Environmental risk factor disclosures in the 10-K reports of U.S. energy companies

Abstract

Purpose: This study examines changes in the volume and specificity of environmental risk factor disclosures in the 10-K reports of U.S. energy companies between 2017 and 2021. Methodology/approach: A total of 210 reports were analyzed using the content analysis method, a specificity index, the Wilcoxon signed-rank test and the Pearson correlation coefficient. Findings: Starting from the 2019 reports, the volume of environmental risk factor disclosures increased significantly year on year. In the 2021 reports, energy companies provided, on average, 31% more information than in 2017 reports (measured by word count). This growth was due to changes in the volume of disclosures on climate-related risk factors. However, the increase was not accompanied by an increase in detail. The level of specificity in the disclosure of both climate-related and other environmental risk factors was low (with the former being higher) and did not change significantly over the period considered. In general, boilerplate language was often used when dis-cussing environmental risk factors. Research limitations/implications: The findings suggest the need for regulators to detail requirements for specific disclosures on environmental risk factors. Originality/value: Previous studies based on 10-K reports examined the disclosures regarding any risk, tax risk, mergers and acquisitions risk, and security risk. This pa-per is the first to analyze the volume and specificity of disclosures devoted to environ-mental risk factors. In addition, it provides a more complete picture of environmental risk reporting practices by considering climate-related and non-climate-related risk factors separately.