AN EXAMINATION OF SOCIAL AND ENVIRONMENTAL DISCLOSURES IN NIGERIAN OIL COMPANIES
A review of the Social and Environmental Disclosures (SED) literature reveals that this area of accounting has been the subject of various studies in different countries, particularly in developed countries. SED does not apply universally to all countries that are in various stages of economic development and to companies that have differing levels of awareness and attitudes. SED are often perceived as a tool for communicating the social and environmental effects of a company’s actions to its relevant interest groups and to the society as a whole. Stakeholders have become increasingly concerned about the way in which companies interact with society and the environment. Consequently, the increased interest in the social and environmental impacts of companies has resulted in heightened pressure from stakeholders for SED. This study seeks to: (1) identify Nigerian host communities’ (HCs) perceptions of SED by oil companies; (2) examine the quantity and quality of SED in Nigerian oil companies; and (3) distinguish if there are differences between local and foreign oil companies in regards to their SED.
This study is divided into three parts. In the first part, identifying factors influencing and shaping HCs perceptions present fertile ground for a better understanding of community actions. Primary data was collected through semi-structured interviews from members of three HCs in the Niger Delta; Ogbunabali community in Port Harcourt (Rivers State), Biogbolo community in Yenagoa (Bayelsa State) and Ogunu community in Warri (Delta State). The interview data was recorded, transcribed and qualitatively analysed through content analysis using the NVivo 10 software program. The results show that HCs perceptions are largely informed by the contradictions of wealth generation through oil production amidst widespread poverty resulting in anger, frustration and hostility towards the oil companies. The companies are perceived as being responsible for the negative impacts of oil exploration and extraction. Perceptions regarding both the negative and positive aspects of the oil companies operations were identified. These included environmental concerns; lack of compensation; health effects; lack of social development;
neglecting communities; not creating enough employment opportunities and infrastructure; and not providing community and educational support.
In the second part, this study examined the quantity and quality of SED of the oil companies. Fifteen companies listed on the Nigerian Stock Exchange, as well as an additional three non-listed major foreign companies (Shell, Chevron and Agip), were selected for analysis. The latter were chosen because of the scale of their operations in Nigeria. Annual Reports (AR) from 1992 to 2011 were examined using content analysis. SED activities were reported by most of the companies and by quantity, employee information was found to be the most common type of disclosure. Most SED were almost always general and limited in nature, declarative (that is, descriptive) with non-monetary quantification in terms of financial impacts. Companies are engaging in impression management to convince stakeholders, government and the HCs that they are ‘good corporate citizens’. SED quantity and quality in the environment category was found to be overwhelmingly low despite the large scale public concern expressed about the level of environmental degradation caused by the operations of oil companies.
In the third part, this study sought to distinguish SED levels by comparing local and foreign companies operating in the oil sector. It sought to identify differences between local and foreign companies’ SED practices. A Social and Environmental Disclosure Index (SEDI) was constructed to evaluate the contents of SED in AR. Furthermore, a dichotomous method was employed to identify SED sentences based on a checklist of 62 items in the SEDI. Local companies were found to provide more extent, type and nature of SED than foreign companies. However, local companies reported mostly general SED information. Results reveal that majority of the total SED in both local and foreign companies was positive news.
This study enriches the existing SED literature by examining the state of voluntary disclosures made by companies in the context of a developing country. The findings of this study provide more insights into the current status of SED in an environmentally sensitive industry.
Chapter 1 INTRODUCTION
Background to the study
Over the last twenty years, SED have become an issue of interest to researchers (Hossain et al, 2006). There has been a significant increase in the number of companies in both developed and developing countries making SED in their AR and other corporate communications over the last two decades (Deegan & Gordon, 1996; Kolk, 2003). Stakeholders have become increasingly concerned about the way in which companies interact with society and the environment. They have equally become concerned about the extent to which the companies were engaged in societal, environmental protection and pollution prevention (Branco et al, 2008; Monteiro & Aibar-Guzmán, 2010). Many companies have responded to stakeholder concerns by voluntarily disclosing social and environmental information in AR or in stand-alone sustainability reports (Kolk & Perego, 2010).
According to Rajapakse & Abeygunasekera (2006), the traditional approaches by corporate entities to accounting only focused on their economic operations. Currently however, SED has been added to corporate financial reports for various reasons: (1) a desire to create, maintain or repair the entity’s societal legitimacy (Uwalomwa & Uadiale, 2011); (2) a responsibility of management complying with regulatory requirements and to legitimise various aspects of their respective organisations (Basamalah & Jermias, 2005); (3) to attract investment funds and to comply with borrowing requirements as well as meeting community expectations (Deegan & Blomquist, 2006); (4) to gain competitive advantage and to be socially responsible (Hasnas, 1998); and (5) to manage powerful stakeholder groups (Ullmann, 1985). The above reasons sum up management’s quest to meet regulatory and social requirements. Henderson & Peirson (2004) explain that SED covers sustainability so that it reflects concerns about environmental protection and social justice. The introduction of the GRI in the year 2000 proposed certain guidelines to social, environmental and financial reporting that many companies could follow as guidelines. However, SED are still voluntary in most developing countries, including Nigeria, because of a lack of regulation (Ionescu, 2010; O'Dwyer, 2002).
Accounting and reporting systems are challenged by various regulatory perspectives in a multiplicity of social, political and cultural settings. Accordingly, firms need to strive to achieve both financial and societal goals (Brammer & Pavelin, 2004; Gray et al, 1995a; b). Taking care of society and the environment is essential for the long-term sustainability of companies which makes SED an important issue (Pramanik et al, 2007). Cortez & Penacerrada (2010) state that protecting the society and environment is part of the CSR of companies. SED have received increased attention in recent years as a part of an increased interest in sustainable development across the world (see Baxi & Ray, 2009; Farid et al, 2009; Uwalomwa & Uadiale, 2011). SED does not apply universally to all
countries which are in various stages of economic development and with companies having differing levels of awareness and attitudes. However, as economies grow and interact globally, there is likely to be an increasing convergence in SED practices across countries (Ismail & Koh, 1999).
An alternative school of thought argues that companies have no need for an ethical code for their behaviour and that managers merely respond to market, social and political pressures when making SED. According to this school of thought, SED reflect differential political, regulatory and lobbying power in different countries. Where these powers are the strongest, the firm makes greater SED in response. Where powers are weaker, for example in unstable and developing countries (like in Nigeria), managers face less direct pressure to make SED. Actual disclosure may in these circumstances be aimed at government and the public where the company is domiciled, particularly where political, regulatory and lobbying systems are well- developed (Toms, 2008).
The progression from voluntary to mandatory SED in Nigeria can be achieved through regulation and legislation. The introduction of regulation may act as a stimulus to changes in the quantity and/or content of AR voluntary SED (Cowan, 2007). Listed companies in the Nigerian Stock Exchange can be required to publish mandatory SED in AR. If a company does not succeed in its attempts to legitimise through SED, the risk of government intervention may be increased (Wilmshurst & Frost, 2000). Guthrie & Parker (1990) identified greater detail in SED in countries where disclosure legislation exists.
SED, like other accounting disclosures, are responses to the requirements of shareholders. As a powerful interest group, shareholders demand non- financial information as part of a risk management process designed to mitigate political risks. Consequently, SED will be made for the benefit of the domestic population rather than for the benefit of communities impacted by the firms’ overseas operations (Toms, 2008).
Olorode (2000) asserts that the socio-environmental induced crisis in the oil sector of the Nigerian economy is a national issue that has created serious security problems for life and property in the area. Over time, oil companies in Nigeria have signed agreements with the government to carry out their industrial activities without acknowledgment of their obligations to the immediate HCs. This has led to social unrest in the oil-rich Niger Delta, as oil companies have for decades continued to violate social and environmental rules to the detriment of the HCs (Owolabi, 2011). The companies have taken advantage of weak laws and regulatory watch agencies, who have failed to regulate their activities. The sector’s history in the Niger Delta is characterised by frequent oil spills, environmental degradation and hostile relations between the oil companies and the HCs. The oil companies have faced numerous demonstrations and uprisings against them as the benefits from extracting oil resources profit mainly the elite and leave only oil spills behind (Moen, 2012). It is claimed that the resulting violence, especially in the Niger Delta region, has led to a great
loss of lives and property that could have been avoided if the oil companies had engaged in business practices that were more socially and environmentally sustainable (Owolabi, 2011).
There is little publicly available concrete information on the state of the environment in the delta or the impact that oil production has had. According to Adebola et al (2006), the Niger River Delta extends over 70,000 km2 and consists of Bayelsa, Delta, Rivers, Abia, Akwa-Ibom, Cross-River, Edo, Imo and Ondo States. Adebola et al (2006) indicate that some 20 million people from more than 40 ethnic groups speaking about 250 different dialects live in the Niger Delta.
The oil companies claim to have executed several social and environmental projects in the HCs which include: construction of hospitals, roads and schools, provision of potable water, electricity, sponsorships, scholarships and supporting health campaign programmes, among others (Alabi & Ntukekpo, 2012). However, the HCs in Niger Delta seem not to have acknowledged these community development projects. According to Omole (2000), the cordial relationship which existed between HCs and the oil companies has given way to hostility and violence. The hostility takes the form of pipeline vandalisation, kidnappings of oil company executives and their families, seizure of oil installations, union militancy, intra and inter- community conflict (Alabi & Ntukekpo, 2012). The crises or upsurge of violence in the Niger Delta is both a matter of national and international concern.
The social and environmental problems caused by the oil industry include cases of open and continuous gas flaring, environmental degradation in the Niger Delta regions, widespread poverty, indiscriminate land and hill clearing, and toxic waste dumping. These have contributed to public concern for the detrimental effects of the operations of the oil companies on the social and natural environment. Due to this public concern and awareness of social and environmental issues, the oil companies operating in Nigeria should respond to such changes by providing SED within their AR (Uwalomwa & Egbide, 2012).
Accountability is concerned with creating participative democratic systems where all voices in society are given a fair hearing. It also relates to the notion of ‘insight’, which permits us to discern what is best for our society, what goals we want to achieve and how companies should operate in our community (Lehman, 1999). The growing concerns about accountability have increased organisations’ awareness of the importance of disseminating SED. Thus, organisations use disclosures as a vehicle to enforce the values of social and environmental concerns to the public (O’Dwyer, 2001). This is done to justify the social and environmental values of the companies, decrease tension with pressure groups, build a good corporate image and to show the companies’ commitment to social and environmental responsibility (see Buniamin, 2010; Dong & Burritt, 2010; O’Donovan, 2002; Romlah & Sharifah, 2004).
SED serves to provide answers to the following crucial question: what do companies actually disclose when they commit to protecting the natural environment? Since SED is not formalised, companies have freedom to choose the quantity of information, indicators, format and time horizon (Dragomir, 2011). Oil companies are facing increasing pressure to disclose information regarding their social and environmental performance to governments and the public (Wawryk, 2002).
Some reasons oil companies consider SED as relevant and important are: to satisfy community and individual "right to know" requirements; to improve company performance in social and environmental areas by demonstrating corporate accountability for the social and environmental impacts of operations; and to add shareholder value through the demonstration of a superior ability to manage environmental and social impacts (Deegan, 1996).
Nigeria has a population of over 110 million people, is the 12th largest oil producer in the world, the third largest in Africa, and the most prolific oil producer in Sub-Saharan Africa. The Nigerian economy is largely dependent on its oil sector which supplies 95% of its foreign exchange earnings (Amaeshi et al, 2006). Despite this importance, disputes between oil companies and HCs are common in the vast wetland region that pumps all of Nigeria's 2.5 million barrels per day of oil. Rosenstein (2005) notes that despite the fact that Nigeria has generated over USD 300 billion in oil rents over the past 25 years, more than 70% of the population lives in poverty. Oil rents are the revenue received from sale of the resource minus the cost of producing it (Gaddy & Ickes, 2006). Companies thus far have done little to ensure transparency in their business dealings with government, worrying that the enforcement of regulations would cause future oil contracts to be awarded to their competitors. Donwa (2011) asserts that the HCs strongly believe that oil companies show high levels of neglect to the environmental damage caused by their operations which has led to continuous agitations by those inhabiting the immediate community.
The issue at the basis of most civil unrest (the frequency of oil worker assaults, kidnappings, and armed struggle against the Nigerian state and oil companies) is the current inequitable sharing of the country’s annual oil revenues among its population. The question of social and environmental responsibilities of the oil companies becomes critical. Civil unrest has resulted in over 700 deaths since 1997 and resulted in the shut in of terminals and flow stations (King & Lawrence, 2005). Ken Saro-Wiwa, spokesperson for the Movement of the Survival of the Ogoni People (MOSOP) until he was hanged in November 1995, maintained that ‘I looked at Ogoni [Niger Delta] and found that the entire place was now a wasteland; and that we are victims of an ecological war, an ecological war that is serious and unconventional. It is unconventional because no bones are broken, no one is maimed. People are not alarmed because they cannot see what is happening. But human beings are at risk, plants and animals are at risk. The air and water are poisoned. Human life, flora, fauna, the air, fall at
its feet, and finally, the land itself dies. Oil has brought nothing but disaster to our people [Niger Delta]’ (Saro-Wiwa, 1996).
Despite problems associated with unrest, Nigeria’s reserves of oil makes it most attractive to the major oil companies, most of which are represented in Nigeria (King & Lawrence, 2005). The contentious nature of oil companies’ interactions with HCs often leads to conflicts over access to infrastructure (see Cormier & Magnan, 2007; Diamond, 2011; O’Rourke & Connolly, 2003; Radebaugh et al, 2005; Rena, 2008). The growing concern of civil society and the public regarding oil companies’ social and environmental impacts creates a demand for examining the disclosures of these companies.
Aims and research questions
The study aims to obtain the perceptions of host community members regarding SED of Nigerian oil companies. Combined with an examination of the quantity and quality of disclosure, the study will aim to provide a detailed and concrete analysis of the state of SED of Nigerian oil companies. Importantly, the study will also investigate the oil companies’ reactions to community concerns about their operations. Do they change their behaviour to meet community expectations or do they ignore the community reactions? Problems identified include land degradation; oil and air pollution; noise and light pollution; health problems; low agricultural production; socio-economic problems; lack of community participation and weak or non-existent laws and regulations.
Therefore, the main research questions underlying the study are:
RQ 1: What are the host communities’ perceptions of the social and environmental disclosures of Nigerian oil companies?
RQ 2: What is the quantity and quality of social and environmental disclosure by Nigerian oil companies to various stakeholders?
RQ 3: Are there differences between local and foreign oil companies in regards to the disclosure of social and environmental data to various stakeholders?
Motivation and contribution
Many studies of SED in annual or sustainability reports have focused on companies in developed countries such as the USA, the UK, Canada, Australia, New Zealand, Japan and the European Union, creating a perception that disclosures are a western phenomenon (Hassan, 2010; Kolk et al, 2001). The motivation for using the Nigerian context is that it belongs to an example of developing countries that can be described as having experienced massive degradation and destruction of their environmental systems and natural resources through economic activities. Since SED are largely a voluntary activity, the study is driven by a desire to see companies being held accountable for their social and environmental impacts. Accountability leads to better performance, but much of the current disclosure practices in Africa do not represent a genuine attempt to be accountable. Factors influencing disclosures to improve accountability are: the extensiveness of disclosure; the quantity and quality of disclosure by
companies; the completeness or comprehensiveness of disclosure (by understanding the reasons for non-disclosure) and the potential role of legislation in achieving improvements in SED (Adams, 2002). Adams (2002) argues that the factors influencing SED can be grouped into three:
(1) corporate characteristics such as size, industry group, financial/ economic performance and risk; (2) general contextual factors such as country of origin, time, specific events, stakeholders and social, political, cultural and economic context; and (3) internal factors such as identity of company chairperson and existence of a social reporting committee. This study is motivated by the observation of the breakdown in the relationship between Nigerian oil companies and the HCs as a result of the environmental impacts of their operations.
There are few studies that have focused on the link between SED and the perceptions of the HCs. Deegan et al (2002) examined whether BHP Ltd disclosed social and environmental information in response to particular social expectations. Guthrie & Parker (1989) undertook a study of the SED practices of BHP Ltd and concluded that the peak in disclosures was associated with a time when mining, steel and oil industries became targets for criticism by conservationists. O’Donovan (1999) found that managers use AR to respond to perceived public concerns, with scrutiny in the news media affecting what information they disclosed. O’Donovan (1999) further suggests that management believe that the AR is an effective way for informing and influencing the public as to the company’s view about certain social and environmental issues.
Therefore, this study will contribute to the literature in three ways. Firstly, by extending Deegan et al (2002) to examine the SED of oil companies in Nigeria. Secondly, by extending the study of O’Donovan (1999) to examine the perceptions of HCs on the SED of oil companies in Nigeria. Thirdly, by investigating the differences between local and foreign oil companies in Nigeria regarding their SED.
Justification of the study
SED activities have increased in recent years in Nigeria as companies attempt to project a positive image to society. Another explanation may be that in the year 2007, Nigeria promulgated the Fiscal Responsibility Act which empowered government to serve as custodian of the citizens’ rights (Owolabi, 2011). Economic activity is presently characterised by flagrant pollution of the air, water and environment. This translates to a negative reputation for companies. However, both the business and society gain when firms actively strive to be socially responsible; that is, business organisations gain through an enhanced reputation, while society gains from the social projects executed by business organisations (Adeyanju, 2012). The increase in SED has corresponded with an increase in community concern regarding social and environmental matters (Cunningham, 2002).
This study will provide awareness to organisations on ways to disclose social and environmental information. Moreover, it will make clear the need for monitoring social and environmental performance and improvement.
Furthermore, this study will provide information on ways in which the quality of SED of companies can be measured.
SED have been largely studied in the context of the developed countries (Adams & Kuasirikun, 2000; Milne & Patten, 2002; O’Dwyer, 2002). Prior studies into SED have failed to explain the causal factors that clarify the HCs perceptions and the variations in the disclosure of social and environmental information. This study seeks to fill this gap in the literature with an examination of the SED of oil companies listed on the Nigerian Stock Exchange.
The choice of Nigeria stems from the fact that despite obvious oil wealth, the country remains one of the world’s 30 poorest countries (World Bank, 2011). Nonetheless, the levels of environmental degradation arising from oil companies’ operations have resulted in social unrest, sabotage of oil installations and frequent kidnapping of oil workers. Oil companies have been chosen because they operate in a socially and environmentally sensitive industry. There has been almost continuous animosity amongst the HCs towards the oil companies as a result of detrimental social and environmental outcomes of their operations. Due to highly published incidents like the Ogoni incidents, social and environmental issues and the need for disclosure appear to be even more important from the context of a developing country (Belal, 2008; UNRISD, 2000).
This study will investigate oil companies listed on the Nigerian Stock Exchange. There are 244 companies listed in various sectors: agriculture, breweries, automobile and tyre, aviation, banking, building materials, chemical and paints, commercial services, computer and office equipment, conglomerates, construction, engineering technology, food/beverages and tobacco, footwear, health care, hotel and tourism, industrial/domestic products, insurance, leasing, machinery (marketing), managed funds, maritime, mortgage companies, packaging, petroleum marketing, printing and publishing, real estate, road transportation, textiles and foreign listings. Two categories are used to select a sample for this study, namely: petroleum marketing and foreign listings. These two categories comprise both upstream (exploration and production) as well as downstream (marketing and distributions) operations. This study concentrates on listed companies due of the accessibility of oil companies’ AR through the Securities and Exchange Commission.
Additionally, this study will investigate the perceptions of host community members on the disclosure of SED by the oil companies and their relationships with the HCs. This study has selected three (3) states in which questionnaires are to be administered. The choice of these states is based on the levels of reported/documented kidnappings, environmental pollution and history of social unrest. These states are Rivers, Bayelsa and Delta.
To examine social disclosure the study will focus on the following social factors: interactions with HCs; observed corruption; occupational health and safety; diversity and equal opportunities; customer health and safety. For
environmental disclosure, the study will focus on information regarding: environmental policy; operating and capital environmental expenditures; the net effect of environmental policy on companies operations; plans for environmental improvements in operations; total monetary amount committed to such plans; the monetary amount spent to date; the types of environmentally oriented assets that have and/or will be acquired and the results of environmental audits.
Qualitative, interpretive and critical research approaches will be used. The qualitative approach utilises language, descriptions and seeks to understand social phenomena within the context of the participant’s perspectives and experiences (Merriam & Associates, 2002). Interpretive research assumes that access to reality is only through social construction such as consciousness, shared meanings and instruments. Interpretive research approach attempts to understand the meaning of phenomena through meanings that people assign to them (Boland, 1991; Kaplan & Maxwell, 1994; Orlikwoski & Baroudi, 1991). Critical research approach performs a critique of the current social situation. It also advocates ethical values such as open democracy, equal opportunity and environmental sustainability (Myers, 2008).
What have been the HCs perceptions of the SED of Nigerian oil companies? This will be determined through face-to-face interviews using a semi- structured questionnaire. Content analysis and descriptive statistics will analyse the responses.
What is the quantity and quality of SED of Nigerian oil companies? Content analysis will be used to measure both the quantity and quality of social and environmental disclosure through AR.
What are the differences between local and foreign oil companies in regards to the disclosure of social and environmental data? Analysis of AR will be undertaken. Media articles/reports initiated by oil companies will also be considered. SDI (Sutantoputra, 2009) and EDI (Clarkson et al, 2008) are used to quantify both the quantity and quality of SED in AR.
Structure of thesis
Chapter 2 discusses the literature review by examining the SED theory and evidence. Chapter 3 focuses on the theoretical framework and discusses three theories, namely Dialectical Materialism theory, Alienation theory and Political Economy theory used to explore the research questions. Chapter 4 explains the research methodology adopted. It also outlines how the data was sourced, collected and analysed using the adopted research instruments. Chapters 5, 6 and 7 will outline the results of the study. Chapter 8 concludes with the outcomes and present the limitations of the study. This chapter will also outline the contributions the study makes to both theory and practice and offer suggestions for further research..