Stakeholder Theory In Environmental Reporting

The next common theory that used by prior researcher in finding the motivations of company in providing environmental reporting is the stakeholder theory. Ulman (1985) focuses on two categories of stakeholder theory which comprise of stakeholder accountability and stakeholder management. In general, stakeholder is said to manage the relationship of company and the stakeholders rather than being accountability. There are also some researchers that stated stakeholder theory as the market-based theory in a way that stakeholders have the power and are the resources of the factors that contribute companies to provide environmental disclosure. Stakeholder theory helps company in strengthening the relationship with stakeholder groups as company is

Company may face tough decisions regarding the management of their stakeholders. For example, company must ask what is right for their specific situation or set of needs and how to balance competing stakeholder claims. This results in the broader question of whether stakeholder engagement is a precondition for organizational decision making. Company that provides environmental information is said to be environmentally responsible to their actions and decisions in doing their business activities. If stakeholder believes that company is responsible to the environment, the relationship between company and stakeholder is stronger. Thus, company will manage to gain stakeholder support (Gray et al., 1996). Company that provides more environmental disclosure will increase the company reputation, attract potential investor and attract potential consumers. This is because when company is being environmentally responsible, it shows that companies are actually fulfilled their stakeholder

The more powerful the stakeholder, the more control they have to the company so more pressure will be given to the company to fulfill the stakeholder expectations and interest (Deegan, 2014). Thus, stakeholder theory is concerning on how company can strategically manage their particular powerful stakeholders and balance the often conflicting demands of different stakeholder groups (Chen and Roberts, 2010). In this theory, the ‘community’ may be perceived as a ‘powerful’ stakeholder to influence company decisions and that may then have further impact on the operations and future of company growth. Without community pressures, there might be no environmental initiatives established by companies. One of the ways for the company to meet stakeholder expectation is by providing an environmental reporting in order to gain their support. In this situation, annual report may be a medium for company to show that they are being responsible to the environment by showing that they have given full efforts to provide more environmental information (Gray et al.,