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Apart from some intrinsic motivation of management, environmental protection by companies requires external incentives and the involvement of stakeholders, who need accurate information if their involvement is to be efficient and beneficial for the environment. However, they will only be accurately informed if the benefits are higher than the costs for the recipients of information. This article investigates how regulations to report environmental impacts, such as those defined by the European Environmental Management and Eco-Audit System, the Danish regulations on Green Accounting or the US Toxic Release Inventory, influence the costs and quality of information for external stakeholders. These regulations reduce the cost of information for the recipients, but neglect the aspect of information quality. As the provision of high quality information is expensive and because the recipients cannot accurately assess the quality (information asymmetry), bad quality information tends to drive out good. This may result in distorted figures impeding accurate cross-company comparisons and time-series studies, reducing the benefits for the recipients. Consequently, stakeholders are still not able to effectively discriminate environmental laggards. The main conclusion of this analysis is that international standards of ecological accounting are necessary to guarantee a minimal level of information quality and to reduce uncertainty about the provided information quality. © 1997 John Wiley & Sons, Ltd and ERP Environment.
Stefan Schaltegger (Sat,) studied this question.