Corporate Environmental Reporting (CER) in Kenya and its link to Corporate Financial Performance (CEP)

Abstract

This study seeks to assess Corporate Environmental Reporting (CER) by publicly listed companies at Kenya’s Nairobi Securities Exchange (NSE) and its relationship with Corporate Financial Performance (CFP) over a time period of four years, 2011 to 2014. Management perception on the value of CER, motivation and critical barriers to the adoption of CER was sought from company management of publicly listed companies through questionnaires. The amount of environmental information disclosed in each of the environmental reporting media used by the respondents: annual reports, sustainability reports, and stand-alone environmental reports was extracted through content analysis. A time series analysis was used to show the trend of CER among the sample companies and the different industry sectors. The study then established if there existed a relationship between CER and CFP among the publicly listed companies between the years 2011 to 2014. Pearson correlation coefficient was used to test the relationship between CER and CFP. Majority of the companies’ management was found to perceive CER as being important to the business and have adopted CER in their companies, and published their Corporate Environmental Reports (CERs). CER is found to be low, but on an upward trend from 2011 to 2014, with the telecommunication and technology industry publishing the highest amount of information in their CERs, while the Insurance industry published the least amount of information. This study finds the existence of a relationship between CER and CFP. Two control variables, firm size and industry, are introduced to check if they have a positive moderating effect on the relationship between CER and CFP. Firm size is found to have a positive moderating effect while Industry has no positive moderating effect. The findings of this study will help company management, shareholders, potential investors, and stakeholders understand the association between environmental disclosure vis-à-vis the profitability of a firm, thus allowing these important stakeholders understand why responsible environmental behaviour by companies in Kenya is worth paying a premium for. The study contributes to the academic discourse on the status of environmental disclosure by companies in Kenya and its link to financial performance.