ABSTRACT
This chapter explores the notion of reporting ecological accounting information about companies to external groups. First, the main regulatory developments encouraging, and sometimes requiring, companies to report to external parties about their environmental impacts will be examined (Sections r2 .u-12. r . 5) . Given that the relationship between management and external stakeholders is characterised by information asymmetry, it will be seen that external reporting requirements can lead to the provision of low-quality information about ecological impacts (often referred to as a problem of adverse selection; see Akerlof 1970) (Section l 2. l) . In short, managers have information that external parties would like to be made aware of prior to making decisions about their relationship with a company. However, disclosure of certain types of information (e.g. negative corporate impacts on the environment) may not be in the best interests of managers because their security and rewards might be threatened by external parties that hold managers accountable for their actions. Managers respond by making selected, favourable disclo sures . External parties then have to introduce incentives to encourage managers to tell the full story in a transparent way. This general incentive and information problem is often discussed under the heading of 'principal agent relationships ' (see e .g . Eisenhardt 1989) .
