related words have increased within the environmental information of sampled organisations’ annual reports following each piece of legislation. Carbon-related information, for example, accounted for around 19% of the environment information in the annual report before the NGER legislation. Carbon-related information, however, occupied around 39% of the environmental information following the NGER legislation. This change may indicate that following the two key pieces of legislations, carbon-related information became more crucial strategically for corporate legitimacy.

7. Discussion and Conclusions

Using NGER Act 2007 and CEA 2011 as government reform and regulatory change, this study examines their impact on carbon emissions disclosure. It can be inferred from the findings of this study that carbon-specific legislation have greatly sharpened public consciousness and expectation regarding corporate performance in relation to carbon emissions. This public awareness shaped the pattern of corporate environmental disclosures of carbon emissions. Both pieces of legislation (NGER and CEA) helped the federal government to name the high carbon emitters and disclose their environmental performance actions to the Australian public. Neither legislation directly nor indirectly requires any corporation to provide carbon-related information in their annual reports. However, this research identified that extensive focus was given to provide carbon-related information in companies’ annual reports once the two laws were on the statute books.

The study’s results supported Hypotheses 1 and 2 by indicating that a subset of high carbon emitters substantially enhanced the quantity of voluntary disclosure subsequent to the passage of the NGER Act 2007 and the CEA 2011. The results correspond with previous research indicating a statistically significant rise in voluntary disclosure of environment-related information by corporations that need to take into account threats to their legitimacy, regulatory burdens, and/or the publication of potentially divisive or damaging information [40,41,43,79]. The findings of this study are consistent with [48,102], and we argue that legislative change could increase both mandatory and voluntary carbon emission disclosures.

Overall, this study identifies an intriguing trend of carbon emissions disclosure by Australian organisations, in which carbon-related information has become more prevalent within the annual reports between 2006 and 2013. Although this does not always imply that carbon emissions reduction has occurred, but the trend suggests that when governments introduce environmental reform and regulation, corporations try to justify their activities by increasing their voluntary disclosure practices. Moreover, companies try to engage more with stakeholders and disseminate carbon-related information as their strategic actions to reduce carbon emissions for the public interest. However, the subsequent Liberal government passed repeal legislation to end the carbon pricing scheme in Australia on 17 July 2014, while other countries such as those in the European Union and South Africa put in place emission trading schemes to encourage large polluters to reduce carbon emissions [36]. It is suggested that Australia should have an emissions trading scheme or carbon tax in place, as it helped Australia to reduce its emissions in 2014 [83]. Thus, mandatory environmental reporting legislation is a good government reform and policy intervention to change the reporting practices as well as corporations’ generation of emissions.

We acknowledge that this study has limitations as with any other empirical study. The first limitation is sample size. The selected sample companies were purposefully selected. This study chose only the GHG emitters who were potentially liable for the carbon tax. This selection may not represent the total corporate population, and as such, the findings cannot be generalised. The results are relevant to the sample, geographical location and period under study. Further caution is warranted because unless corporation-specific determinants of environmental disclosures are controlled for, it is difficult to directly attribute the level of increase in disclosures solely to government regulation or guidance. There are some common factors in that corporation-specific or country-specific variables could drive both the regulation and disclosures together. To that end, the study only uses corporate annual reports to investigate carbon-related reporting, and future studies could improve this situation by including additional data sources such as websites, media reports, social media platforms, suitability reports and social and environmental accounting instruments with a larger sample size. Nonetheless, future studies can explore cross-country and cross-geographical settings to perform a comparative analysis, in order to explain the true influence of reform and regulation in further developing and influencing carbon disclosure practices.

Finally, despite these limitations, the study substantiates the argument by demonstrating that regulatory intervention strategies do impact how businesses report environmental and carbon-related data. Consequently, this study’s findings benefit governments, environmental agencies, legislative bodies and policy experts not only in Australia, but throughout the world, in terms of regulatory change and policy guidance [102]. Moreover, stakeholders are demanding more honesty and accountability in non-financial environmental information, especially in the level of carbon emissions [38]. Thus, mandatory reporting of such information is one of the ways to make sure that stakeholders receive reliable information so that they are more confident to use the information when making decisions.

As an original empirical study examining the direct consequences of corporate discretionary carbon emission disclosure, it contributes to the small but growing body of the literature on carbon disclosure and climate change mitigation. This is significant, given the call made by the United Nations and countries aspirations for the SDGs to be realised, where carbon emissions is one of the goals that needs to be dealt with. The focus on carbon emission could help to turn these goals into normalised corporate practices of Australian and global businesses. Otherwise, there is a danger that SDGs never become a reality but simply exist as a catch cry or empty rhetoric.