Climate change is seen as one of the most relevant challenges for the next coming years, politically and economically. The Dutch government has set targets to reduce national carbon emissions according to the commitments made in Paris in 2015. Since companies substantially contribute to the level of carbon emissions, it is necessary to monitor their carbon emissions to see whether they fulfil their commitments. This research shows to what extent companies in the Netherlands (listed, non-listed family owned and a reference group we refer to as non-listed other companies) report their strategies, implementation and performance regarding carbon emissions and reduction. We find, not surprisingly, that on average listed companies are far more transparent than non-listed companies. Non-listed family owned companies are apparently not active or even not willing to be transparent about their carbon policy. However, we do find that several non-listed companies that score high in the Dutch Transparency Benchmark (non-listed other companies) are just as transparent about carbon emissions as AEX-listed companies that must report due to market regulation.

Furthermore, we find that most carbon disclosures are still of a mainly qualitative nature. This could imply that firms’ carbon disclosures are at present mostly a means of storytelling rather than a means of thorough analysis on how climate change risk might affect them and how they have to respond to mitigate these financial and societal risks.

Carbon disclosure, listed companies, non-listed companies, Transparency Benchmark, Directive 2014/95/EU, non-financial reporting

During the early nineties of the last century, Dutch companies started reporting on how environmental issues are related to their activities. These first environmental reports had a focus on soil, water and air pollution. From the turn of the century, the content of these reports changed into information on sustainability. Companies gave more attention to corporate governance, non-financial performance and outlooks, stakeholder dialogue, the supply chain, ethical issues such as child labour and human rights, and on the impact on climate and biodiversity (KPMG 2015). Several of these issues need to be looked at from a long-term perspective: creating long-term value without compromising the needs of future generations. Environmental reports evolved into sustainability reports covering different domains of the public debate on sustainability. And more recently, prompted among other developments by the introduction of Integrated Reporting by the International Integrated Reporting Council and the recent adoption of the EU directive on non-financial reporting, the integration of separate sustainability reports into the regular annual reports.

The number of issues to include into corporate reporting has increased with the passage of time, resulting in bulky sustainability reports. The question that rises is how informative these reports actually are. In order to solve the problem of an overkill in information (the ‘take-a-lot’ approach), companies started to include a materiality matrix into their annual reports. The materiality matrix gives insight in the most relevant issues companies should include in their strategy, performance and corporate reporting, based on a broad view on stakeholder interests.

In the meantime climate change has become extremely relevant, both because of the urgency to act and the potential of business to contribute to solutions and reducing risks. In 1997 the Kyoto Protocol was adopted. This was an agreement–under the United Nations Framework Convention in Climate Change–that was established to reduce carbon emissions by introducing an emission trading scheme. Meetings in Marrakesh, Copenhagen and Paris followed the meeting in Kyoto. It took quite some years to reach a certain level of awareness and business commitment. Since Paris 2015, where many countries agreed on quite radical targets regarding carbon emission reduction, the climate change topic became a hot topic. Leading companies in the business community also stood up, and made commitments (United Nations 2015), making clear that business has a large role to play. Climate change, both in terms of emission contributions to climate change and risk reduction of climate change, has become relevant in many materiality exercises leading to extensive information disclosure about climate change and carbon emissions in annual reporting (Knox-Hayes and Levy 2011). Frameworks have been developed for carbon-reporting (see, e.g., the Carbon Disclosure Project www.cdp.net), and there is a regulatory stimulus to use these, with the implementation of the EU Directive on non-financial reporting. In some countries (like France), carbon reporting has become an obligation for listed companies (Sewell et al. 2018). Carbon reporting is a way to provide relevant information to both shareholders and societal stakeholders on how climate change will affect companies, and how that translates into company action and contribution to the Paris commitments. Being transparent about the uptake of climate change issues in company decisions is the first step on the way to improved company performance and climate change impacts (Sewell et al. 2018). There is already broad interest from the finance community in carbon reporting by listed companies. Now a national climate agreement has been established in the Netherlands, it is the right time to investigate the current status of carbon reporting in the Netherlands of both listed and non-listed companies, to see how they make progress with the commitments and contributions to the national climate agreement. This setting leads to more precise wordings regarding our earlier question: what is the quality of the information currently being publicly reported by Dutch companies regarding their impact on climate as well as the impact from climate change on different aspects of the company’s activities and/or business model?

The purpose of this research is to explore how transparent companies in the Netherlands are about their impact on the climate and the impact from climate in their annual reports, and whether this is different for listed and non-listed companies. For many years, sustainability reporting has been voluntary (Maas and Vermeulen 2015). As a result, companies developed their own criteria for reporting, or used existing voluntary guidelines–such as those of the GRI and GHG-Protocol¹–at their own discretion. More and more, financial actors (banks, pension-funds, investors) are taking non-financial issues into account in their investment and divestment strategies. Transparent reporting is an important source to inform these financial actors in this process (Sewell et al. 2018). Our research investigates if and to what extent pressure from regulation based on the EU Directive on non-financial information has impacted the volume and quality of reporting on and from climate change.

Since 2004 the Dutch Ministry of Economic Affairs and Climate performs a transparency benchmark on the quality of annual reporting by compiling information from reports of the largest 500 companies in the Netherlands (Ministerie EZ 2016). The goal of the Dutch Transparency Benchmark is to allow stakeholders to form a view on the quality of company disclosure on sustainability in order to facilitate discussions with company management about transparency and ultimately environmental performance. In addition, carrying out such a benchmark makes it possible to compare sustainability related disclosures among companies and stimulate others to follow best practices.

Up to 2017, sustainability reporting was a mostly voluntary activity. Since then, the reporting and disclosure about climate change and carbon emissions (as part of sustainability reporting) is influenced by regulation. In 2017, the Dutch government implemented the EU Directive on non-financial information (Directive 2014/95/EU). This directive requires large entities of public interest to report on sustainability issues (strategy/policy, target setting, and performance), including climate change. The implementation of this directive may have increased the pressure on sustainability reporting by large Dutch listed companies and entities of public interest. For other companies sustainability reporting is still voluntary, whereas their performance on climate change issues is equally important to the national economy and society as this group also contains large companies with high environmental impacts. Our research aims at measuring–in addition to the overall transparency regarding climate impact and carbon emissions–the impact of the Transparency Benchmark and Directive 2014/95/EU on the depth of climate change transparency by comparing reporting practices of both listed and non-listed companies.

In the remainder of this article, we describe the general theories we use (Section 3) to develop our expectations (Section 4). Next, we explain the research methods used to measure sustainability disclosure and test our expectations (Section 5). Then, we report our results (Section 6) and, finally, we give our conclusions and recommendations (Section 7).

The theoretical background on motives for changes in public accountability and transparent reporting is based on four relevant theories (An et al. 2011): agency theory (Jensen and Meckling 1976), stakeholder theory (Freeman 1983), legitimacy theory (Dowling and Pfeffer 1975) and signalling theory (Spence 1973). These are used here to formulate the expected results of this research.

Most of the companies that are eligible to the disclosure pressure caused by the Transparency Benchmark and the implementation of Directive 2014/95/EU are the largest listed companies. These type of companies, typically, have to deal with agency problems caused by the segregation of management and ownership. Public reporting is a means to reduce the problems caused by separating management and ownership of the firm. Conflicts of interest can occur between the management (the agent) and the owners (the principals) when both parties are unequally informed and their interests differ. Management has access to information sources that they can use to their advantage, whereas owners lack detailed information that impacts the supervision and monitoring of management. Sustainability reporting is part of public reporting and, therefore, can reduce agency problems.

The agency theory evolved into the stakeholder’s theory. Companies can have more principals than just the owners and shareholders; clients, employees, government, banks, suppliers, NGOs for example, can also be considered as principals. They, at least, are important stakeholders too. The number and type of stakeholders depend on the business of the company. These stakeholders can be in a similar position as the owners, and they too can be in need of useful information, such as sustainability information, for their decisions on what companies to trust, what products to purchase and how to engage with companies on improving their CSR strategies.

From an even broader perspective, the company has responsibility towards society as a whole. Companies should create and maintain their license to operate in society. The legitimacy theory states that companies have a contract with society to act in compliance with societal norms, that are subject to change and opinion on what sustainable entrepreneurship entails. To proof their legitimacy, companies voluntarily report on issues of importance to society, like sustainability, to improve consumer and political trust.

Finally, companies can also–based on the signalling theory–communicate publicly to show their excellence. According to the signalling theory, companies that perform well with respect to climate-related issues will report on these performances to distinguish themselves from less performing competitors, and gain a competitive advantage. Signalling will only be effective when the cost of reporting performance differs between good and bad performers. Although sustainability reporting is largely voluntary, the use of guidelines and standards as well as the possibility of an audit may support signalling as a reason for sustainability reporting, since the cost involved with adopting the guidelines and standards as well as auditing the resulting information can be lower for good performing companies. And the government in its turn can promote best practices based on benchmarks, where the top performers are set as an example (naming and faming) for the whole sector, which adds to company reputation.

The actual developments with regulations and benchmarking, and the theories for motives on public disclosure mentioned in section 3, led to the following expectations.

Companies that are highly ranked in the Dutch Transparency Benchmark are expected to also be more transparent regarding their impact on the climate and carbon emissions. Ranking in the Transparency Benchmark thus provides a predictor on carbon reporting quality.

Many large Dutch listed companies have been publishing sustainability or integrated reports for several years already. Their motivation differs from liability to legitimacy and from accountability to responsibility. Based on the average high ranking of these companies in the annual Transparency Benchmark, we expect that listed companies will be more transparent on climate change and carbon emissions than non-listed companies.

Family owned non-listed companies are on average lowly ranked in the annual Transparency Benchmark. These companies have no or less agency issues. Therefore, although they are subject to societal concerns and scrutiny, we expect these companies to be less transparent on their impact on the climate and carbon emissions.

The implementation of Directive 2014/95/EU in the Netherlands in 2017, which applies to reporting periods starting at 1 January 2017 or later, is likely to cause an improvement in the quality of climate-related information in 2017 compared to annual reports over 2016.

We further expect that privately owned non-listed companies got inspired by the implementation of Directive 2014/95/EU and best practices on reporting of non-financial information by large entities of public interest, and, thus, their reports became more transparent too. Additionally, by following general sustainability trends and responding to societal concerns, the expectation is that they will adapt to increasing reporting practices of peers.

The GHG Protocol is a convenient framework for reporting carbon emissions. Based on earlier research (De Waard 2018) we expect that a growing number of companies uses the GHG Protocol in their annual reports, the more so because it is referenced in Directive 2014/95/EU for reporting on this issue.

To measure the transparency about climate impact in the annual reports of companies in the Netherlands this research has investigated the annual reports 2016 and 2017 of three categories of companies in the Netherlands. This work is inspired by a similar but less encompassing analysis performed on annual reports of 2017 (De Waard 2018).

1 The first category of companies in our sample consists of listed companies on the three market indices of the Amsterdam stock exchange, the AEX, AMX and AScX. These companies were chosen because of their visibility and therefore their liability to public scrutiny as well as the specific implementation of the EU Directive regarding annual reporting and transparency (Sewell et al. 2018). Each index consists of 25 companies. One company was dropped from the sample because it was listed in only one of the years of research (Adyen NV) which means that the annual reports of 74 listed companies are investigated.

2 The second group of companies consists of companies on the Elseviers’ list of top 100 family businesses. From this list, 4 companies were dropped (Heineken, VolkerWessels, HunterDouglas and Sligro) since these were listed companies in the years we investigated. These companies represent the group of large family businesses with societal impact in the Netherlands that are also liable to public scrutiny. These non-listed companies, however, do face a limited level of regulations regarding annual reporting and transparency in comparison with listed companies based on the Dutch Civil Code. That is the main reason for defining this group of companies as a separate category.

3 We complete our sample with the 27 highest ranked companies in the Transparency Benchmark 2017 that are not included in the other two categories. These companies were selected because of their high level of transparency. We restricted this group of companies to 27 because of time constraints. These companies are also typical within the Dutch disclosure environment for high quality disclosure, and represent a category that serves for comparing the reporting quality of the other two groups and especially the other category of non-listed companies, the family owned non-listed companies. We included these companies in our sample to provide a more complete picture of the transparency about climate impact of the most prominent Dutch companies.

Thus, the total number of companies involved in our research, is 197. These companies’ annual reports provide a good overview of the level of transparency regarding climate-related issues and carbon disclosures of the most prominent and transparent companies in the Netherlands in recent years. Because of their size and status, these companies are likely to adopt the best reporting practices due to public pressure. Chithambo and Tauringana (2017), who investigated the transparency of UK companies, use the same argument in justifying the selection of their sample.²

The focal area of our research are the annual reports of 2016 and 2017 of the selected companies. We also included separate sustainability reports or other additional relevant information, if publicly available. We particularly study the fiscal years 2016 and 2017, because the Directive 2014/95/EU became effective for entities of public interest for fiscal years starting in 2017.

Among the several existing benchmarks to assess the quality of carbon disclosures, the benchmark of Tauringana and Chithambo (2015) is the most detailed one.³ Therefore, we use this benchmark to measure the transparency about climate impact in the annual reports of companies in the Netherlands. The benchmark contains 60 criteria based on different reporting frameworks like the GHG Protocol, GRI Guidelines, Global Framework for Climate Risk Disclosure and more. In order to simplify the analysis, we have categorized the criteria of the benchmark in three categories of information, that form a development path from intentions to realisation and accountability. The number of criteria differs per (sub)category:

1 Strategy: strategy and risk analysis, business model, corporate governance and policies;

2 Performance: actions taken, expectations, results and analytics;

3 Reporting: measurement and reporting standards.

The quality of the GHG disclosures was measured by assessing the 60 indicators and criteria of the climate-related information in the annual reports, CSR reports, sustainability reports and websites of the selected companies. Every criterion in the benchmark has a 0 or 1 score, which means that the maximum score per company is 60 points. Research assistants consulted each other regularly and performed peer reviews on each other’s outcomes of the analyses (10% of the cases were scored double) in order to realise consistency. One of the criteria from the benchmark (Institutional background) scored a one for all companies in the sample. We, therefore, dropped this criterion from the benchmark as it provides no distinguishing information. The maximum score, thus, is 59 points. The detailed benchmark is included in the Appendix 1.