Chapter 3 Method Development and Overview
3.3 Qualitative Benefits of Method
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the index, the environmental sustainability reporting components have 34 items, while the social performance has 48 items. On each of the two sustainability reporting components adopted (environmental and social performance disclosure), a content analysis was conducted to calculate the number of indicators disclosed by a sampled company in a financial year. The proportion (based on the total requirement) is then taken as the measure of extent of disclosure.
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annual report of a particular company and or zero (0) if it is not disclosed. Thereafter, the total number items found to be disclosed were matched with the expected number of items the standard stipulated For example the standard has 34 items required to be disclosed in the environmental sustainability components while the social performance has 48 items. The proportion that was disclosed by each company in each of the financial year studied was thus used as the qualitative figure.
The following formula was used in the calculations:
QIDj index=
Where;
QIDj index is the disclosure weight index for the firm j.
rdi will be 0 if an item is not disclosed, and 1 if otherwise.
nj represents the maximum number of items that was disclosed by firm j.
The total qualitative disclosure score (TQID) was then converted into percentage terms by applying the following formula:
Total no. of items appearing in the annual report x 100 Max. no. of items which should appear in annual reports 1
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Table 3.3 Sustainability Reporting Disclosure Index Indicator
Category: ECONOMIC Codes
Economic performance
Direct economic value generated and distributed G4-EC1
Financial implications and other risks and opportunities for the organization‘s
activities due to climate change G4-EC2
Coverage of the organization‘s defined benefit plan obligations G4-EC3
Financial assistance received from government G4-EC4
Market presence
Ratios of standard entry level wage by gender compared to local minimum wage
at significant locations of operation G4-EC5
Proportion of senior management hired from the local community at significant
locations of operation G4-EC6
Indirect economic impact
Development and impact of infrastructure investments and services supported G4-EC7 Significant indirect economic impacts, including the extent of impacts G4-EC8
Procurement practices
Proportion of spending on local suppliers at significant locations of operation G4-EC9 Category: ENVIRONMENTAL
Materials
Materials used by weight or volume G4-EN1
Percentage of materials used that are recycled input materials G4-EN2 Energy
Energy consumption within the organization G4-EN3
Energy consumption outside of the organization G4-EN4
Energy intensity G4-EN5
Reduction of energy consumption G4-EN6
Reductions in energy requirements of products and services G4-EN7
Water
Total water withdrawal by source G4-EN8
Water sources significantly affected by withdrawal of water G4-EN9 Percentage and total volume of water recycled and reused G4-EN10 Biodiversity
Operational sites owned, leased, managed in, or adjacent to, protected areas and
areas of high biodiversity value outside protected areas G4-EN11 Description of significant impacts of activities, products, and services on G4-EN12
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biodiversity in protected areas and areas of high biodiversity value outside protected areas
Habitats protected or restored G4-EN13
Total number of IUCN Red List species and national conservation list species
with habitats in areas affected by operations, by level of extinction risk G4-EN14
Emissions
Direct greenhouse gas (GHG) emissions (Scope 1) G4-EN15
Energy indirect greenhouse gas (GHG) emissions (Scope 2) G4-EN16 Other indirect greenhouse gas (GHG) emissions (Scope 3) G4-EN17
Greenhouse gas (GHG) emissions intensity G4-EN18
Reduction of greenhouse gas (GHG) emissions G4-EN19
Emissions of ozone-depleting substances (ODS) G4-EN20
NOX, SOX, and other significant air emissions G4-EN21
Effluents and waste
Total water discharge by quality and destination G4-EN22
Total weight of waste by type and disposal method G4-EN23
Total number and volume of significant spills G4-EN24
Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage
of transported waste shipped internationally G4-EN25
Identity, size, protected status, and biodiversity value of water bodies and related
habitats significantly affected by the organization‘s discharges of water and runoff G4-EN26
Products and services
Extent of impact mitigation of environmental impacts of products and services G4-EN27 Percentage of products sold and their packaging materials that are reclaimed by
category G4-EN28
Compliance
Monetary value of significant fines and total number of non-monetary sanctions
for non-compliance with environmental laws and regulations G4-EN29
Transport
Significant environmental impacts of transporting products and other goods and materials for the organization‘s operations, and transporting members of the
workforce G4-EN30
Overall
Total environmental protection expenditures and investments by type G4-EN31
Supplier environmental assessment,
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Percentage of new suppliers that were screened using environmental criteria G4-EN32 Significant actual and potential negative environmental impacts in the supply
chain and actions taken G4-EN33
Environmental grievance mechanisms
Number of grievances about environmental impacts filed, addressed, and resolved
through formal grievance mechanisms G4-EN34
Category: SOCIAL
– Sub-Category: Labor Practices and Decent Work Employment
Total number and rates of new employee hires and employee turnover by age
group, gender, and region G4-LA1
Benefits provided to full-time employees that are not provided to temporary or
part-time employees, by significant locations of operation G4-LA2 Return to work and retention rates after parental leave, by gender G4-LA3 Labor/management relations
Minimum notice periods regarding operational changes, including whether these
are specified in collective agreements G4-LA4
Occupational health and safety
Percentage of total workforce represented in formal joint management–worker health and safety committees that help monitor and advise on occupational health
and safety programs G4-LA5
Type of injury and rates of injury, occupational diseases, lost days, and
absenteeism, and total number of work-related fatalities, by region and by gender G4-LA6 Workers with high incidence or high risk of diseases related to their occupation G4-LA7 Health and safety topics covered in formal agreements with trade unions G4-LA8 Training and education
Average hours of training per year per employee by gender, and by employee
category G4-LA9
Programs for skills management and lifelong learning that support the continued
employability of employees and assist them in managing career endings G4-LA10 Percentage of employees receiving regular performance and career development
reviews, by gender and by employee category G4-LA11
Diversity and equal opportunity
Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other
indicators of diversity G4-LA12
Equal remuneration for women and men
Ratio of basic salary and remuneration of women to men by employee category, G4-LA13
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by significant locations of operation Supplier assessment for labor practices
Percentage of new suppliers that were screened using labor practices criteria G4-LA14 Significant actual and potential negative impacts for labor practices in the supply
chain and actions taken G4-LA15
Labor practices grievance mechanisms
Number of grievances about labor practices filed, addressed, and resolved through
formal grievance mechanisms G4-LA16
– Sub-Category: Human Rights
Investment
Total number and percentage of significant investment agreements and contracts
that include human rights clauses or that underwent human rights screening G4-HR1 Total hours of employee training on human rights policies or procedures
concerning aspects of human rights that are relevant to operations, including the
percentage of employees trained G4-HR2
Non-discrimination
Total number of incidents of discrimination and corrective actions taken G4-HR3 Freedom of Association and Collective Bargaining
Operations and suppliers identified in which the right to exercise freedom of association and collective bargaining may be violated or at significant risk, and
measures taken to support these rights G4-HR4
Child Labor
Operations and suppliers identified as having significant risk for incidents of child
labor, and measures taken to contribute to the effective abolition of child labor G4-HR5 Forced or Compulsory Labor
Operations and suppliers identified as having significant risk for incidents of forced or compulsory labor, and measures to contribute to the elimination of all
forms of forced or compulsory labor G4-HR6
Security Practices
Percentage of security personnel trained in the organization‘s human rights
policies or procedures that are relevant to operations G4-HR7 Indigenous Rights
Total number of incidents of violations involving rights of indigenous peoples and
actions taken G4-HR8
Assessment
Total number and percentage of operations that have been subject to human rights
reviews or impact assessments G4-HR9
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Supplier Human Rights Assessment
Percentage of new suppliers that were screened using human rights criteria G4-HR10 Significant actual and potential negative human rights impacts in the supply chain
and actions taken G4-HR11
Human Rights Grievance Mechanisms
Number of grievances about human rights impacts filed, addressed, and resolved
through formal grievance mechanisms G4-HR12
– Sub-Category: Society
Local communities
Percentage of operations with implemented local community engagement, impact
assessments, and development programs G4-SO1
Operations with significant actual or potential negative impacts on local
communities G4-SO2
Anti-corruption
Total number and percentage of operations assessed for risks related to corruption
and the significant risks identified G4-SO3
Communication and training on anti-corruption policies and procedures G4-SO4
Confirmed incidents of corruption and actions taken G4-SO5
Public policy
Total value of political contributions by country and recipient/beneficiary G4-SO6 Anti-competitive Behavior
Total number of legal actions for anti-competitive behavior, anti-trust, and
monopoly practices and their outcomes G4-SO7
Compliance
Monetary value of significant fines and total number of non-monetary sanctions
for non-compliance with laws and regulations G4-SO8
Supplier Assessment for Impacts on Society
Percentage of new suppliers that were screened using criteria for impacts on
society G4-SO9
Significant actual and potential negative impacts on society in the supply chain
and actions taken G4-SO10
Grievance Mechanisms for impacts on Society
Number of grievances about impacts on society filed, addressed, and resolved
through formal grievance mechanisms G4-SO11
– Sub-Category: Product Responsibility
Customer Health and Safety
Percentage of significant product and service categories for which health and
safety impacts are assessed for improvement G4-PR1
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Source: Researcher’s Compilations from GRI-G4 Implementation Manual (2015d, p.66-221)
Total number of incidents of non-compliance with regulations and voluntary codes concerning the health and safety impacts of products and services during
their life cycle, by type of outcomes G4-PR2
Product and Service Labeling
Type of product and service information required by the organization‘s procedures for product and service information and labeling, and percentage of significant
product and service categories subject to such information requirements G4-PR3 Total number of incidents of non-compliance with regulations and voluntary
codes concerning product and service information and labeling, by type of
outcomes G4-PR4
Results of surveys measuring customer satisfaction G4-PR5
Marketing Communications
Sale of banned or disputed products G4-PR6
Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion,
and sponsorship, by type of outcomes G4-PR7
Customer Privacy
Total number of substantiated complaints regarding breaches of customer privacy
and losses of customer data G4-PR8
Compliance
Monetary value of significant fines for non-compliance with laws and regulations
concerning the provision and use of products and services G4-PR9
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CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS 4.1 Regression Diagnostic Tests
Several underlying diagnostic tests were conducted prior to the estimation to ensure that the basic regression analysis assumptions are not violated. The tests include:
Normality test using the JargueBera, Variance Inflation Factor (VIF) for Multicollinearity, White Heteroskedasticity test and the LM test for autocorrelation.
Figure 4.1 Normality Test for Model One
0 5 10 15 20 25
-0.625 -0.500 -0.375 -0.250 -0.125 0.000 0.125 0.250
Series: Residuals Sample 1 100 Observations 100 Mean 9.50e-06 Median 0.008904 Maximum 0.307296 Minimum -0.639187 Std. Dev. 0.118045 Skewness -2.064397 Kurtosis 12.23631 Jarque-Bera 426.4851 Probability 0.000000
Source: Eviews 9 output (2018)
Figures 4.1, 4.2 and 4.3 present the normality results tested with a histogram. The assumption is that the histogram should reflect a bell-shaped curve, which would mean that the data is normally distributed. The following hypotheses are applicable to this test:
Null Hypothesis (Ho): Residuals (u) are normally distributed
Alternative Hypothesis (H1): Residuals are not normally distributed
Decision Rule: accept the null hypothesis when p-value is greater than 0.05 (5%).
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As shown in the result of Figure 4.1, which a combination of the entire variables in the 100 observations for the model one of study, the histogram showed that it was not symmetrically shaped. This indicates that the data did not fit into a normal bell-curve. The skewness coefficient of -2.06 indicated that the distribution was negatively skewed. The kurtosis coefficient which measures the thickness of the tails of the distribution stood high at 12.23 implying strong deviation from normality. Also, the Jargue-Bera statistic stood high at 426.5 with a corresponding probability value of 0.000 (p<0.05).
Based on the decision rule, the null hypothesis that the population residual (u) is normally distributed is rejected. Overall, the largely departure from normality can be attributed to small nature of the sample observation (i.e. 100). However, according to the Central Limit Theorem as cited in Ghasem and Zahediasl (2012), with large enough sample sizes (> 30 or 40), the violation of the normality assumption poses no major problem in panel data analysis.
Figure 4.2 Normality Test for Model Two
0 5 10 15 20 25 30 35
-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0
Series: Residuals Sample 1 100 Observations 100 Mean 7.89e-05 Median 0.089184 Maximum 0.998263 Minimum -3.373195 Std. Dev. 0.699302 Skewness -3.135145 Kurtosis 14.85166 Jarque-Bera 749.0767 Probability 0.000000
Source: Eviews 9 output (2018)
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In Figure 4.2, the normality test result of model two appeared similar with the previous – showing high Jarque-Bera values of 749.0767 signifying that the errors are not normally distributed. The p-value = 0 indicates that the null hypothesis "the distribution is normal" is rejected. However, this does not pose a problem to the pattern of analyses adopted since the assumption of homoskedastic is not violated (See table 4.3).
Figure 4.3 Normality Test for Model Three
0 4 8 12 16 20
-50 -40 -30 -20 -10 0 10 20
Series: Residuals Sample 1 100 Observations 100
Mean -0.004527 Median 0.625800 Maximum 26.65474 Minimum -48.06166 Std. Dev. 10.52281 Skewness -1.722034 Kurtosis 9.263029 Jarque-Bera 212.8631 Probability 0.000000
Source: Eviews 9 output (2018)
The observation of the histogram in figure 4.3 showed that it was not symmetrically bell-shaped, an indication that the data did not fit into a normal bell-curve.
The Jargue Bera statistic remained high at 212.86 with a low corresponding probability value which is less than 0.05. Based on the decision rule, we can reject the null hypothesis. This implies that the residuals (u) are not normally distributed and this can be attributed to some of the variables in the regression line (such as the sustainability variables) which the variances cannot be controlled.
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Table 4.1 Variance Inflation Factors (VIF) tests
Model 1 Coefficient Centered Model 2 Coefficient Centered Model 3 Coefficient Centered Variable Variance VIF Variable Variance VIF Variable Variance VIF
C 0.001634 NA C 0.054188 NA C 13.11908 NA
SOCP 0.029358 1.000063 SCOP 0.973733 1.000063 SCOP 235.7432 1.000063 ENVP 0.079726 1.000063 ENVP 2.644292 1.000063 ENVP 640.1901 1.000063
Source: Researchers compilation from Eviews 9 output (2018)
The data for this study was tested for multicollinearity as reported in Table 4.2. As observed, all the VIF values are very close to the value of ‗1‘ and far below the benchmark of 10. This is an indication of an absence of multicollinearity among the variables, thus there would be likely no issue of unstable parameter estimates in the regression line.
Table 4.2 Other Regression Diagnostics Tests
Model 1 Model 2 Model 3
Breusch-Godfrey Serial Correlation LM Test:
F-statistics 2.247 2.753 1.881
Prob. 0.0537 0.0688 0.0818
Heteroskedasticity Test: Breusch-Pagan-Godfrey
F-statistics 0.765 0.0994 0.0976
Prob. 0.468 0.7502 0.907
Source: Researcher’s Computation via E-views. 9 (2018)
The Breusch-Godfrey Lagrange Multiplier (LM) test for higher order Serial correlation test is conducted to test for serial correlation. In the presence of serial correlation, ordinary least squares estimators are no longer Best Linear Unbiased
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Estimators (BLUE). Moreover, the coefficient may be overestimated, standard errors underestimated and t-statistics overestimated. The Breusch-Godfrey Lagrange Multiplier (LM) test for higher order autocorrelation reveals that the hypotheses of zero autocorrelation in the residuals were not rejected. This was because the probabilities (Prob. F, Prob. Chi-Square) were greater than 0.05 and hence the LM test did not therefore reveal serial correlation problems for the model.
The test for Heteroscedasticity which is the absence of homoscedasticity or the constant variance assumption of the Ordinary Least Square estimator is also conducted. It implies the absence of non-constant variance leading to the breakdown of the BLUE properties in which the efficiency and consistency property are lost. Using the Autoregressive conditional Heteroskedasticity (Breusch-Pagan-Godfrey) test, decision rule is to conclude that there is no heteroscedasticity if the F-statistic values are respectively greater than the critical values at 5% level. In the absence of this (i.e if the critical values at 5% is greater than the F-statistic and observed R-square value), we conclude that there is homoscedasticity. From the second part of table 4.3, the results show the absence of heteroscedasticity, meaning that the residuals of the three models are homoskedastic (which is desirable) because the entire p-values are more than 5%.