Mandatory corporate environmental reporting in Australia: Contested introduction belies effectiveness of its application

Geoffrey R. Frost and Linda English, University of Sydney

Many Australian companies voluntarily produce considerable information on environmental performance in their annual reports and elsewhere, and there is evidence that companies have been significantly increasing the amount of information they provide in recent years. However, the reporting practices many companies adopt have been inadequate. Disclosure of objective and negative information on environmental performance is limited (Deegan & Rankin 1996, Frost 2001), and an ‘expectations gap’ between the kind of information companies provide and what users of company reports desire has emerged (Deegan & Rankin 1999).

Consequently, there have been calls for the introduction of mandatory reporting guidelines. Governments initially responded by introducing guidelines about what environmental information companies should disclose, but this has progressed with several countries (including Australia) recently introducing mandatory environmental reporting guidelines. Although these guidelines do not extensively cover environmental issues, companies and business lobby groups have opposed their introduction. Based on our own analysis of business lobbying in the form of submissions to a parliamentary inquiry, we consider—and challenge—their opposition.

The Introduction of Mandatory Environmental Reporting in Australia

With the introduction of Section 299(1)(f) of the Corporations Act, as of 1 July 1998, Australian company directors are now required to report on their company’s environmental performance. The provision requires that Australian companies that ‘are subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory’ should disclose ‘details of the entity’s performance in relation to environmental regulation’.

Mandatory reporting began as a last minute compromise between parties.

The passage of Section 299(1)(f) was an unintended outcome of the federal Government’s ambitious Corporate Law Economic Reform Program (CLERP). It was not part of the original drafting of Company Law Review Act 1998 that the Government tabled in Parliament, nor was environmental reporting identified as an issue in the Report on the Company Law Review Bill 1997 issued in March 1998. Rather, the Section appeared as an amendment proposed by Senator Murray of the Australian Democrats. This meant that the provision did not undergo the due process normally associated with the development of Government regulation. The amendment was tabled and passed in the Senate on 25 June 1998. There was little formal debate on the amendment at the time, although Hansard reveals that all parties agreed to support it during a prior debate at a committee meeting. At the same time, in the House of Representatives, Liberal Mr Miles commented that the proposed provision (among others introduced in the same way) was ‘a matter which should have been considered in the context of a full public consultation process’. Mr Miles added that:

the Government is not convinced about the merits of these amendments. It considers some of them should have been referred to the parliamentary Joint Committee on Corporations and Securities instead of being legislated for in this way. Nevertheless, the Government will agree to them in the interests of securing passage for the bill.

The Act received assent on 29 June 1998 and came into force on 1 July 1998. Democrat Senator Murray’s amendment no. 37 became Section 299(1)(f), effective from 1 July 1998.

The Inquiry on Section 299(1)(f)

Mandatory environmental reporting in corporate annual reports began as a last minute compromise between political parties—a compromise with which the Government was never comfortable. Accordingly, on 10 July 1998, the Treasurer asked the Parliamentary Joint Statutory Committee on Corporations and Securities (PJSC) to examine certain matters arising from the passage of the Company Law Review Act 1998, and expressed the Government’s opposition to the provision requiring mandatory environmental reporting. The PJSC Inquiry invited submissions from interested parties, and held six public hearings. After the inquiry, the PJSC recommended that s. 299(1)(f) of the Corporations Act be deleted, while minority reports from both the Australian Labor Party and the Australian Democrats supported its retention.

The Inquiry received 52 written submissions commenting on s. 299(1)(f), most of which opposed the provision. The PJSC issued the Report on Matters Arising from the Company Law Review Act 1998 on this basis. The report identified eight arguments against the provision, under the following headings:

  1. Environmental reporting is inappropriate for the directors’ report.
  2. Environmental performance should not be singled out for mandatory reporting.
  3. Voluntary reporting is preferable.
  4. The provision is vague and unclear.
  5. Absence of appropriate safeguards.
  6. Listed companies must already disclose material information.
  7. The provision does not apply to all legal structures.
  8. The provision adds an unnecessary cost.

The report presented arguments in favour of the provision under the following headings:

  1. Greenpeace Australia.
  2. The Environmental Defender’s Office Ltd.
  3. Other submissions in favour of the provisions.
Companies have a history of meeting only minimum disclosure requirements.

The PJSC report made no attempt to develop, justify, and present the arguments against the provision logically. Instead, it simply assigned the arguments, without explanation, to one or more of the eight categories it identified. In our view, the arguments don’t stand up.

Arguments Against the Provision

For the purpose of evaluating their soundness, the eight arguments identified by the PJSC Report can be more usefully defined as follows:

  1. Procedural issues: the process of developing the provision was inappropriate and resulted in an inferior outcome (argument 4).

  2. Legal issues: corporations law does not extend to non-financial issues and the provision unfairly targets a small number of organisations (arguments 1, 2 and 7).

  3. Reporting issues: the provision will not result in an improvement in environmental reporting (arguments 3 and 6).

  4. Outcome issues: the provision has unintended consequences for reporting entities (arguments 5 and 8).

Procedural Issues

The PJSC Report highlights that many submissions argued that the reporting requirements of the provision were ‘vague and unclear’. The PJSC viewed this argument not as evidence that the provision needed redrafting, but rather as further evidence that it should be deleted. It is true that the provision does not provide a prescriptive disclosure requirement, but there are merits in this approach. For example, if the provision dictated that companies should disclose only on specified aspects of performance, then that would probably be the extent of their disclosure. Australian companies (like companies elsewhere) have a history of meeting only the minimum disclosure requirements. On the other hand, vaguely specified disclosure requirements leave companies with considerable flexibility of interpretation, such that additional information may be provided to insure the requirements of the provision are met.

Legal Issues

Many respondents to the PJSC Inquiry argued that the role of corporations law is to regulate financial and corporate governance aspects of company behaviour; and that if regulation on environmental reporting was appropriate, then environmental legislation would be the appropriate vehicle. During the Oral Inquiry, the PJSC explored the boundaries of corporations law to determine whether they should/could be expanded to allow a greater focus on social responsibilities. Many of the oral submissions reiterated that, regardless of a corporation’s wider social responsibility, corporations law should be confined to financial disclosure. Discussion extended to include consideration of the purpose of the directors’ report. Consensus views suggested that shareholders were the primary stakeholders, with predominantly financial information needs.

Some have argued that mandatory requirements decrease the quality of reporting.

These arguments fail to acknowledge the financial risks associated with environmental degradation, evidence that shareholders are interested in information on environmental performance, and that corporate stakeholders other than shareholders use the annual report. It also conflicts with the commitment to environmental reporting made by many companies through actions such as the issue of an environmental report.

The second legally-based argument was the singling out of environmental issues for mandatory reporting. Several submissions argued that other issues are equally important, thus it is inappropriate to ‘pick on the environment’ only for additional disclosure. The Financial Services Reform Bill has adopted a broader focus on other social issues. However, in the case of s. 299(1)(f) this argument, instead of suggesting that other areas such as industrial relations be added, was used to justify the removal of environmental reporting.

The final legal issue focused on the singling out of companies for additional disclosure. The thrust of this argument was that the environment and environmental performance is important to all institutions, so why should companies alone be required to disclose on environmental performance? This is a peculiar argument: all the requirements of the Corporations Act are specific to companies, including disclosure on their corporate governance arrangements, and differential reporting for corporate entities has a long and established history.

Reporting Issues

Several submissions argued that mandatory requirements decrease the quality of environmental reporting and that there was no evidence that the current voluntary regime had been unsuccessful. This argument equates voluntary with flexible, which means that companies are able to provide information relevant to stakeholders’ requirements. Mandatory reporting, as the argument goes, reduces the flexibility to tailor disclosure to stakeholder needs. However, this significantly overstates the impact of s. 299(1)(f). Under the existing mandatory reporting regime, not only will disclosure remain predominantly voluntary, but most environmental disclosure for large companies now occurs in mediums other than the annual report. And small companies typically provide miniscule detail on environmental performance.

The second reporting issue is the argument that other existing provisions (s. 1001 of the Corporations Act and ASX Listing Rule 3.1) already require companies to disclose material information on environmental performance. These provisions require a company to disclose information if it is deemed material; that is, if it would be reasonable to expect that the information would influence investment decisions. Thus, only if environmental performance might impact upon the company’s share price would information be disclosed. However, given the small financial penalties imposed on breaches of environmental regulation, very few events would result in disclosure under these requirements. Other submissions argued that the new provisions would duplicate the reporting requirements of other regulations, such as the National Pollution Inventory or reporting to statutory bodies. Yet these regulations do not require disclosure in the annual report, so stakeholders may have difficulties in accessing relevant information. Neither do these reporting requirements require disclosure on whether there has been a breach in regulations.

Outcome Consequences

Finally, some submissions argued that the provision will have unintended negative outcomes. First, several submissions from law firms suggested that disclosure as required by the provision may be prejudicial in future legal action, which is contrary to other reporting requirements. However, research on the actual application of the provision shows that companies only disclose information on instances where prosecution has already occurred (Frost 2001).

Evidence shows that disclosure increased after mandatory reporting was introduced.

A second unintended consequence identified through the Inquiry was the potential, additional, unnecessary cost of compliance. At first, this argument rested on an assumption of additional reporting and duplication of existing requirements. However, companies should already have collated information on breaches of regulations, so it is not clear that further costs will be substantial. Given the limited disclosure within the annual report by many companies, the financial consequences are minimal. What did come to light in the Inquiry was concern about the effect of disclosure of regulatory breaches on a company’s reputation. This cost may be more significant than the financial cost incurred in reporting.

Reporting Patterns of Australian Companies as a Consequence of Section 299(1)(f)

What is the impact of s. 299(1)(f)? Given that companies and their supporting lobbyists who oppose the provision argue that it will not improve reporting on environmental performance, we might expect it to have had no impact on the reporting practices of Australian companies. There is evidence available about the effect of the introduction of s. 299(1)(f) on the reporting practices of 71 Australian companies operating in either resources (mining, oil and gas), utilities and infrastructure, or paper and packaging (Frost 2001). The data is for the period immediately prior to the introduction of the provision, and the period immediately following.

Table 1: Corporate Reporting Practices Relating to Section 299(1)(f) (n = 71)
  Pre-operative Period Post-operative Period
Identified Significant Environmental Regulations 17 67**
Specified Level of Compliance with Environmental Regulations 13 62*
Reported Non-compliance of Environmental regulations 9 27*
* Significant at the 0.005 level using a chi-squared test.
** Significant at the 0.001 level using a chi-squared test.

Table 1 shows that the number of companies disclosing compliance/non-compliance with environmental regulations significantly increased after s. 299(1)(f) was introduced. More companies disclosed compliance, and, notably, many more began to recognise non-compliance with environmental regulations. Clearly, the introduction of s. 299(1)(f) significantly improved overall reporting by Australian companies on their environmental performance, contradicting arguments that voluntary and existing disclosure requirements were effective, and that companies would have difficulty in interpreting the provision (Frost 2001).


Corporate reporting on environmental issues has had a long history, but it is a history of voluntary reporting. In recent years the scope of reporting, with respect to content and mediums, has increased significantly. However the introduction of mandatory requirements for corporate environmental reporting has proved controversial. Opposition by industry and other bodies has resulted in the recommendation that the mandatory reporting requirement be removed. Despite arguments by many parties that voluntary reporting was adequate, evidence from the analysis of corporate reporting practices indicates that the introduction of s. 299(1)(f) has significantly increased the number of companies disclosing information on their performance in relation to environmental regulations. Clearly, while mandatory reporting can improve disclosure, many companies prefer a voluntary regime, so they can continue to control the level of information available to potential users of the corporate annual report.

The Government Inquiry recommended removal of s. 299(1)(f). However, the reissue of the Corporations Act retained the provision, and mandatory reporting is here to stay in its current form for the immediate future. Could the current requirements be improved? Clarification of requirements might increase consistency, but this might encourage companies to provide merely the minimum information for compliance purposes. Perhaps we receive more information because of uncertainty as to the minimum level of disclosure required. But if we are serious about social and environmental issues, there is considerably greater scope for disclosure by companies and their interaction with the broader community. This disclosure does not seem to be forthcoming for many companies under a voluntary regime.


Deegan, C. & Rankin, M. (1996) “Do Australian companies report environmental news objectively? An analysis of environmental disclosures by firms prosecuted successfully by the Environmental Protection Authority”, Accounting, Auditing & Accountability Journal, vol. 9, no. 2, pp. 50–67.

Deegan, C. & Rankin, M. (1999) “The environmental reporting expectations gap: Australian evidence”, British Accounting Review, vol. 31, no. 3, pp. 313–346.

Frost, G. R. ‘An Investigation of the Introduction of Mandatory Environmental Reporting in Australia’, 3rd Asia Pacific Interdisciplinary Research in Accounting Conference, 15–17 July 2001, Adelaide.

Geoff Frost is senior lecturer in accounting at the University of Sydney. Linda English is a senior lecturer in accounting at the University of Sydney. She is the founding and managing editor of Australian Accounting Review.