Climate Risk Disclosure Research Articles

Environmental protection tax reform and corporate Climate Risk Disclosure

The reform of the environmental protection tax (EPT), a crucial policy instrument for combating climate change, significantly influences corporate climate risk. Hence, a thorough examination of the connection between EPT and corporate climate risk disclosure (CRD) is essential for companies to better evaluate the risks and challenges they encounter. The findings of the research indicate: (1) EPT reform substantially boosts corporate CRD. (2) Mechanism tests demonstrate that EPT enhances corporate CRD via three pathways: increasing public environmental awareness, fostering green innovation, and improving total factor productivity. (3) Heterogeneity analysis shows that various factors such as micro-level corporate characteristics (ownership and corporate life cycle), industry features (high-tech industries and factor intensity), and macro-level aspects (urban location, size, and resource attributes) differentially affect the impact of EPT. (4) Additional analysis from the perspective of institutional investors indicates that a higher proportion of institutional investor holdings amplifies the positive effect of EPT on corporate CRD. These research conclusions aid in accurately assessing the CRD impact of EPT and provide empirical support for policy development and modification.

Utilising machine learning for corporate social responsibility (CSR) and environmental, social, and governance (ESG) evaluation: Transitioning from committees to climate

Transparency and accountability are critical components of corporate sustainability. This study uses machine learning and empirical analysis to examine the influence of corporate social responsibility (CSR) committees and environmental, social, and governance (ESG) initiatives on corporate sustainability. Using 2017–2021 Bloomberg Terminal data, we investigated the environmental footprints, disclosure practices, risk profiles, and ESG fund commitments of Fortune 500 companies. Key findings indicate that CSR committees positively impact environmental performance, with an increase in environmental responsibility over time. Policy implications highlight the necessity for collaboration to prioritize environmental sustainability and address climate risk disclosure auditing within the audit profession.

Examining Local Government’s Web-Based Climate Risk Transparency in Florida

The article draws from institutional and social vulnerability theories and examines the determinants of climate risk transparency by local governments. Using data from Florida cities, the study investigates the impact of membership in climate networks and local socioeconomic and sociodemographic factors on web-based climate risk transparency. The findings support the view that membership in climate compact organizations, such as the International Council of Local Environmental Initiatives (ICLEI) and Southeast Florida Regional Climate Compact (SEFRCC), serve as institutional factors that lead to climate risk disclosures and contribute to improved adaptive governance and transparency. It also shows that college education, which likely enhances individuals’ ability to search for, interpret, and use information regarding climate risk, contributes to the decision to disclose information. Lastly, it reveals that bigger cities are more likely to disclose climate risk to mitigate these threats because disasters in large urban centers affect businesses and commuters and cause more significant damage than in smaller towns.

Abnormal Temperatures, Climate Risk Disclosures and Bank Loan Pricing: International Evidence

Abnormal Temperatures, Climate Risk Disclosures and Bank Loan Pricing: International Evidence

Effects of draft Climate-related Financial Risks Disclosure Framework on stock returns

This study uses an event study and cross-sectional approach to examine the immediate effects of the Reserve Bank of India's Draft Climate-related Financial Risks Disclosure Framework on the stock market. The findings indicate investor apprehension through initial negative stock market response to the disclosure framework. The most affected sectors are the Automobile, Healthcare & Pharma, Information Technology, Media, Oil & Gas, and PSU Banks. Climate risk disclosure indirectly affected sectors reliant on banking. The Governance variable adversely influenced post-event returns. Findings also reveal investor confidence in larger, financially robust firms.

Who gains favor with green investors amidst climate risk?

PurposeThis study aims to investigate the impact of climate risk disclosure by listed companies on the entry of green investors. It seeks to understand how proactive climate risk disclosure can attract green investment and the underlying mechanisms that facilitate this process.Design/methodology/approachTextual analysis is employed to assess the extent of climate risk disclosure in annual reports. The research constructs indicators for green investor entry and applies regression analysis to examine the relationship between climate risk disclosure and green investment, considering various mediating variables such as positive online news coverage, ESG scores, and corporate reputation.FindingsGreen investors are more likely to invest in companies with higher levels of climate risk disclosure. This relationship is robust across different types of firms, with non-state-owned, non-high-tech, large-scale firms, and those in the Eastern region showing a stronger attraction to green investors. Climate risk disclosure promotes green investment through the “signal transmission” mechanism, enhancing corporate reputation and ESG performance.Originality/valueThis paper extends the traditional theory of external incentives for corporate green development to include autonomous incentives through active climate risk disclosure. It provides new insights into the theory of corporate sustainable development and offers practical recommendations for enhancing corporate green development pathways. The study’s comprehensive approach and use of extensive data contribute valuable knowledge to the field of green investment and corporate sustainability.

Uncovering the intensity of climate risk and opportunity: Awareness and effectiveness

This paper examines the effect of awareness regarding climate change risks and opportunities on the proactive carbon management systems of U.S. S&P 500 companies. We develop our hypotheses based on institutional theory, stakeholder theory, and prospect theory. Our findings indicate a significant positive association between our self-constructed measurement of company risk and opportunity awareness and carbon management practices. We observe that financially constrained firms exhibit a lesser response to both climate change risk and opportunity awareness. Additionally, we note that firms with low profitability are more responsive to climate change risks, whereas we found no evidence linking climate change opportunity awareness to carbon management systems, consistent with prospect theory. Finally, we investigate the impact of carbon management systems on carbon reduction performance to examine the effectiveness of such awareness. In summary, this study provides the first evidence of how awareness of climate risk and opportunity influences corporate carbon management practices in a U.S. setting. Our findings imply that awareness serves as the initial step in prompting positive actions to manage risks and capitalize on opportunities. These results offer novel insights and information relevant to the recent policy initiative aimed at transitioning climate risk disclosure from voluntary to mandatory.

Climate Risk Disclosure and Financial Performance of High Carbon Emission Companies in China

Climate Risk Disclosure and Financial Performance of High Carbon Emission Companies in China

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.

Climate risk disclosures and auditor expertise

Many jurisdictions are establishing requirements for corporations to disclose climate-related risks, and for those disclosures to be audited. One of the first jurisdictions to do so is Australia, where the Australian Accounting Standards Board (AASB) and Auditing and Assurance Standards Board (AUASB) issued a Joint Bulletin in 2018 stating that both preparers and auditors should consider the impact of climate risks on the company's financials. Utilising the Australian setting, this paper introduces a new measure of audit partner expertise, namely expertise in climate-related issues, and examines whether it is associated with the client company's climate risk reporting. We define audit partner expertise in climate-related issues based on their client portfolio composition in terms of greenhouse gas emissions. We find that the likelihood and quality of climate risk disclosures is higher when the audit partner has climate risk expertise, and this finding is driven by clients in industries with material climate risks.

Insurers' climate change risk management quality and natural disasters

AbstractWe perform a textual analysis of insurers' climate risk disclosures and construct a climate change risk management quality index. Our index captures to what extent insurers identify, manage, and adjust their business model to climate change risk. We find that natural disasters in an insurer's home state lead to an increase in climate change risk management quality. The effect of natural disasters in an insurer's geographic markets on climate change risk management seems to be less pronounced. Overall, these results are consistent with salience theories of choice.

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.

The Impact of Climate Risk Disclosure as Risk Management Tool on Firm Financial Performance: The Role of Board Characteristics “Evidence from an Emerging Environmental Regime”

The Impact of Climate Risk Disclosure as Risk Management Tool on Firm Financial Performance: The Role of Board Characteristics “Evidence from an Emerging Environmental Regime”

A Conceptual Study on Implications of Green Finance in India

Abstract: The financial industry can help reduce the risk of climate change and lessen the effects of unfavourable climate occurrences, which is a significant contribution to the battle against climate change. Maintaining financial stability and spreading climate-related risks can be aided by long-term institutional investors. Other financial tools, such as green stock indexes, green bonds, and voluntary de-carbonization programmes, can assist reallocate investment to "green" industries. Hedging products, such as catastrophe bonds and indexed insurance, help insure against increasing natural disaster risk. For the foreseeable future, climate change is expected to remain the central political and economic issue of this century. Globally, governments, corporations, investors, and private citizens are starting to act on climate change, particularly with regard to decarbonisation strategies. It would take exceptional amounts of new capital investment—green financing, in particular—to support the kinds of initiatives that reduce greenhouse gas emissions and help businesses adjust to the effects of climate change in order to transition to a low-carbon or green economy. For this reason, it's critical to comprehend what green finance is and why it matters. In order to handle the complex risks that climate change poses, central banks and other regulators are modifying their frameworks and procedures from an oversight standpoint. Among the strategies for enhancing climate risk disclosure and categorization requirements are those that will assist investors and financial institutions in evaluating their exposure to climate risk, as well as regulators in assessing systemic hazards. Supporting the development of climate-related stress tests and broader promotion of green finance, the IMF is collaborating with standard-setting organisations such as the Network of Central Banks and Supervisors for Greening the Financial System. The researcher concludes that it is important to pursue this investigation in light of the aforementioned facts

Interrupted rhythms and uncertain futures: Mortgage finance and the (spatio-) temporalities of climate breakdown

ABSTRACT As intensifying climate-related disasters strike cities across the United States, they are provoking rising concern for the stability of the U.S. housing market and broader financial system. How homeowners, mortgage lenders, federal institutions/regulators, and investors will variously encounter and manage climate risk is an urgent question for urban scholars, as is who might bear the costs of restabilizing mortgage finance under new breakdowns. This paper’s multi-scalar intervention draws on financial “following” methods to explore how climate risks are being experienced and governed at multiple illustrative moments of U.S. mortgage finance: (1) working households at the front line of urban climate impacts, (2) mortgage professionals brokering loans to them, (3) government-sponsored enterprises (GSEs) negotiating incoming federal climate risk disclosure requirements, and (4) capital markets off-taking GSE risks through financial derivatives like credit risk transfers. Emerging concerns include ruptures between household risks and financial system-preserving responses and new dangers of “climate redlining.”

The impact of climate risk disclosure on financial performance, financial reporting and risk management: evidence from Egypt

Where Egypt stand with climate related-risk disclosures and why stakeholders and organizations require such information? This research aims to measure the climate risk disclosure level in Egyptian companies and to investigate its determinants. As unfavorable climatic circumstances create systemic risk for businesses throughout the whole global economy, this research examine how the disclosure of climate change risks affects the financial performance, financial reporting, and risk management. Few studies analyze how climate-related risk affects the financial performance of publicly traded companies in Egypt. This research applies regression models using both quantitative and qualitative methodologies. The information was gleaned from the 2019 through 2022 financial statements of 25 publicly traded companies. According to statistical analysis, there is a significant positive association between the financial performance, financial reporting, and risk management of industrial organizations and the disclosure of climate change. The findings show that the financial markets require precise, thorough, and high-quality information about the effects of climate change. This encompasses the threats and chances posed by increasing temperatures, climate-related legislation, and new technology in our rapidly evolving global environment.

Exploring the carbon emission reduction effects of corporate climate risk disclosure: Empirical evidence based on Chinese A-share listed enterprises

This study reexamines the need for Chinese enterprises to disclose climate risk information in the context of their significant contribution to climate change. The paper proposes climate risk disclosure indicators based on a sample of Chinese A-share listed companies from 2010 to 2020 and their annual reports. It explores the relationship and influencing mechanism between corporate climate risk disclosure and carbon emissions levels. The results of empirical research show that disclosing climate risk information reduces carbon emissions levels, and this mitigating effect is significantly enhanced by the moderating effects of executive environmental experience, investor attention, and government environmental supervision. Heterogeneity analysis further indicates that state-owned enterprises, those with a solid corporate green culture, or industries with high pollution emissions can better exert the carbon emission reduction effect of climate risk disclosure. In addition, physical climate risk disclosure is preferred in terms of short-term carbon emissions. In contrast, transformational climate risk disclosure is selected for long-term carbon reduction goals. Finally, empirical economic analysis indicates that high-quality climate risk disclosure can appropriately mitigate the negative impact of corporate carbon emissions on solvency and profitability compared to firms with lower disclosure levels, highlighting the importance of climate risk disclosure quality.

Transmission Effect of Insurers' Climate Risk Disclosures on Their Corporate Bond Investees' Environmental Friendliness

Transmission Effect of Insurers' Climate Risk Disclosures on Their Corporate Bond Investees' Environmental Friendliness

Climate Risk Disclosures and Auditor Expertise

Climate Risk Disclosures and Auditor Expertise

Improving climate risk preparedness - Railroads in Norway

Climate change affects all sectors of society due to changes in temperature and precipitation patterns and will continue to do so in the foreseeable future. Extreme weather events are already more frequent and intense, generating additional costs for businesses nationally and globally. Climate risk disclosure and management can be challenging due to the complexity of climate impacts and unpredictability of extreme events’ occurrence and location. To address the need for a systematic approach to manage physical climate change, this paper presents a ‘preparedness framework’ for a comprehensive physical climate risk assessment, which is inspired by the Task Force on Climate-related Financial Disclosures’ (TCFD) framework and based on interviews with representatives from the financial sector in Norway and Sweden on their management of climate risks. We analyze railroads in Norway as a case study due to the sector’s sensitivity to flooding events and heat stress. After assessing Bane NOR’s management of risk associated with flooding and heat stress, we discuss potential improvements regarding knowledge, strategy, management, and tools and metrics at a general level, emphasizing the benefits of improving capacity to handle climate change and the importance of contingency plans. The preparedness framework has helped identify strategies and actions that can reduce vulnerability to climate change impacts. We suggest that this checklist is sufficiently general to be applicable for other sectors and countries. Practical ImplicationsTransportation is one of the sectors that may be significantly affected by climate change, and this includes railroads and train travel. Heavy rain events, dry spells, extreme temperatures, and freeze–thaw events can cause problems for railroad operations. We have therefore chosen railroads in Norway, with Bane NOR as the state-owned organization responsible for the administration of the network, as an insightful case for examining the climate risk and vulnerability to climate change. We introduce a ‘preparedness framework’ as a tool for identifying and handling climate risk. The preparedness framework aims to combine science-based information with the user context and their needs according to their activity and vulnerability to climate change impacts. The framework can highlight Bane NOR’s general potential to reduce vulnerability and improve resilience to withstand negative impacts caused by climate change. Building resilience is paramount to business continuity, and involves climate stress-testing, precautionary action, better information carrying less uncertainty, capacity building, and contingency plans in the case of climate-related disturbances affecting train operations. This requires efficient monitoring, closer attention to weather forecasts, good maintenance, as well as implementing measures such as lowering the speed limit for trains in high-risk situations. Contingency plans include provision of alternative transportation when tracks are blocked. We envisage that the preparedness framework’ checklist can be applied to other sectors than railroads and other countries than Norway.