Year

1998

Degree Name

Master of Commerce (Hons.)

Department

Department of Accounting and Finance

Abstract

Since the Ok Tedi lawsuit in 1994 highlighted the environmental degradation issue, Multinational Corporations (MNCs) operating in Papua New Guniea (PNG) have come under scrutiny for causing environmental degradation. This scrutiny created animosity between resource owners and the developers (MNCs), to such an extent that the bitterness created anxiety about their future among the MN Cs. Various attempts have been made in PNG to minimise the adverse impacts caused by the MNC operations, however, environmental degradation continues to be adverse. The PNG government will not arbitrate in this issue because of its conflict of interests.

The problem of environmental degradation caused by MNCs needs to be exposed to minimise the adverse impacts. Environmental disclosure to external interested parties is a possible source of exposure which has not been explored. This is because environmental accounting is a 'green' area which many countries are just beginning to incorporate and enforce in their legislation. In addition, there is no law to enforce environmental reporting. It is currently provided voluntarily (Deegan, 1996). This study investigates the possibility of engaging environmental disclosure to address the environmental issue in PNG.

The focus in this study is on Australian MNCs because their annual reports are accessible and Australian MNCs dominate PNG economy. The study seeks to establish whether Australian MNC in environmentally sensitive industries, currently provide adequate environmental reports within their financial statements. The disclosure requirement is based on the Legitimacy theory because the MNCs operate under a social contract with societies and are therefore obliged to legitimise both their presence and their activities. To achieve this goal, MNCs need to provide environmental reports within their financial statements. MNCs currently lodge environmental impact plans with every proposal. Despite this lodgement, environmental degradation persists, therefore they ought to report on the implementation of their environmental impact plans within their financial statements (Gray, 1990).

This study is patterned after Patten (1992) who studied oil companies following the Valdez oil spill. Patten noted a sizeable increase in environmental reporting following the incident. Similarly, a content analysis of the annual reports of Australian MNCs found that environmental disclosure is higher among MNCs who operate in PNG than those which only operate in Australia. Increases are noticeable after 1994 which indicates that the Ok Tedi lawsuit influenced disclosure. It appears that MNCs will only increase their environmental disclosure when coming under scrutiny.

It would be interesting and informative to analyse all MNCs in PNG because Australian MNCs are not the only ones operating in the sensitive industries in PNG. Future studies may undertake such an analysis. In order to maintain a constant surveillance on environmental degradation, MNCs ought to continually provide environmental information with their annual financial statements. When MNCs fully disclose their environmental degradation, it is expected that ethical investors will be powerful enough to exert pressure on MNCs to be more sustainable in their operations and minimise environmental degradation.

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