Carbon Disclosure Project Research Articles

Climate board governance and carbon assurance – European evidence

Purpose This paper aims to investigate the effect of climate board governance based on (1) carbon change committees, (2) critical mass of female board members and (3) carbon-related executive compensation, on the voluntary implementation and quality of carbon assurance. Design/methodology/approach Using stakeholder and critical mass theories, 978 firm-year observations for European Union firms for the 2017–2021 period are collected. Climate board governance and carbon assurance proxies come from the Carbon Disclosure Project. Findings Correlation and logit regression analyses show that climate board governance significantly improves carbon assurance (quality). The findings are robust to various robustness and endogeneity checks and are of great importance for researchers, regulators and business practice. Originality/value This analysis mainly contributes to previous studies by using a combined sustainable board governance score as a major driver of corporate carbon assurance practices for the first time.

Category-specific benchmarking of Scope 3 emissions for corporate clusters

Although the majority of corporate emissions is assigned to the upstream and downstream value chain (Scope 3) rather than to direct emissions (Scope 1) and emissions from energy purchases (Scope 2), Scope 3 data are often insufficient, and their collection is complex due to many reference variables. Therefore, Scope 3 reporting by more than 4000 companies worldwide in 2022 is examined using data from the CDP (formerly Carbon Disclosure Project). All fifteen categories of this Scope as defined by the Greenhouse Gas Protocol are considered. To enhance the benchmarking results, corporate clusters based on size and industry are built after analyzing which factors significantly influence Scope 3.Based on the results, a benchmarking for the emissions per yearly turnover is carried out and examined on five case studies. As the manufacturing industry comprises various subindustries ranging from plastics to automotive, the cluster consisting big enterprises is further subdivided. Based on two case studies, it is possible to demonstrate that emission hotspots may be situated in diverse categories although companies belong to the same cluster. Companies can use the results for an initial estimation of category-specific Scope 3 emissions, e.g., regarding their sustainability reporting. The novelty of this work is a category-specific benchmarking of Scope 3 emissions considering corporate clusters based on companies worldwide and considering industry and size.

Comparative Assessment of Environmental Disclosure Practices: A Case Study of Two Leading Oil Companies in India

This study conducts a comparative analysis of the environmental disclosure practices of two leading oil companies in India: OIL and Petronet LNG. By evaluating their sustainability reports and publicly available environmental information, the research assesses key performance areas such as energy consumption, greenhouse gas emissions, water management, waste treatment, and biodiversity conservation. The analysis reveals that both companies exhibit similar environmental disclosure practices, with strengths in energy and emissions management but significant gaps in compliance, biodiversity, and grievance mechanisms. A statistical t-test shows no significant difference between the environmental performance of the two companies, indicating comparable transparency levels. The study highlights the need for both organizations to improve their environmental reporting and align more closely with global sustainability standards, such as the Global Reporting Initiative (GRI) and Carbon Disclosure Project (CDP). Recommendations include enhancing biodiversity conservation efforts, strengthening supplier environmental assessments, and improving compliance with environmental regulations. Keywords: Environmental disclosure, Oil industry, Sustainability reporting, Comparative analysis, India, Greenhouse gas emissions, Energy management, Water usage, Biodiversity, Compliance, Corporate social responsibility (CSR).

Climate risks, financial performance and lending growth: Evidence from the banking industry

This study examines the impact of climate-related risks, specifically physical and transition risks, on bank performance and lending growth. Using panel data from 147 international banks across 37 countries from 2011 to 2020 and climate data from the Carbon Disclosure Project, our findings show that transition risks positively impact both performance and lending growth, whereas physical risks negatively impact performance and loan growth. Consequently, the inclusion of transition risks in banks' risk frameworks has allowed them to benefit from climate-related policy changes imposed by regulatory bodies, but this does not hold true for physical risks. Although banks recognize the severe impact that physical risks may have on their businesses, they still cannot protect their performance against extreme weather events, particularly because most of these events are characterised by a high degree of uncertainty.

Understanding the Effect of Climate Risk on Banking Business—A Panel Data Analysis of Indian Firms

The enormous phenomenon of climate change, which is affecting many organisations of different sectors today, has a special impact on the financial sector in terms of credit risk. Awareness and action on environmental, social and governance (ESG) goals and climate change impacts have been rapidly increasing worldwide. In this article, we present a firm-level panel data analysis to link ESG ratings and CO2 emissions with the default risk and solvency position of selected companies. We perform various univariate and multivariate analyses on selected top Bombay Stock Exchange (BSE) top 200 companies that have disclosures in Carbon Disclosure Project (CDP) reports over 5 years (2017–2021). We find strong empirical evidence that a firm’s risk of default is linked to its environmental performance along with the level of carbon emission. Our findings will enable banks to establish a linkage between credit risk and climate change risk. This will assist banks as well as policymakers to adjust borrower-level ratings and align their lending and investments with net zero emissions. JEL Codes: G32, G33, Q2, Q5

Oil price uncertainty and corporate carbon performance: An international investigation

Drawing on legitimacy theory and stakeholder theory, this study examines whether oil price uncertainty (OPU) affects corporate carbon performance (CCP) in the international context. Based on data extracted from CDP (previously known as the Carbon Disclosure Project), World Bank, and Thomson Reuters Eikon databases, the study's sample consists of 9074 firm-year observations over the period 2011–2018 for all non-financial multinational companies invited to take part in the CDP questionnaire. Using an ordinary least squares regression model, we identify a strong relationship between OPU and carbon emissions performance. Our findings are robust to a battery of sensitivity tests, all of which support our original results. This study contributes new knowledge regarding the influence of OPU on CCP. The results will be of interest to investors and policymakers as they provide a useful basis for understanding OPU and its impact on CCP to promote better decision-making.

CDP (carbon disclosure project) emissions of CO2 and environmental disclosure quality: the mediating role of media legitimacy and governance

ABSTRACT The paper assesses the relation between firms’ CO2 emissions as per the CDP (formerly known as Carbon Disclosure Project) platform and their environmental disclosure quality, as mediated by two monitoring mechanisms: media legitimacy (external) and firm governance (internal). Legitimacy theory as well as the monitoring dimension of agency theory underlie the empirical investigation. The sample comprises Canadian and U.S. firms, for which a governance disclosure score and media legitimacy information are available from Bloomberg. Relying on structural equations modelling, results are the following. First, CDP disclosing firms exhibit an environmental disclosure score that is twice as high as non-disclosing firms. Second, media legitimacy, expressed by the Janis-Fadner index, is significantly lower for CDP disclosing firms. This may explain why high CO2 emission firms are less inclined to disclose CDP emission data. Third, the direct effect of the decision to disclose CDP emissions of CO2 (full sample) on environmental disclosure quality is positive and significant. Consistent with our hypotheses, we observe an indirect (mediating) effect on this relationship of media legitimacy (external monitoring) and corporate governance (internal monitoring). This suggests that media legitimacy and corporate governance enhance the positive impact of the decision to disclose CDP emissions of CO2 on environmental disclosure quality. Fourth, the direct effect of CDP emissions of CO2 (reduced sample) and environmental disclosure quality is positive and significant. Also consistent with our hypotheses, we observe an indirect effect on this relationship from media legitimacy and corporate governance.

Carbon Disclosure and Common Ownership

The crossholding of multiple firms by major shareholders in the same industry is known as common ownership. In this article, we examine how common ownership affects the carbon-related disclosure practices of cross-held firms. We report that common ownership decreases a firm’s propensity to disclose carbon information as well as the quality of such disclosures. A one standard deviation increase in measures of common ownership decreases the likelihood of participating in the Carbon Disclosure Project (CDP) survey by as much as 19.4%. Our results are robust to exogenous events, such as changes in common ownership and robustness tests, including Heckman two-stage regression and the exclusion of the financial sector. Further analyses demonstrate that the negative impact of common ownership on carbon disclosures is stronger in carbon-intensive sectors than in other sectors and for hard than for soft disclosures.

Determinants of companies' commitment to climate change: Evidence based on European listed companies

Climate change is a highly topical issue, and companies are increasingly required to report on their climate actions. This study assesses the influence of several factors affecting the companies' commitment towards climate change mitigation, adaptation, and transparency (i.e. CDP Integrtaed Performance Score). Therefore, by analysing the determinants of climate change commitment, the research aims to provide evidence and further insights on companies' responsiveness to climate challenges. Data are collected from Bloomberg's ESG database, and multiple linear regression analysis is performed on a sample of 3000 European‐listed companies responding to the carbon disclosure project (CDP) questionnaire. The results show that CDP Integrated Performance Score is associated with greenhouse gas emissions disclosure, Global Reporting Initiative (GRI) compliance, the presence of a Corporate Social Responsibility (CSR) committee and women on board, the number of employees, board and firm size. By contrast, assurance and ROE are non‐significant determinants for our sample. This study contributes to the existing research on climate change disclosure providing further insights on companies' climate change action. The findings are valuable for managers and regulators in promoting sustainability strategies and improving environmental performance and climate transparency.

SECTORAL ANALYSIS OF PRINCIPLE 2 OF BRSR FILINGS

There is a growing global demand from investors for more rigorous regulations regarding non-financial disclosures. Internationally, several ESG reporting frameworks, such as the Global Reporting Initiative (GRI) , Carbon Disclosure Project (CDP) , Sustainability Accounting Standards Board (SASB) , and the Taskforce on Climate-related Financial Disclosures (TCFD) , have been established. These frameworks require companies to report on their sustainability performance, underlying principles, processes, and key performance indicators. The International Sustainability Standards Board (ISSB) has issued a global baseline for sustainability reporting in 2023 as IFRS S1(General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) .

Orientation towards environmental sustainability in European family versus nonfamily firms: the role of policymaker engagement and incentives

ABSTRACT This study contributes to the debate on family business environmental sustainability by investigating the environmental orientation of family versus nonfamily firms. We study whether family business status affects (i) the extent of environmental orientation, i.e. the number of incentives set for environmental sustainability activities, contingent upon firms’ engagement with policymakers, and (ii) how firms’ environmental orientation unfolds, considering the types and beneficiaries of the incentives. To do so, we build on behavioural theories in family business, along with the literature on firm non-market strategies and responses to institutional pressure. Data on 162 European manufacturing firms from the Carbon Disclosure Project and the Orbis database are collected. Our results show that family firms have a higher degree of environmental orientation than nonfamily firms. However, when they engage with policymakers, the family firm–environmental orientation relationship weakens. Regarding the types and beneficiaries of the incentives, family firms are more likely to provide monetary incentives and to be more inclusive in their incentive systems than nonfamily firms are.

Global focus on ESG in the supply chain – insights into supply chain management of Environmental, Social and Governance requirements and trends both locally and globally

In our increasingly interconnected world, responsible business operation has become a normal, critical part of doing business for virtually all industries. Consumers, investors, and other company stakeholders are demanding businesses take responsibility for their current and future impacts on people and the environment. When assessing the role corporations play in a more sustainable future, many turn their focus to Environmental, Social and Governance (ESG) factors that help define and measure sustainable business. Given the wide variety of topics encompassed in ESG, companies often identify which are material, or prioritised by company stakeholders. Quantitative and qualitative information for material ESG topics is often reported using a standard or framework such as the Task Force on Climate-related Financial Disclosures; Taskforce on Nature-related Financial Disclosures; Sustainability Accounting Standards Board; the Global Reporting Initiative and the Carbon Disclosure Project (CDP), along with other region-specific standards. One reporting challenge includes extending ESG strategies and data collection to a company’s value chain. By including ESG-related requirements in service contracts or pre-qualification metrics, expectations can be clearly communicated and data aggregation becomes simpler. Engaging with vendors on the importance of material topics and providing educational tools and opportunities is necessary for accurate data collection. Benchmarking companies against their peers allows organisations to make informed decisions to continue or halt business relationships. Every company’s approach to ESG will look different, but protecting the business’s reputation and customer expectations is critical to continuous operations. Outcomes: understanding different components of ESG. Recognition of the types of reporting disclosure frameworks. Best practices with contractors and suppliers.

Quality of Carbon Emissions Disclosure on Corporate Sustainability Report Gojek Period 2020 and Goto Period 2021 – 2022

The high level of air pollution which is increasing from year to year causes air quality to decline. One of the causes of the increase in air is the growth in the number of motorized vehicles which causes an increase in the amount of emissions released in the form of Carbon Monoxide (CO), Hydrocarbons (HC), Nitrogen Oxide (NO). This shows that climate change is occurring. Climate change is one of the environmental problems that is currently of concern to stakeholders. The Carbon Disclosure Project (CDP) is a non-profit organization that operates focused on addressing environmental issues. CDP works by publishing information sheets which are useful as a guide for companies to disclose greenhouse gas (GHG) emissions resulting from the company's business activities. The company publishes a sustainability report which reveals carbon emissions. GoTo is a merger between Gojek and Tokopedia where in 2020 Gojek published a sustainability report. Scoring of carbon emission disclosures both quantitatively and qualitatively was carried out in this research. During the 2020-2021 period, the highest level of suitability and quality of disclosure was obtained by GoTo. Quantitatively, the climate change category has high disclosure quality. Qualitatively, the GHG emissions calculation category has the highest disclosure quality.

Corporate integrity culture and credit rating assessment

Recent research has started to acknowledge the vital role of soft information in shaping credit rating outcomes. We extend this literature by investigating the effect of corporate integrity culture on the credit rating process and document a significant positive relationship between a culture of integrity and corporate credit ratings. We further show that this relationship is from both an indirect effect of integrity on a reduced financial risk, and a direct effect of integrity in signalling the creditworthiness of the underlying firm. When an alternative signalling device, such as firm reputation, earnings management activity, and Carbon Disclosure Project involvement, contradicts with integrity culture, integrity is no longer a significant predictor of credit ratings. Our results suggest that corporate culture plays an important role in the credit rating assessment process.

Carbon emissions, female CEOs and earnings management

PurposeThe purpose of this study is to examine the association between carbon emissions and earnings management (EM). This study also considers the effect of female CEOs on the association between carbon emissions and EM.Design/methodology/approachThis study uses the carbon disclosure project (CDP) for carbon emissions data, the Compustat database for financial information and the ExecuComp database for female CEOs. The empirical sample of this study consists of 1,692 firm-year observations in the USA that voluntarily participated in the CDP survey from 2007 to 2015. Regression analysis and robustness tests are conducted for this study and both accrual and real EM are considered.FindingsThis study provides evidence that firms with female CEOs who voluntarily disclose their carbon emissions information engage in less real EM. Thus, the presence of female CEOs moderates the association between carbon emissions and EM. This study/paper also finds a positive association between carbon emissions and real EM, although there is an insignificant association between carbon emissions and accruals EM.Practical implicationsThe association between carbon emissions and EM has important implications for investors, regulators and policymakers. This study suggests that policymakers should improve the conditions that promote inclusion of females in the top management positions to constrain EM.Originality/valueThis study focuses on the USA, which is one of the major contributors to carbon emissions in the world. The presence of female CEOs moderates the association between carbon emissions and EM and firms with female CEOs show a greater impact on EM.

The impact of banks’ climate engagement on systemic risk. Does committing a little or a lot make a difference?

We investigate the relationship between climate change commitment and systemic risk using a sample of 211 international banks over the period 2011–2020. We hypothesize that banks that are more committed to climate change, which is measured by a score scale provided by the Carbon Disclosure Project, contribute less to systemic risk. Furthermore, we expect that banks that slip into the lowest score category by not even providing sufficient information on their climate change activity (“worst rating”), and banks that reduce their commitment along the climate change score scale will increase their exposure to systemic risk (“downgrade” effect). The results confirm all our hypotheses. Banks’ commitment to climate change is an important driver of systemic risk, and the level of this commitment also matters. We demonstrate the effectiveness of climate change management in reducing a bank’s contribution to the overall financial crisis and thereby increasing financial stability. Our study confirms the importance of the efforts to combat climate change for the benefit of financial stability.

Unveiling urban governance diversity: Clustering cities based on mitigation actions

Embracing a “more global” urban comparison in scientific assessments of climate actions by cities is essential to drive greater and more inclusive participation in global efforts to curb climate change. This comparison needs to engage cities irrespective of their size and status: when we do so, distinctive patterns of urban climate mitigation actions across a diverse range of cities emerge. Employing K-means clustering as a pattern recognition method, this study compares cities based on selected aspects of their reported mitigation actions to the Carbon Disclosure Project. It explores whether the identified clusters facilitate the comparison of a socio-spatially diverse range of cities. The study identifies five clusters within two themes, namely the nature and finance–implementation of actions, shedding light on shared and distinct governance aspects of mitigation actions by cities. Notably, the study underscores how governance patterns transcend city size and global status. These findings offer valuable insights for broadening the comparative imagination of cities and inter-city networking opportunities.

Early engagement and co-benefits strengthen cities’ climate commitments

Cities can lead the way in tackling climate change through robust climate actions (that is, measures taken to limit climate change or its impacts). However, escalating crises due to pandemics, conflict and climate change pose challenges to ambitious and sustained city climate action. Here we use global data on 793 cities from the Carbon Disclosure Project 2021 platform to assess how the COVID-19 crisis has affected cities’ reported climate commitments and actions and the factors associated with these impacts. We find climate actions persist despite funding shortfalls; yet only 43% of cities have implemented green recovery interventions. Co-benefits of climate action (for example, health outcomes) and early engagement on sustainability issues (for example, via climate networks) are associated with sustained climate action and finance during COVID-19 and green recovery interventions. Cities should strengthen sustainability co-benefits and relationships with coalitions of actors to support durable climate commitments during crises.

Are cities ready for climate change? Exploring the spatial discrepancies between urban vulnerability and adaptation readiness

Climate change is an increasingly severe global crisis, posing threats to ecosystems, economies, and human lives. To address these threats, different cities around the world have adopted various levels of adaptation strategies to cope with varying degrees of negative impact, such as increasing water efficiency and enhancing health response systems. Despite some progress, there is a spatial discrepancy among cities in terms of their vulnerability to climate change and their adaptation readiness. Uncovering the reasons behind this spatial discrepancy could help us formulate better policies to address climate issues. To this end, we conduct an empirical analysis using city response data from 2020, sourced from the Carbon Disclosure Project (CDP), focusing on a dataset that encompasses 421 cities worldwide. Specifically, we first formulate a “vulnerability index” to measure the propensity of cities to suffer negative effects in the event of climate hazards and a “readiness index” to represent their adaptation readiness level. Then we introduce the “discrepancy score” to quantify discrepancies across cities and discover the spatial distribution of the discrepancies through spatial visualization. Further, we employ a clustering analysis method named k-means to group different cities based on vulnerability index and readiness index. Finally, we perform Geographically Weighted Regression (GWR) to quantitatively analyze the spatial correlation between the economy and the discrepancy score of different cities. Our research mainly reveals several findings: (1) European cities tend to exhibit high levels of adaptation readiness with low degrees of vulnerability. In contrast, African cities consistently display heightened degrees of vulnerability combined with limited adaptation readiness. (2) Economic factors play a significant role in the spatial discrepancies between levels of adaptation readiness and degrees of vulnerability of cities; (3) The impact of the economy on the discrepancy scores exhibits significant spatial heterogeneity, with its influence being greater in European and African regions compared to other areas. Our study contributes both theoretically and practically to the comprehension of global climate change. It provides evidence-based support for the development of more effective climate change mitigation strategies and lays the foundation for fostering worldwide collaboration and initiatives.

Climate Regulation and Emissions Abatement: Theory and Evidence from Firms’ Disclosures

We measure firms’ beliefs about climate regulation, plans for future abatement, and current emissions mitigation from responses to the Carbon Disclosure Project. These measures vary strikingly around the Paris announcement. A dynamic model of a representative firm facing a future carbon levy, trading off abatement and capital growth, and facing convex adjustment costs cannot fit the data. A two-firm model with crossfirm reputational externalities, heterogeneous beliefs over climate regulation, and leader-follower interactions does. Out of sample, the model predicts firms’ reactions when the United States exits the Paris agreement. Firms’ beliefs about climate regulation strongly affect abatement, and crossfirm interactions amplify regulatory impacts. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.00482 .