Purpose – The purpose of this paper is to investigate the relationship between level of environmental disclosure and establishment of a legitimacy image of operation among Japanese firms after implementation of the Kyoto Protocol.
Design/methodology/approach – This study uses a sample consisting of 208 firms listed in the Japan Nikkei Stock Index 500 and adopts three-stage least-squares (3SLS) to explore the relationship between environmental news exposure, environmental disclosure in corporate social responsibility (CSR) reports, and environmental legitimacy.
Findings – Results indicate that firms from environmentally-sensitive industries can significantly improve their perceived legitimacy by releasing CSR reports; firms with better prior environmental legitimacy will be more active in environmental disclosure and establish better environmental legitimacy in the next period; firms with better carbon reduction performance tend to have higher levels of environmental disclosure. In terms of carbon reduction performance, Japanese firms in the sample may reduce carbon dioxide emissions by 49.636 tons by allocating one million yens (approximately 9,670.3 euros or 12,328 US dollars) to environmental expenditure.
Practical implications – The top three items of environmental disclosure in most Japanese firms' CSR reports are environmental management, development of alternative energies, and ecological information. These results reveal environmental behavior of sample firms in Japan to mitigate global warming. The managers should understand that the impact of substantive actions for environmental management on legitimacy is greater.
Originality/value – Environmental management has become an important component of business management beliefs for most firms, and Japanese firms that belong to environmentally-sensitive industries are even more active in using CSR reports as an effective tool to establish their legitimacy image.