[Podcast] Environmental Accounting Disclosure and Financial Performance: The Role of Board of Management

17 March, 2025

Keywords: Environmental accounting disclosure; financial performance; financial leverage; foreign ownership ratio

In the context of global climate change, transparency of information on environmental impacts is increasingly important for businesses. The question is whether this helps increase financial performance. To answer this question, a research group from UEH Mekong, University of Economics Ho Chi Minh City (UEH) conducted a study on “Environmental Accounting Disclosure and Financial Performance: The Role of Board of Management”, aiming to explore the correlation between environmental accounting disclosure (EAID) and financial performance (FP) of listed companies in Vietnam. Concurrently, this study clarifies the role of the board of management and proposes solutions for businesses and stakeholders.

Research Background

In the context of globalization and increasing awareness of environmental issues among stakeholders, environmental accounting information disclosure (EAID) has become an important standard in business operations. Pressure from investors, customers, governments, and communities is pushing businesses to be transparent regarding their environmental impacts and to demonstrate their commitment to sustainable development.

In addition, the perspective on financial performance (FP) has changed significantly, expanding from traditional financial indicators to a more comprehensive concept, including brand reputation, social responsibility, and sustainability. In response to this shift, this study by the UEH research group examined the correlation between EAID and FP as well as explored the moderating role of board of directors (BOD) on in-listed companies in Vietnam.

Not only contributing to the environmental accounting theory, the study also provides empirical evidence to strengthen existing theoretical models. More importantly, the research results have profound practical significance, creating a scientific foundation to help business managers build a strategy to balance profit maximization and sustainable development in the context of the modern economy.

Research method

The study uses a quantitative analysis approach to examine the impact of environmental accounting disclosure on the financial performance of listed enterprises in Vietnam; concurrently, considering the moderating role of the board of management. Financial performance is measured through three indicators: return on assets (ROA), profit stability (SMOOTH) and profit volatility (VARI). EAID is determined in accordance with the analysis of environmental reports according to GRI 2020 standards or Circular 96/2020/TT-BTC while the characteristics of the Board of Directors (size, proportion of non-executive members, proportion of women) are considered as moderating variables. The study proposes three main hypotheses on the relationship between environmental accounting disclosure, financial performance and the role of the Board of Management.

Research data is collected from 100 listed companies in the period 2021-2023, including 30 consecutively sustainable companies according to the list of 100 sustainable companies in 2023 and 70 companies in the fields of manufacturing, construction, and real estate. 2021 is chosen as the benchmark because Circular 96/2020/TT-BTC has taken effect since this year and companies disclose environmental information according to this circular or GRI standards. Environmental accounting disclosure data are collected from annual reports, sustainability reports, and ESG reports. The study uses multivariate regression with panel data, analyzed using STATA 17 software, and simultaneously tests model defects listed as autocorrelation, heteroscedasticity, and multicollinearity to select the appropriate model among POOL, FEM, or REM. Four regression models are suggested to measure the impact of environmental accounting disclosure on financial performance, in which model 4 considers VARI and SMOOTH as control variables. After calibrating the model, the study continues to examine the moderating role of the board of management, providing empirical evidence to support businesses in building a strategy to balance financial profits and sustainable development.

Research results emphasize that environmental accounting information disclosure has a positive impact on the financial performance of enterprises

The research results confirmed that the disclosure of environmental accounting information had a positive impact on the financial performance of enterprises. Enterprises that were transparent in disclosing environmental information often had better business performance while factors listed as company size, financial leverage, foreign ownership ratio, profit stability, and cash flow management ability significantly affected financial performance. In particular, high financial risk and large profit volatility tended to reduce business performance, indicating that financial stability played an important role in sustainable development strategy.

The analysis of the impact of factors on the board of management affirmed that the proportion of female members played an important role in promoting environmental information disclosure and improving financial performance. This not only emphasizes the significance of gender diversity in corporate governance but also affirms the role of women in improving governance efficiency and sustainable development. However, the size of the board of management and the proportion of non-executive directors did not have a significant moderating effect on the relationship between environmental accounting disclosure and financial performance.

In addition, the study emphasized that company size and foreign ownership ratio had a positive correlation with financial performance whereas high financial leverage had a negative impact. Maintaining profit stability and effective cash flow management helps enterprises achieve better financial performance while ensuring long-term development. These findings provide an important practical basis for managers in considering strategies to balance profit growth and sustainable development.

Implications and Policies

From the research results, the UEH authors have proposed policy implications for stakeholders, specifically as follows:

First, in terms of businesses, it is necessary to increase the disclosure of environmental accounting information by expanding the scope and the details of sustainable activities to improve transparency and attract investors. Concurrently, businesses should diversify their management boards by recruiting members with experience in the field of sustainability and gender diversity to improve governance capacity. Businesses need to develop a sustainability strategy, to integrate sustainable development goals into long-term business strategies, and to invest in research and development of green technology so as to improve competitiveness.

Second, in terms of investors, it is necessary to prioritize choosing businesses committed to sustainable development to minimize risks and to achieve long-term profits; concurrently, to increase dialogue with businesses to encourage them to improve sustainability activities.

Third, in terms of policy makers, it is necessary to complete the legal framework, to continue to issue policies to encourage businesses to disclose information and implement sustainable activities, to create a favorable business environment, and to provide necessary resources for businesses to easily access technologies and services supporting sustainable development.

Finally, in terms of universities, it is necessary to integrate sustainable development goals into training programs, conduct research on sustainable development and train high-quality human resources to meet the needs of businesses and society, and establish cooperation programs with businesses to transfer knowledge and technology, creating internship opportunities for students.

The full-text research article on Environmental accounting information disclosure and financial performance: The role of board of management can be accessed HERE.

Authors: Dr. Lam Thi Truc Linh, Nguyen Hong Nga, Nguyen Ngoc Tho – University of Economics Ho Chi Minh City (UEH).

This article is part of a series spreading research and applied knowledge with the message “For a More Sustainable Mekong”, under the program “Research Contribution For All” implemented by UEH. UEH cordially invites readers to watch the next UEH Research Insights newsletter.

News, photos: The authors, UEH Mekong Department of Admissions and Communications, UEH Department of Communications and Partnerships

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