Climate Disclosure Research Articles

Mandatory climate disclosures: impacts on energy and agriculture markets

PurposeWith the rise of mandating climate-related disclosures (CRD), this paper aims to investigate how energy and agriculture markets are exposed to climate disclosure risk.Design/methodology/approachUsing the multivariable simultaneous quantile regression and data from 1 January 2017 to 29 February 2024, the authors examine daily and monthly responses of energy and agriculture markets to climate disclosure risk, energy risk, market sentiment, geopolitical risk and economic policy risk. The sample covers the global market, Australia, Canada, European Union (EU), Hong Kong, Japan, New Zealand, Singapore, the UK and the USA.FindingsThe results show that climate disclosure risk creates both positive and negative shocks in the energy and agriculture markets, and the impacts are asymmetric across quantiles in different economies. The higher the climate disclosure risk, the greater impact of crude oil future on the energy sector in North America (Canada and the USA) and Europe (EU and the UK), but no greater effects in Asia Pacific (Australia, New Zealand and Singapore). The agriculture sector can hedge against economic policy and geopolitical risks, but it is highly exposed to climate disclosure and energy risks.Originality/valueThis study timely contributes to the modest literature on the asymmetric effects of climate disclosure risk on the energy and agriculture markets at the global and national levels. The findings offer practical implications for policymakers and investment practitioners in understanding financial effects of mandating CRD to diversify risks depending upon market conditions and policy uncertainty.

Gender diversity and climate disclosure: a tcfd perspective

AbstractThe paradigm of corporate environmental disclosures aimed at investors developed in 2017 with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Existing literature on social responsibility disclosures points to gender diversity on the board of directors as an influencing factor. This study aims to assess the influence of gender diversity in climate-related financial disclosures, as recommended by the TCFD based on a sample of 27 companies operating within the sectors of electricity, oil, coal and gas, water, and alternative energy that have announced their adherence to the recommendations from 2017 to 2021. By applying a linear regression model, the results indicate the presence of a positive association between the level of TCFD disclosures and board gender diversity, as well as other factors, such as company size, CEO duality, and general liquidity. However, the influence of board gender diversity on corporate reporting based on the TCFD recommendations suggests that the commitment of boards to the reporting of climate change risks and opportunities is not significantly dependent on gender diversity, as the presence of women in the Boards is favorable for the reporting but without a significant impact on the level of disclosures. This research offers insights into sustainability reporting practices, focusing on a relatively new perspective of reporting climate-related financial topics and their determinants. The findings hold implications for organizational leaders and stakeholders, mainly investors, as these recent sustainable reporting practices are challenging but also bring new opportunities related to transparency towards climate-related issues.

Firms’ voluntary climate action disclosures and stock market reaction: A BERT-based analysis of earnings conference calls in China

Climate information disclosure plays a pivotal role in fostering sustainable practices and enhancing transparency in climate risk. However, it is unclear whether firms’ voluntary climate-related disclosures effectively convey incremental information to investors. In the empirical context of Chinese listed firms, we explore the valuation effect of firms’ voluntary climate action disclosures, which is quantified from the transcripts of earning conference calls using a novel natural language model, BERT. Our results reveal that firms with more voluntary climate action disclosures experience more positive stock market reactions, indicating that investors value transparency on corporate commitment to future climate actions. The positive valuation effect of disclosures tends to be more pronounced in firms with higher disclosure quality, more green-preference investors, and higher investor attention. Moreover, we find that the positive valuation effect is achieved through enhancing corporate reputation and investor confidence. We further show that firms’ voluntary climate action disclosures exhibit a significant positive correlation with green innovations and environmental pillar scores, dispelling concerns of mere “greenwashing”. Overall, our evidence contributes to understanding the role of climate disclosures in investor assessment of firms’ climate risks and opportunities. The findings provides fresh insights for policymakers and regulatory bodies involved in shaping disclosure frameworks that promote sustainable business practices.

The Economic Consequences of Climate Risk Disclosures

ABSTRACT As the U.S. Securities and Exchange Commission (SEC) implements rules to improve and standardize climate-related disclosures among public companies and the climate change dilemma unfolds, understanding the economic implications of climate risk disclosures becomes crucial for stakeholders. This study aims to synthesize research developments in the climate risk disclosure domain to provide valuable insights into current research trends and identify potential avenues for future research. More specifically, this study identifies prior research that investigates the economic or financial effects of climate disclosures. Prior studies find both positive and negative effects of climate risk and suggest that climate disclosures may mitigate the effects of climate risk. Our review synthesizes the results of prior studies and identifies the prevailing theoretical frameworks used. Based on our assessment of the findings in prior studies, we also reveal emerging research trends and suggestions for future research. Data Availability: The data used in this research are publicly available and can be made available upon request. JEL Classifications: Q54; M41; G32; G38; Q58.

Operating in the context of evolving climate disclosure practices and frameworks

The standards for companies reporting on the environmental impacts of their operations have changed drastically over the last decade and are about to become even more complex. Initially, limited regulation or guidance available to companies in relation to climate disclosures led to widely diverging practices. This has resulted in many companies facing allegations of ‘greenwashing’ and in some cases litigation and shareholder activism. However, the Australian Government has recently announced it will implement mandatory climate reporting commencing from 1 July 2024 for many Australian companies. Additional climate disclosures – encouraged by pressure from stakeholders and required by the new reporting regulations – will make environmental risk management more complex. The additional disclosures will also provide further opportunities for interference with the approval process for new projects, if there are inconsistencies between a company’s climate disclosures generally and what they have said in their project approval documents. In this paper, we provide an overview of effective strategies and mitigation steps that can be taken to reduce this risk of disruption and disincentivise activist interference more generally, drawing from recent climate change proceedings and experience advising energy and resources clients in relation to climate change and Environmental Social and Governance (ESG) issues more broadly. In particular, we will cover the aspects of the new mandatory climate reporting regime that will be most difficult to comply with; common greenwashing pitfalls; stakeholder/activist engagement planning; and how Boards should approach these issues.

How cheap talk in climate disclosures relates to climate initiatives, corporate emissions, and reputation risk

Navigating the complex landscape of corporate climate disclosures and their real impacts is crucial for managing climate-related financial risks. However, current disclosures oftentimes suffer from imprecision, inaccuracy, and greenwashing. We introduce ClimateBertCTI, a deep learning algorithm, to identify climate-related cheap talk in MSCI World index firms’ annual reports. We find that only targeted climate engagement is associated with less cheap talk. Voluntary climate disclosures are associated with more cheap talk. Moreover, cheap talk correlates with increased negative news coverage and higher emissions growth. Hence, cheap talk helps assess climate initiatives’ effectiveness and anticipate reputation and transition risk exposure.

Scope 3: what question are we trying to answer?

Once a little-scrutinized and largely optional aspect of corporate greenhouse gas emissions disclosure, Scope 3 emissions accounting and reporting is now a common element of voluntary climate best practice and is increasingly being adopted as part of new mandatory corporate climate disclosure policies. As Scope 3 disclosure becomes more central to what companies are asked (or required) to do, we perhaps should ask anew what exactly it is we are trying to accomplish. While those NGOs and other stakeholders that designed the Scope 3 framework and who have included it in highly influential corporate leadership programs were well-intentioned, it is becoming clear that the system as designed is ill-suited to serve its fundamental purpose: driving corporate actions to reduce, avoid, and remove greenhouse gas emissions. Scope 3 inventories are often seen as an end in and of themselves, yet from a climate perspective, they are only tools—and only useful if they help lead to positive emissions impact. What companies are asked to do regarding value chain emissions is not adequately aligned with what climate science demands. Therefore, greenhouse gas accounting, disclosure, and leadership programs and rules must modernize their approaches to Scope 3. Options include: limiting data collection requirements to seeking actionable, primary data; using proxy data only as a baseline from which the demonstrated impact of emissions-reducing interventions can be credited by target setting and leadership programs; and by fully embracing the use of verified market mechanisms to enable investments in positive emissions impact.

Disclosure regime for climate change: proposal and prospects for India Inc

ABSTRACT Climate change is a financial risk to companies, and those that disregard this will have to deal with losses due to extreme weather events, new regulations, or the disruption of the supply chain. Companies must disclose climate-related financial implications to enable informed decision-making by investors and other stakeholders. Any indifference or disregard for climate-related disclosures will harm the investors who may trade based on insufficient information and prices of securities that do not account for climate risks. In India, disclosures are mandated for companies under the Companies Act 2013 and various Securities and Exchange Board of India Regulations. This paper will explore the adequacy of the current disclosure regime concerning climate change and argue that, although information regarding climate risks falls within the ambit of the current set of mandated disclosures, it is insufficient. The paper concludes by making a case for mandatory climate disclosures under the Companies Act.

Reassessing climate disclosure demands: An examination of stakeholder perspectives beyond institutional investors

AbstractThis article examines support for mandatory climate impact disclosures beyond institutional investors and investigates societal backing for such disclosures. Analysing public comments on the Securities and Exchange Commission's proposed climate disclosure mandate, the study reveals varying levels of support across demographics, ideologies, and industries. Notably, younger individuals, affluent individuals, females, urban residents, minorities, college graduates, Democrats, environmental activists, and certain regions overwhelmingly endorse the rule. Conversely, opposition is pronounced among high‐school graduates, rural populations, small business owners, agricultural and energy sector employees, publicly traded companies, and residents of the South and Midwest. While the SEC cites institutional initiatives and surveys to justify the demand for climate disclosures, this article highlights a potential oversight of other stakeholders' perspectives. It is unclear that mandatory disclosure is necessary when a company's business is not at material financial risk from climate change.

Using Natural Language Processing With Explainable AI Approach to Construct a Human-Centric Consumer Application for Financial Climate Disclosures

Using Natural Language Processing With Explainable AI Approach to Construct a Human-Centric Consumer Application for Financial Climate Disclosures

Dissonance in Climate Disclosure: the SEC, EU, California, and ISSB Regimes

Dissonance in Climate Disclosure: the SEC, EU, California, and ISSB Regimes

California and Europe Require Scope 3 Climate Disclosures Despite SEC Retreat

California and Europe Require Scope 3 Climate Disclosures Despite SEC Retreat

Climate Disclosures and the need for Corporate Accountability

Climate Disclosures and the need for Corporate Accountability

The Problem of Carbon Credits and Offsetting in Corporate Climate Disclosure

The Problem of Carbon Credits and Offsetting in Corporate Climate Disclosure

Assessing Bank Climate Disclosures and Their Relationship to Bank Lending

Assessing Bank Climate Disclosures and Their Relationship to Bank Lending

The Problem of Carbon Offsets in Corporate Climate Disclosure

The Problem of Carbon Offsets in Corporate Climate Disclosure

Real Effects of the Proposed SEC Climate Disclosure Rule

Real Effects of the Proposed SEC Climate Disclosure Rule

Climate Disclosure Regulation and Investor Wealth

Climate Disclosure Regulation and Investor Wealth

Green accounting standards and environmental sustainability in Alkharj: Mediating role of social performance

The Climate Disclosure Standards Board (CDSB) initiated the standards for sustainability and transparency in corporate reporting, which may be termed Green Accounting Standards (GAS). GAS encourages sustainable decision-making among businesses and practitioners. The present study explores the role of GAS on environmental sustainability in the firms located in the Alkharj governorate. Moreover, the mediating of social performance is also investigated in the relationship between GAS and environmental sustainability. For this purpose, a questionnaire is used to collect the data from accounting practitioners, and 224 valid responses are collected from the survey. The results of PLS-SEM show that GAS improves the environmental sustainability and social performance of the firms. Moreover, social performance also improves environmental sustainability. Thus, GAS promotes resource efficiency by tracking resource use and waste generation, which could be helpful in identifying opportunities for reducing environmental footprints. Thus, it also facilitates monitoring environmental performance in Alkharj to identify the areas needing improvement. Furthermore, GAS also improves social performance by recognizing social costs and engaging stakeholders, which are also facilitating more socially responsible decisions. Based on the results, the study recommends the firms in Alkharj governorate adopt GAS to improve environmental sustainability and social performance.

Everything changes: A look at sustainable investing and disclosure over time and a discussion of “Institutional investors, climate disclosure, and carbon emissions”

This paper summarizes and discusses Cohen et al. (2023), including how their results fit into a larger set of open questions about how sustainability-oriented information gets used in capital markets. Two key messages emerge. The first is that investors are not a monolith. The second message is that the information environment in which investors have been operating has changed dramatically over the past two decades and is likely to continue to evolve for the foreseeable future. Both messages have important implications for researchers when thinking about how to design empirical tests of theoretical relationships.