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February 2024

Comparison between firms significantly reduces toxic emissions and environmental violations, says new study from the University of York.

As Europe ramps up talks of tighter and potentially costly regulations for how companies report their environmental impact, a study from the University of York School for Business and Society suggests that a greater focus on accounting comparability – getting firms to compare their environmental performance with each other – could be a highly effective method for reducing toxic emissions, as well as the number and severity of environmental violations.

In a year where Europe is making big decisions on defining new principles for how companies should report data about environmental pollution such as toxic releases and CO2, the new study has shown that getting firms to adhere more closely to existing accounting comparability guidelines can help to facilitate green learning in firms and reduce environmental violations.

One of the co-authors of the paper, Dr Agnieszka Trzeciakiewicz of the University of York School for Business and Society, said: “Current regulatory efforts in Europe are directed towards imposing more sustainability disclosure requirements on firms. While these hold the promise of delivering benefits for both companies and society, they will likely create significant costs for the firms, which will need to hire experts to carry out additional assessments, put new procedures in place, and possibly implement changes if environmental impacts are found to be too high.

“Our study finds that with the tools we already have in place, we can already achieve quite significant change. By focusing on existing practices and putting more emphasis on accounting comparability, we can help firms to learn from each other about best practices and consequently reduce their environmentally harmful practices.”

What is accounting comparability?

Accounting comparability is a desired qualitative characteristic of accounting information, in which financial statements are prepared to conform with a set of accounting standards. If firms adhere to this closely, writing their accounts in the same format and responding to economic events in their financial statements in similar ways, it becomes easier for them to compare accounts with each other – and so learn from each other.

The new paper has found that greater accounting comparability reduces environmental violations, and this effect is amplified in the presence of companies with better environmental performance, suggesting that firms are better able to learn from peer firms with low environmental impact. These results provide new evidence that accounting comparability facilitates green learning and therefore can benefit society at large by reducing environmental harm.

“The effects of focusing on accounting comparability won’t be as significant as those of the new regulations coming in,” says Dr Trzeciakiewicz. “But it helps firms to learn from each other about environmental performance, without incurring large costs.”

Highlighting corporate misconduct

This study was made possible by a new resource called the Violation Tracker database, which provides wide-ranging and detailed information on corporate misconduct, showing which firms are the biggest regulatory violators and lawbreakers. “From our perspective as academic researchers, this resource has the potential to provide really positive change, as it gives us the data we need to easily identify environmental violators and hopefully help to stop the worst of corporate misconduct,” says Dr Trzeciakiewicz.