Information disclosure on environmental activities and corporate values of pulp and paper firms in Japan

Abstract

The expansion of wood utilization directly contributes to mitigating climate change, owing to the characteristics of wood as a material. Some environmental, social and governance (ESG) investors place high value on the wood industry, especially firms that demonstrate transparency regarding its challenges to environmental issues. There is a hypothesis that robust ESG propositions can generate additional value for businesses, and this study aims to clarify whether this hypothesis is supported in the case of pulp and paper industry. This study surveyed pulp and paper firms in Japan from 2008 to 2017, covering the emergence and growth of ESG investment, as recommended by the Principles for Responsible Investment (PRI) established in 2006 and Sustainable Development Goals declared by the United Nations in 2015. Additionally, this study determined the current condition of environmental information disclosure using the Global Reporting Initiative (GRI) standards and investigated the relationship between environmental information disclosure patterns and the corporate values among six Japanese pulp and paper firms. The findings indicate that these firms attached importance to environmental information disclosure during this period, although the detailed disclosure strategies differed among firms. Furthermore, this study finds that the GRI standards are useful for clarifying the environmental information strategies presented in non-financial reports. Our findings follow the premise of ESG investing that refers to the consideration of environmental, social, governance, and financial factors in investment decision-making processes: that a strong ESG proposition can generate additional corporate value and support the concept of ESG EBIT (earnings before interest and taxes) that includes not only operating profits, but also investments and labor costs as indicators of stakeholder value.