ISO Certification, Firm Characteristics and Carbon Emission Disclosure

Companies’ activities have contributed to the increase in carbon emissions, which lead to the negative impact on the environment. This phenomenon has motivated companies to voluntarily disclose carbon emission disclosure. Considering this disclosure issues, our study aims to investigate the effect of ISO certification, type of industry, profitability, and firm size on carbon emission disclosure. The population consists of companies listed in the Carbon Disclosure Project (CDP) of Nordic with total sample of 131 companies. Data were then analyzed using a multiple linear regression. The findings showed that profitability and firm size positive effect on carbon emission disclosure. Meanwhile, ISO certification and type of industry had no effect on carbon emission disclosure. This implied that ISO certification is seen as a symbolic strategy of carbon emission management.


Introduction
Business activities cannot be separated from the environment in which they take place, and consequently, they have also contributed to the negative impact on the environment, including the phenomena of global warming.Indeed, the concentrations of greenhouse gases in the atmosphere have increased dramatically, resulting in the possibility of costly disruption from rapid climate change [1].The main sources of year-on-year Green House Gas (GHG) emissions are the "burning of fossil fuels (coal, oil, and gas), with important contributions from the clearing of forests, agricultural practices, and other activities [2].It is argued that the business, political and environmental sectors are beginning to realize to respond to the threat posed by climate change [3].
The phenomena have caused a shift in the business paradigm from profit orientation to profit, people, and planet one.This means that to the pursuit of profit, companies must also pay attention to the welfare of the people and contribute to preserve the environment or the planet [4].Governments, business entities and consumers would be affected by the extent to which such precautionary measures are incorporated in their decision-making process [1] As global warming continues to attract growing levels of attention, "business entities need to consider such issues as trading in carbon allowances (or permits), investing in low-carbon dioxide (CO2) emission technologies, counting the costs of carbon regularity compliance, and passing on the increased cost of carbon regulation to consumers through higher prices" [1] The seriousness of companies in dealing with GHG emission can be seen from how they disclose information on the emission, as called as carbon emission disclosure.In fact, various stakeholders (states, general public, investors, and lobbyists) have put climate change on corporate agendas and expect firms to disclose relevant greenhouse gas (GHG) information [5].Thus, carbon emission disclosure can be seen as a medium to manage the negative impact of business.For companies emitting greenhouse gases, the consequences can be even more numerous, including increased operating costs, reduced demand, reputational risk, legal proceedings, and fines and penalties [6].
A number of studies have been conducted to investigate a number of issues on GHG emission disclosure.However, the previous studies have been focused on the relation between the carbon emissions and corporate value [7], [8], the relationship of GHG emissions, environmental performance, social performance and financial performance [9], the role of internal audit in GHG reporting [10], Quality of GHG emission disclosure [11], GHG voluntary disclosure, firm size and corporate governance [12], the relevance of information on corporate climate change disclosure and performance [13], the impact of the economic development on GHG emissions in Russia [14], usefulness of GHG emissions reporting [15], [16], corporate board's characteristics and disclosure of GHG emissions [17], [18], and voluntary disclosure of GHG emissions and corporate governance quality [19].
Previous studies have contributed to the current findings on GHG emission disclosure, but it is not easy to find studies focusing on the relationship of ISO certification, characteristics of firms and carbon emission disclosure.Consequently, this study aims to investigate the effect of ISO certification, types of industries, firm size, and profitability on carbon emission disclosure.

ISO Certifications and Carbon Emission Disclosure
Legitimacy theory claims that company activities are seen as legitimate as long as their activities are in accordance with norms, values and beliefs of the society [20].Consequently, to gain legitimacy from the society, companies must show that they care for the social and the environment issues.Companies may use carbon emission disclosure as an important strategy that they are concerned with environmental issues, especially the impact of GHG emissions.The level of carbon emission disclosure is perceived to increase when companies implement environmental management systems.ISO certifications in the field of environment, especially ISO 14001 can be viewed as a crucial indicator that the companies have implemented environmental management systems.This implies that companies with ISO 14001 certifications will disclose more information about GHG emissions than those without ISO certification.Indeed, failure of handing environmental impact can lead to increased operating costs, reduced demand, reputational risk, legal proceedings, and fines and penalties [21].Thus, companies that are committed to reduce the environmental impact of its products and operations, continue to monitor and seek to identify ways to further reduce the impact [22].Borrowing the previous studies on environmental issues, it is claimed that ISO 14001 certifications can be employed as an image-building or public relations effort of the companies [23].Furthermore, companies that integrate ISO 14001 standards into their daily operations are more likely to report improvements in environmental performance [22], [24] and financial performance [25].Hence we propose the following hypothesis (H1): ISO certification positively affects carbon emission disclosure.

Types of industry and carbon emission disclosure
Types of Industry are perceived as an important factor that may influence carbon emission disclosure depending on how sensitive is the companies concerning the issues on green house gas emissions.Borrowing the concept of industry types [3], carbon-sensitive companies are companies whose operational activities are related to transportation, energy, utilities and materials, while non-carbonsensitive companies are those whose operational activities are related to other than transportation, energy, utility and materials.It is believed that the intensive emission industry will be closely monitored by the government and sensitive to political issues [26] so that the intensive emission industry will voluntarily disclose more information [27] and may include carbon emission information.Indeed, industrial types affected carbon emissions [12].Other studies also showed that industries engaged in natural resources, processing steel, paper and pulp, power plants, water and chemicals show more responses on environmental issues [28], [29].Based on legitimacy theory, some studies claim that companies in the polluting industry tend to have greater disclosure to legitimize their activities [30].Based on these assumptions, then the second hypothesis can be formulated as follows (H2): Industry type positively affects carbon emission disclosure.

Profitability and Carbon Emission Disclosure
According to the theory of legitimacy, it is easier for companies with high profitability to deal with the community demands.In addition, companies tend to spend more on voluntary environmental disclosure in order to gain legitimacy from the public.Therefore, a company with better financial performance reflected by high profitability is seen as provide more information on their voluntary disclosure, including carbon emission disclosure.Indeed, for companies with poor financial performance, voluntary disclosure of the environment issues may mean incurring additional costs [3].Companies with good financial performance will pay more attention to the legitimacy issues, and carbon emission disclosure can be utilized to maintain their legitimacy.Previous study shows that companies with good financial performance have financial capabilities to make better environmental decisions [31].While for companies with poor financial performance will be more focused to improve performance and achieve their financial goals so that the ability to provide carbon emission is very limited.Companies with high profitability tend to disclose more information on mandatory and voluntary issues [32], and may include carbon emission disclosure.Thus, profitability has a positive effect on carbon emission disclosure [33].Based on these assumptions, then the hypothesis can be formulated as follows (H3): Profitability positively affects carbon emission disclosure disclosure.

Firm size and carbon emission disclosure
Firm size reflects the number of assets and resources owned by companies to achieve their business objectives.As large companies have more opportunities to invest than that of smaller companies, shareholders are more concerned with large companies as such investment may influence their interests [34]- [36].Previous studies on environmental issues showed that large companies are more transparent in implementing and reporting their environmental and social policies [37]- [40].Moreover, for social and environmental interests, government puts more attention on larger companies than smaller ones.Consequently the larger the company, the greater the ability of the company to implement green management [12], [37], [41]- [45].Other studies also indicated that larger firms provide more carbon information disclosure than smaller ones [3], [12], [31], [46].Thus, this study proposes the following hypothesis (H4): Firm size positively affects carbon emission disclosure.

Methods
This study employed five variables consisting of ISO certification, types of industry, profitability, firm size as independent variables and carbon emission disclosure as a dependent variable.ISO Certification is a dummy variable where the ISO 14001 certified companies are scored by one (1), otherwise zero (0).Types of industry are measured by groups of industries [3], to which companies whose their operational activities are energy, transportation, materials, and utilities are classified as carbon sensitive industries and are scored by one (1), otherwise zero (0).Profitability is measured by ROA (Return on Assets) calculated by comparing net income to total assets [47], whereas firm size is measured by the natural logarithm (ln) of total assets [3].The dependent variable (carbon emissions disclosure) is based on scores provided by the Carbon Disclosure Projects (CDP) of the Nordic countries.The given scores range from 0-100 where 0 is the lowest disclosure, and 100 are the highest disclosure.
The population consists of all companies listed on the Carbon Disclosure Projects (CDP) of the Nordic countries, and samples were chosen based on the availability of the required data for this study.Data were collected from the Carbon Disclosure Projects (www.cdp.net) and annual report of the companies available on their websites.Data were then analysed using the following regression model: CED denotes carbon emission disclosure.ISO is ISO certification.IND shows types of industry.PRO denotes profitability, and SIZ represents firm size whereas α, ß and e denote intercept, regression coefficient, and error respectively.

Results and Dicsussion
This study was conducted investigate the effect of ISO certification, types of industry, profitability and firm size on carbon emission disclosure of the Nordic companies registered on the Carbon Disclosure project.The description of sample used for this study can be seen from Table 1

Total Sample 131
Based on the availability of data, 174 companies have joined the CDP.However, only 131 companies meet all criteria of the required sample.Indeed, five companies in the CDP list whose annual reports are unavailable on websites, and 38 companies were awarded alphabetical scores (not numerical scores) and were not assigned any scores.The descriptive statistics of empirical data can be seen in Table 2.  ).This means that the companies employed excellent carbon accounting policies beyond minimum requirement as assessed by the CDP.In terms of profitability, the companies have average ROA of 4.62% but total of 73 companies have profitability above 4.62%.This reveals that the level of profitability of sample companies is high enough.Meanwhile, in line with the description of firm size, it can be seen that the average of firm size (Ln Assets) was 23.43.From the perspective of ISO 14001 certifications, Table 2 described that samples are dominated by Non-ISO certified companies (52.67%), and the remaining is ISO certified ones (47.33%).Meanwhile, the majority of samples (79.39%) consisted of non-carbon sensitive companies with high sensitivity to GHG emission issues.The research data were then tested using a multiple regression, and the results can be seen in Table 3.
Table 3 described that the F-value is equal to 6.309 (= 2, Sig.= 0.000), which means that the model can be used to explain the determinants of carbon emission disclosure.Table 3 also showed that the predicted variables that significantly influenced carbon emission disclosure were firm size (SIZ) and Profitability (PRO).However, ISO certification (ISO) and Types of industry (IND) did not significantly affect carbon emission disclosure.Coefficient of determination (Adj.R2) has a value of 0.14, which indicated that the degree to which firm size and profitability influenced carbon emission disclosure was only 14%.The finding showed that ISO certification did not affect carbon emission disclosure.The ISO certifications used in this study are focused on the ISO 14001 certifications.The reasons for the rejected hypothesis can be referred to the descriptive statistics of the sample data.Indeed, it can be seen from the data that most of the companies used as samples are dominated by 69 non-certified companies (52.67%).The high numbers of non-ISO certified companies disclosing carbon emission information imply that it is not necessary to have ISO certification to disclose carbon emissions.Therefore, ISO certification has no effect on carbon emissions disclosure.This study is consistent with previous research [48] which shows that ISO certification has no effect on the wide range of greenhouse gas-emission disclosure.This is because companies that have ISO certification are considered to have a good environmental management system and provide a positive image to the public.However, the positive image tends to decrease the motivation of management to increase the disclosure of the company's carbon emissions.
It could be happened that companies get ISO certification because to build "improved corporate image" or for being seen as "responsible citizens" [23].This finding is similar to previous study [49].Indeed, previous studies showed that the implementation of ISO14001 standards varies among companies and consequently, the standard is not effective in terms of environmental performance improvements [22].Thus this study did not support previous study claiming that companies integrating ISO 14001 standards into their daily operations tend report improvements in environmental performance [22], [24].The finding implied that ISO certification is seen as a symbolic strategy of carbon emission management.
The second hypothesis proposed argument that types of industry positively influence carbon emission disclosure.The finding also showed that this hypothesis was not supported by empirical data.This means that types of industry both carbon-sensitive companies and carbon-non sensitive ones have no relationship to carbon emission disclosure.The reason for the rejected hypothesis can be seen from descriptive statistics of th data.In fact, companies that disclose carbon emissions are dominated by carbon non-sensitive companies (104 companies or 79.39%).Meanwhile, the carbon-sensitive companies were only 27 companies (20.61%).Therefore, the type of industry has no effect on carbon emission disclosure.This study is similar to previous research [7] that industrial types have no effect on carbon emission disclosure.However, this finding did not support legitimacy theory claiming that to gain legitimacy and public supports, companies must be able to identify any activities, which are consistent with stakeholders or public expectations, including activities related to carbon emission disclosure.Considering the other environmental studies, this finding also did not support claims that the company policies on environmental issues will increase when their business activities are more sensitive to the environmental issues [37], [50]- [52].
The third hypothesis claimed that profitability positively influences carbon emission disclosure to identify whether companies with higher profitability provide more information of carbon emission that those with lower one.The findings showed that profitability positively influenced carbon emission disclosure.The higher the profitability, the better the company discloses carbon emissions.The descriptive statistics indicated that most of the companies have high profitability (73 companies) and higher level of carbon emission disclosure with the average level of carbon emission disclosure of 89.5%.Therefore, profitability positively affects carbon emission disclosure.This finding is in line with the legitimacy theory claiming that the public always put pressure on companies to care about environmental issues and thus make companies provide the public with more information of carbon emission.Borrowing other studies on environmental issues, profitable companies are more likely to respond to the pressures because the firms have more resources, which can be used to disclose environmental issues [53] than firms with low profitability.This makes it easier for profitable companies to gain legitimacy from the public.This study is consistent with previous study [31] that profitability has a positive effect on carbon disclosure.
The last hypothesis claimed that firm size positively affects carbon emission disclosure.The findings supported the hypothesis, and concluded that the larger the company the greater the level of carbon emission disclosure.Companies with large assets tend to have better carbon emission disclosure.The descriptive statistics (Table 2) also indicated that the asset size of the sample had a mean of 23.43 (with minimum value of 18.88, maximum value of 28.82 and standard deviation of 2.02).This implied that the sample consists of large companies.The results of this study are in line with the theory of legitimacy, that larger companies get more social and political pressures than small firms [54].Such pressures encourage companies to build a positive image by disclosing more information of carbon emissions to gain legitimacy from the stakeholders.Such disclosure activities are believed to be a reflection of the company's attention to the community and environment [34], [35], [55].This study is consistent with previous studies [46] that company size influences carbon emission disclosure.Moreover, mirroring to the studies on environmental issues, the findings supported previous studies that relates firm size to transparent social and environmental issues [38], [56]- [59], including any policies concerning other environmental issues such as pollution and green management [43]- [45]

Conclusion
This study aims to examine the determinants of carbon emission disclosure of Nordic companies registered on Carbon Disclosure Project.The findings indicated that on average the carbon emission disclosure of the selected companies is high.Moreover, this study found that profitability and firm size are the determinants of carbon emission disclosure.The more profitable the company is and the bigger the size of the company the higher the carbon emission disclosure.However, this study was unable to prove the effect of ISO certification and types of industries on the carbon emission disclosure.
Findings of this study provide us with some contributions.Firstly, profitability and firm size are important determinants affecting carbon emission disclosure.Thus this study enhances previous studies, which focus on social and environmental disclosures and tend to ignore the impact of such variables on carbon emission disclosure.Secondly, the governments can use this finding as reference in making policies related to the company's obligation in handling carbon emission, especially for large-scale and profitable companies.Finally, the results of this study can be utilized by academicians to take into account environmental issues as part of learning in the field of accounting.Regardless its contributions to current studies on carbon emission disclosure, this study suffers from some limitations.Firstly, this research focused only on Nordic companies registered in the Carbon Disclosure Project.Thus, the findings of this study cannot be generalized to other Nordic companies and other markets.The future studies should consider more companies listed in other markets, especially emerging markets to investigate the consistency of the findings.Secondly, this study only revealed two main variables that affect carbon emission disclosure.The next research should include other variables such as the activity of independent board of directors, audit committee expertise/skills, and foreign ownership as determinants of emission disclosure.

Table 2
indicated that carbon emission disclosures of the Nordic companies are high with an average score of 89.45 (minimum score 28 and maximum score 100