Climate-related Disclosures Research Articles

Effect of corporate voluntary disclosure on corporate performance: Evidence from a transitional economy

Corporate performance is one of the core pillars of accelerating the economic growth of any economy. There are some direct and indirect components of corporate performance. This study is conducted to measure the impact of indirect factors, such as corporate voluntary disclosures, on corporate performance. A sample of 872 annual reports is investigated. A content analysis has been conducted to measure voluntary disclosure. The study employs the short panel data, fixed model regression, and Panel Corrected Standard Error (PCSE). The analysis indicates that corporate voluntary disclosure has influenced the return on assets with a regression coefficient of 0.0724 at p ≤ 0.01. Corporate voluntary disclosure in the transitional economy significantly influences corporate performance. However, the volume of corporate voluntary reporting in energy-related disclosure and climate-related disclosure is minimal, as the mean is only 2.21% and 2.31%. This implies that the government of the transitional economy may focus on persuading corporations to disclose additional information besides mandatory disclosure. In addition, indirect determinant of corporate performance, like corporate voluntary disclosure, brings sustainability to corporate performance, which further assists the transitional economy in shifting its economic status from one dimension to another. AcknowledgmentThe authors are very thankful to the Institute of Advanced Research, United International University, Bangladesh, for providing partial funds to complete this empirical study.This project is partially funded by the Institute for Advanced Research Publication Grant of United International University, Ref. No.: IAR-2024-Pub-069.

Impact of corporate climate change disclosure on firm performance: empirical evidence from an emerging economy

Purpose This study aims to investigate the impact of corporate climate change disclosure (CCD) on the financial performance of Indian firms. Design/methodology/approach The study is grounded in the principles of signalling theory, legitimacy theory and the cost-benefit analysis approach. The sample for the study includes 77 Indian firms from 2018–2019 to 2021–2022. Required data are collected from published annual reports, sustainability reports and the Ace Equity Database. The explanatory variable CCD is measured using content analysis based on the Task Force on Climate-related Financial Disclosures (TCFD) framework. The panel fixed-effects or random-effects models have been considered for hypotheses testing. Findings The disclosure level of CCD and its different components is found to be moderate with an average score of 0.364 among top Indian firms. Regression results reveal a significant positive association between CCD on firms’ market-based performance, suggesting its long-term benefits. Besides, additional analysis indicates the differential impact of CCD on financial performance based on firms’ CEO duality status, industry affiliation and pre-COVID and post-COVID period, thus establishing their moderating role in the observed relationship. Practical implications The study highlights the necessity of enhancing climate-related disclosure by Indian firms and strategically leveraging the same to boost their financial performance. Originality/value Few studies have examined the implications of CCD (based on the TCFD framework) on firm performance. Moreover, exploring the moderating role of CEO duality, industry type and COVID-19 in the CCD and firm performance relationship is a novel empirical contribution.

Enhancing Climate Decision Making

This article investigates the early implementation of the Aotearoa New Zealand Climate Standards, the world’s first mandatory climate-related disclosure regime, and its influence on New Zealand business practices. Through interviews with 20 organisations, the study explores challenges and opportunities associated with the new disclosure requirements. Findings range from viewing disclosures as compliance to recognising the strategic value. Key needs include enhanced policy support, data access and capacity building to ensure disclosures contribute meaningfully to New Zealand’s climate goals. The insights provide a foundation for refining the Aotearoa New Zealand Climate Standards and offer broader lessons for the global adoption of climate risk disclosure standards.

Assessing corporate climate action: Corporate climate policies and company-level emission reductions

Private investment decisions are expected to play a decisive role in redirecting capital flows in line with the Paris Agreement. The financial sector and policymakers have emphasized the role of corporate climate action and climate-related disclosure, including backward-looking emissions figures and forward-looking information on corporate climate policies to enable investors to reallocate capital to firms with promising emission reduction pathways. However, there is at best inconclusive evidence on the relationship between corporate climate policies and subsequent company-level emission reductions. Previous research was limited by small sample sizes and short observation periods, impeding the analysis of time-lagged effects or the inclusion of company-level fixed effects. To overcome these shortcomings, we draw on a new dataset with 17,198 observations from 1,749 companies that disclosed their corporate climate policies between 2010 and 2022. While our results show only a weak link between individual policies and company-level emissions, we find some evidence for an improved climate performance for absolute emissions for companies that introduced a comprehensive corporate climate policy mix. This is in line with public policy research that has found comprehensiveness to be an important dimension for public policy mixes and emphasizes the role of a mix of corporate climate policies rather than relying on individual measures.

IMPLEMENTATION OF CLIMATE-RELATED BUSINESS REPORTING

The International Standard on Climate-Related Disclosures IFRS- S2 is to require an entity to disclose risks and opportunities, that can reasonably be expected to affect the business cash flows, its availability of financing or the formation of the cost of capital in the short, medium and long term. The article examines the ways of information presented in the financial reports of organizations as a result of the prevention of climate change risks by business.

Navigating legitimacy: diverse stakeholder perspectives on the IFRS foundation’s establishment of the ISSB

Purpose In 2020, the IFRS Foundation’s public consultation on Sustainability Reporting provided an opportunity for stakeholders to share their opinions on the Foundation’s proposals. This paper aims to analyze the comment letters that would legitimize the IFRS Foundation to institutionalize the International Sustainability Standards Board (ISSB). Design/methodology/approach This study used Python to develop a model for analyzing all 577 submissions that the IFRS Foundation received, using a combination of quantitative and qualitative content analysis methods. Findings Support for the creation of the ISSB was not unanimous but reached 68%. Key supporting arguments were that the IFRS Foundation could harmonize sustainability reporting standards by leveraging its expertise in setting accounting standards, and use its existing relationships to enforce sustainability reporting. Key counterarguments were: the IFRS Foundation lacks expertise in the areas of sustainability and climate; sustainability reporting should be integrated into financial reporting rather than being disclosed separately; the proposals were limited in scope (single materiality, focus on investors’ information needs and climate change centrism); and the IFRS Foundation should aim to endorse already established frameworks instead. Practical implications A consensus between supporters and critics was the need to make sustainability reporting mandatory. Endorsed by IOSCO, the ISSB released its inaugural standards, focusing on climate-related disclosures, effective from 2024 in jurisdictions that choose to adopt them. Originality/value The findings show that the establishment of the ISSB by the IFRS Foundation only partially fulfilled the demand for the harmonization of sustainability reporting standards. As a result, broader and non-investor-centric sustainability information may continue to be reported under alternative frameworks.

Climate-Related Regulations and Financial Markets: A Meta-Analytic Literature Review

Countries are confronting climate change using climate-related regulations that require firms and investors to disclose their green strategies and activities. Using the Meta-Analysis Structural Equation Modeling (MASEM) technique, this study evaluates the relationship between climate-related regulations and financial markets. The meta-regression analysis is conducted based on the outcomes of 52 empirical studies screened from 143 relevant articles. The results show the predictive power of the climate-related disclosure (CRD) laws and environmental regulations (ERs) on financial performance across all studies. ERs create mixed impacts on the equity market and support the debt market. Firm value is affected by ERs either negatively or positively. Methodologies and risk-related factors (market, industry, and firm risks) are important in explaining the relationships between ER/CRD and financial performance. The more developed the market, the less the impact of ERs and CRD on the equity market. Considering industry risk is recommended because different industries are exposed to changes in policies differently. The ER/CRD–firm value relationship is affected by all market, industry, and firm risks. The downside effect of mandatory CRD on the equity market suggests that policy makers, firms, and investors should be cautious in passing a new CRD regulation for transformation towards a sustainable economy.

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.

Can climate-related information disclosures strengthen green innovation capacity? Firm-level evidence using textual analysis

This study presents novel insights on modelling the implications of voluntary climate-related information disclosure on corporate green innovation (GI) in China. Based on a constructed dataset of 13,664 firm-year observations between 2014 and 2020, we quantify climate-related disclosures under the Task Force on Climate-Related Financial Disclosures framework using computerized text analysis. Our findings show that climate-related information disclosure substantially bolsters corporate green innovation after addressing endogeneity concerns. However, the promoting effects vary drastically across industry attributes, ownership structure, and environmental regulations. Further channel analysis demonstrates that “greenwashing” behaviours and financial constraints adversely moderate the nexus between climate-related information disclosure and green innovation of firms, while digital finance positively moderates it. Overall, this study enriches the literature and offers practical implications for firms engaging in the green innovation process more effectively under a more transparent environment-related disclosure system.

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.

ESG Disclosure by Brazilian Public Companies

Objective: The objective of this study is to investigate ESG disclosure by Brazilian publics companies with the aim to understand issues regarding the standards used by companies, main risks reported, the auditing companies, emission of greenhouse gases etc. Theoretical Framework: In 2021, the Brazilian Securities and Exchange Commission (CVM) issued Resolution No. 59 requiring listed companies to disclose ESG information in their Reference Form in the model of “disclose or explain”. This new regulation makes Brazil an excellent laboratory to investigate the disclosure of sustainability informations. Method: A metric was developed, based on CVM Resolution No. 59/21, which deals with ESG disclosures in the Reference Form. The disclosures made in the financial year 2022 were analyzed using the content analysis technique. The study sample consisted of the 81 companies that made up the Ibovespa portfolio in the period September-December 2023. Results and Discussion: (i) 78 companies published reports with sustainability information; (ii) the GRI was the most widely used disclosure standard; (iii) about 74% of the disclosures had a Limited Assurance Report from an independent firm, mostly one of the “Big 4” companies; (iv) 78 companies used the UN SDGs in their reports; (v) 51 companies took into account the TCFD recommendations in their climate-related disclosures; (vi) 67 companies carried out a full GHG emissions inventory. Research Implications: There is a need to improve disclosures, focusing on the information needs of shareholders and creditors, and that the requirement for reasonable assurance will tend to require improvements in sustainability-related practices and policies, as well as in internal controls. Originality/Value: ESG disclosure is growing around the word as sustainability issues became more important to investors around de world. Brazil is home to the world’s largest environmental asset, the Amazon rainforest, and has already developed a number of sustainable finance initiatives. In fact, the country is poised to become a global leader in the corporate sustainability movement. In the sense this study wishes to contribute to existing literature on the topic as well as practitioners and regulators.

A commentary on E-liability: does it bring something new to GHG accounting?

E-liability is a proposed new approach for corporate-level greenhouse gas accounting, winning the 2022 Harvard Business Review-McKinsey Award for “groundbreaking management thinking”. It is actively promoted by the E-liability Institute and piloted by major international companies, such as Hitachi and Tata Steel. The intention is that E-liability should replace the widely adopted GHG Protocol Corporate Accounting & Reporting Standard, which underpins recent regulatory standards including the IFRS Climate-related Disclosures Standard, and the European Sustainability Reporting Standards. It is therefore important to ask what is new and what are the merits of E-liability? One positive feature of E-liability that could be adopted or enhanced in the established GHG Protocol approach is the direct requirement for suppliers to disclose cradle-to-gate data to downstream customers. However, one of the major limitations with E-liability is the limited provision of information on downstream emissions, which reduces the usefulness of disclosures for managing the abatement of these emissions, and for assessing company exposure to climate-related risk. Our analysis concludes that much of what is proposed in the E-liability method is not new, and that the key aspects that are new result in a detrimental loss of information.

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) .

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.

Актуальные вопросы регулирования и раскрытия информации об устойчивом развитии в отчетности организаций

The article highlights the current regulation and sustainability and disclosure issues related to sustainability development. Analyze the recently released IFRS standards on sustainability disclosures — IFRS S1 «General Requirements for Disclosure of Sustainability-related Financial Information» and S2 «Climate-related Disclosures». Highlight the main stakeholder requests for climate risk disclosure in reporting.

Assessing climate-related disclosures of European banks through text mining

Assessing climate-related disclosures of European banks through text mining

Corporate governance structure and climate‐related financial disclosure: Conventional banks versus Islamic banks

AbstractThis paper examines whether the different corporate governance structures of conventional banks (CBs) and Islamic banks (IBs) have varying effects on their respective climate‐related disclosure (CRD). Employing a unique dataset of CBs and IBs' CRD and corporate governance structures for the period of 2016–2019, we found that their respective corporate governance structures did indeed affect their CRD in different ways. Our findings suggest that CBs disclose more climate‐related information than IBs because IBs focus on Sharia compliance which does not emphasise the protection of the environment, while CBs may be more responsive to shareholders' and stakeholders' demands on climate and environment. These effects were stronger with the quality of governance, that is, CBs disclose more climate‐related information with the governance quality, while IBs disclose even less when their governance quality increases. The findings of this study have important implications for climate change, especially the Paris Accord and The 26th Meeting of the Conference of Parties (COP26). There are also policy implications for sustainable financial markets and the financial services sector.

Global investor responses to the International Sustainability Standards Board draft sustainability and climate-change standards: sites of dissonance or consensus

Purpose This paper aims to examine sites of dissonance or consensus between global investor responses to the draft standards, International Financial Reporting Standards S1 (IFRS) (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures), issued by the International Sustainability Standards Board (ISSB). Design/methodology/approach A thematic content analysis was used to capture investor views expressed in their comment letters submitted in the consultation period (March to July 2022) in comparison to the ex ante position (issue of draft standards, March 2022) and ex post summary feedback (ISSB staff papers, September 2022) of the ISSB. Findings There was investor consensus in support of the ISSB and the development of the draft standards. However, there were sites of dissonance between investors and the ISSB, notably regarding the basis and focus of reporting (double or single/financial materiality and enterprise value); definitional clarity; emissions reporting; and assurance. Incrementally, the research further highlights that investors display heterogeneity of opinion. Practical and Social implications The ISSB standards will provide a framework for future sustainability reporting. This research highlights the significance of such reporting to investors through their responses to the draft standards. The findings reveal sites of dissonance in the development and alignment of draft standards to user needs. The views of investors, as primary users, should help inform the development of sustainability-related standards by a global standard-setting body apposite to current policy and future reporting requirements, and their usefulness to users in practice. Originality/value To the best of the authors’ knowledge, this paper makes an original contribution to the comment letter literature, hitherto focused on financial reporting with a relative lack of investor engagement. Using thematic analysis, sites of dissonance are examined between the views of investors and the ISSB on their development of sustainability reporting standards.

The evolution of CSR reporting in the oil and gas industry and its future direction: A conceptual review

Corporate Social Responsibility (CSR) reporting has become increasingly important for industries worldwide, particularly in sectors with significant environmental and social impacts such as the oil and gas industry. This paper presents a conceptual review of the evolution of CSR reporting within the oil and gas sector, examining its historical development, current practices, and future directions. The evolution of CSR reporting in the oil and gas industry can be traced back to growing societal and stakeholder pressures for transparency and accountability. Initially, CSR reporting focused primarily on philanthropic activities and compliance with regulations. However, with mounting concerns over environmental degradation, climate change, and social justice issues, stakeholders demanded more comprehensive reporting practices. In response, oil and gas companies have adopted various frameworks and standards, such as the Global Reporting Initiative (GRI) and the United Nations Sustainable Development Goals (SDGs), to guide their CSR reporting efforts. These frameworks help companies disclose their environmental, social, and governance (ESG) performance in a systematic and comparable manner, enhancing accountability and facilitating stakeholder engagement. Looking ahead, the future direction of CSR reporting in the oil and gas industry is likely to be shaped by emerging trends such as increased emphasis on climate-related disclosures, integration of ESG factors into corporate strategy and decision-making, and the rise of digital technologies for data collection and reporting. Moreover, there is a growing recognition of the need for industry-wide collaboration and standardization to improve the credibility and effectiveness of CSR reporting. This conceptual review highlights the evolving landscape of CSR reporting in the oil and gas industry and underscores the importance of continuous improvement and innovation in meeting the evolving expectations of stakeholders and society.

Firm-specific climate risk and market valuation

In alignment with the call in Engle et al. (2020) to improve the measurement of firm-level climate risk exposure, we explore usefulness of a firm-specific measure based on 10-K disclosures of climate risk. We find that our measure has incremental explanatory power for firm valuation over climate risk-related measures currently used in the literature. Further, our measure is broadly available, which extends the span of questions related to firm-specific climate risk that can be investigated. Corroborating its usefulness, we find that relative to hedge portfolios based upon the other measures, the return on a hedge portfolio that is long (short) on firms with high (low) values of our climate risk measure has the strongest negative association with a US-news based measure of climate change concerns. By exploiting the broad climate-related disclosures in 10-Ks, our measure provides a tool to better understand valuation implications of climate risk for firms.