Carbon disclosure and firm risk: evidence from the UK corporate responses to climate change

Abstract

By considering the theoretical association between corporate transparency, information asymmetry and firm risk, this paper investigates the relationship between corporate carbon disclosure and firm risk in the UK context. Using a sample of FTSE350 firms with Carbon Disclosure Project based year-observations from 2007 to 2015, we find that enhanced voluntary carbon disclosure reduces a firm’s total, systematic, and idiosyncratic risks. We also find that this negative association is driven mainly by carbon-intensive industries. Additional tests show that carbon disclosure was not a significant determinant of a firm’s risk until after the global financial crisis of 2007–2008. Our findings are of interest to stakeholders, including business managers and investors as they have considerable interest in assessing firms’ survival and sustainability.