Corporate Climate Change Research Articles

Value-Enhancing Effect of Climate Change Risk Disclosure by Firms: Empirical Evidence Based on Textual Analysis and Machine Learning

ABSTRACT This study utilizes textual data from the social responsibility reports of Shanghai and Shenzhen A-share listed companies in China between 2007 and 2019. Through the application of textual analysis and machine learning technology, an index is constructed to gauge the extent of climate change risk disclosure by corporations. The paper examines the impact of climate change risk disclosure on corporate value, drawing from theoretical reasoning and empirical evidence.The findings reveal a significantly positive relationship between corporate climate change risk disclosure and corporate value, indicating the existence of a value promotion effect. Mechanism tests demonstrate that firms’ climate change risk disclosure enhances corporate transparency by attracting attention from analysts and the media. Consequently, this reduces information asymmetry and fosters an increase in corporate value. Furthermore, the study highlights that non-state-owned and high-polluting corporations exhibit a more pronounced value enhancement effect from climate change risk disclosure compared to other corporations. Additionally, corporations with highly readable and positively-toned textual information experience stronger value-promoting effects. These results provide robust empirical evidence supporting the practice of climate change risk disclosure among corporations in China.

The impact of emission trading schemes and government pressure on corporate climate change disclosure in China

With the various impacts of global warming and climate change on businesses, corporate climate change disclosure has become a highly prominent topic in recent years, drawing significant attention from various sectors of society. In emerging economies experiencing rapid economic growth, such as China, climate change disclosure holds significant relevance for businesses in presenting their sustainability efforts to their stakeholders and society. Therefore, it is necessary to investigate the key factors propelling climate change disclosure. This study focuses on listed companies in the pilot regions of China's Emissions Trading Scheme (CN-ETS) to explore the influence of external factors on disclosure performance. The difference-in-differences approach is conducted to examine the impact of ETS policy implementation on corporate climate change disclosure. The results indicate that ETS does have a certain level of effect on disclosure performance. Additionally, the influence is more significant for companies facing higher government pressure. Our findings provide several policy implications for the future development of climate management and corporate climate change disclosure practices in China and other emerging economies.

Breaking barriers: CEOs STEM educational background and corporate climate change disclosure

PurposeThis study aims to investigate the association between chief executive officer (CEO) educational backgrounds in science, technology, engineering and mathematics (STEM) and climate change disclosure within Indonesian companies.Design/methodology/approachUsing data spanning from 2017 to 2022 from all publicly traded companies, the study uses ordinary least squares with fixed effects and robust standard error to evaluate the proposed hypothesis. In addition, a series of endogeneity tests are incorporated to bolster the robustness of the findings.FindingsThe study reveals that CEOs with a STEM educational background are more inclined to participate in corporate climate change disclosure compared to their counterparts with a non-STEM background. These results emphasize the significant role CEO educational backgrounds play in shaping a company’s approach to sustainability, specifically in the realm of climate change disclosure. The insights gleaned from this research hold valuable implications for various stakeholders, including top management and investors aiming to enhance corporate sustainability. Recognizing the influence of CEO characteristics, particularly a STEM educational background, proves pivotal in improving corporate climate change disclosure. Stakeholders can leverage this understanding to formulate and implement effective strategies toward realizing a company’s sustainability vision.Originality/valueNotably, this study stands out as it was conducted within the context of Indonesia, a nation actively encouraging nonsocial graduates to assume crucial positions within the Republic of Indonesia.

Confucian Culture and Corporate Climate Change Risk Disclosure: Based on Text Analysis and Machine Learning

Confucian Culture and Corporate Climate Change Risk Disclosure: Based on Text Analysis and Machine Learning

How corporate climate change mitigation actions affect the cost of capital

AbstractJapan has been at the forefront of global efforts to accelerate climate change mitigation. Japanese firms have led in the development of decarbonization technologies and have positively disclosed climate change‐related information based on the Task Force on Climate‐related Financial Disclosures recommendations to address climate change. We explore the relationship between corporate climate change mitigation actions and the cost of capital for 2100 Japanese listed companies from 2017 to 2021. The results reveal that a higher carbon intensity correlates with an increased cost of equity, debt, and weighted average cost of capital. Interestingly, although climate‐related information disclosure is associated with an increased cost of debt, it concurrently lowers the cost of equity and overall capital. This research recommends strategic approaches for firms to reduce their costs of capital while proactively combating climate change, highlighting the divergent responses of equity and bond markets to decarbonization initiatives.

The influence of CEO ethics on climate change policy from the perspective of utilitarianism and deontology

With the increasing frequency of extreme weather phenomena, governments and firms are increasingly focused on climate change and the challenges of formulating and implementing practical policy and actions. Corporate policies are typically formulated under the direction of the CEO, and yet previous research has largely overlooked the role of the CEO in climate change policy. Text mining methods are used to classify the ethical orientations of individual CEOs as either utilitarian or obligation, to determine whether this orientation changes over time, and how different orientations affect corporate climate change policy. Results show that ethical orientations tend to remain constant, and that firms led by utilitarian CEOs tend to have lower carbon emissions.

Climate change disclosure and stock price informativeness, evidence from China

ABSTRACT This study examines whether and how corporate climate change disclosure in the Management Discussion and Answer section of annual reports affects its stock price informativeness. The empirical findings of the study suggest that firm climate change disclosure could significantly increase stock price informativeness by reducing stock price synchronicity. Further channel tests suggest that corporate climate change disclosure significantly increases stock price informativeness through higher media attention, larger institutional ownership percentages, and more corporate site visits. Further analysis shows that the positive impact of climate change exposure on stock price informativeness is more pronounced for more readable and negative annual reports. Finally, we find that opportunity shock information within the MD&A section is an important component of climate change disclosure.

Institutional investors' corporate site visits and firm-level climate change risk disclosure

This study examines whether and how institutional investors' site visits affect firm-level discretionary disclosure of climate change risk. Using a sample of Chinese listed companies on the Shenzhen Stock Exchange from 2013 to 2021, we find that site visits by institutional investors significantly promote corporate climate change risk disclosure (CCRD). This positive correlation is robust to a series of sensitivity tests, including alternative measures of institutional investors' site visits and corporate CCRD, alternative samples, a firm fixed effects model, one-year lag of the independent variable, an instrumental variable method, and a propensity score matching procedure. Mechanism analyses indicate that the positive impact of institutional investors' site visits on corporate CCRD is primarily driven by increased corporate information exposure. Further analyses demonstrate that the effect of site visits on firm-level CCRD is more pronounced in firms with weaker internal corporate governance or external governance. This study extends the existing literature on the economic consequences of institutional investors' site visits and the driving factors of corporate discretionary disclosure regarding climate change risk, providing insightful implications for corporate managers, investors, and regulators.

Climate change disclosure and evolving institutional investor salience: Roles of the Principles for Responsible Investment

AbstractThis study investigates the relationship between climate change disclosure and institutional investors. A particular focus of the present study is the question of if and how the relationship is affected by the Principles for Responsible Investment (PRI). A relevant context to the question is shareholder engagement, where institutional investors' legitimacy affects the outcomes. Thus, this study examines Japan, where shareholder engagement is the main pathway for institutional investors to convey their ESG‐related influence to investee companies. Using the stakeholder salience theory as a theoretical framework, the empirical results of analyzing 17,604 firm‐year eXtensible Business Reporting Language (XBRL) documents of listed Japanese companies provide evidence for the following. First, institutional stakeholders' holding ratio has positively influenced corporate climate change disclosure (power). Second, the positive influence of institutional investors is more significant when PRI‐signed institutional investors are present (legitimacy). Third, the aforementioned relations gained statistical significance gradually during the analysis period (urgency). Fundamentally, this study shows that the stakeholder salience theory contributes to a deeper understanding of the relationship.

Influence of Cultural and Environmental Values of CEOs on Greenhouse Gas Emission Intensity

The main objective of this study is to examine the influences of two novel characteristics of the foremost executive firm managers, i.e., the environmental and cultural values of CEOs, on corporate climate change performance. Employing a sample of firms listed in the FTSE250 covering the 2008–2018 period, we found that firms run by CEOs with environmentally friendly backgrounds and high ‘green’ cultural values are more inclined to aim for better (lower) greenhouse gas emissions. The findings hold after accounting for other relevant governance characteristics, accounting and market indicators, highly carbon-intensive industries, and potential endogeneity issues. Intriguingly, we also found that the effect of CEO environmental values is more pronounced than that of CEO cultural values. Our findings have implications for corporate management and regulators of climate change concerns and corporate environmental performance. That is, firm management is advised to assign CEOs with environmentally friendly backgrounds and high ‘green’ cultural values to lower greenhouse gas emissions.

Macro Effects in Tort Law Based Corporate Climate Change Mitigation Cases

Macro Effects in Tort Law Based Corporate Climate Change Mitigation Cases

CEO stock options and corporate climate change: the behavioral agency model and the moderating effect of social capital

Examining the impact of CEO options compensation on corporate adverse impacts on climate change from the perspective of CEO loss aversion and risk-taking, this study argues that higher current (prospective) wealth leads to higher loss aversion (risk-taking) against (toward) corporate climate change. Integrating social capital theory into the behavioral agency model (BAM), the study argues that social capital is negatively related to corporate climate change risk-taking behavior and social capital is moderating the relationship between CEO options compensation and corporate climate change. Using a sample of 1,397 US firms from 2005 to 2019 and various measures of corporate climate change and social capital and estimation methods, it finds evidence to support these hypotheses. This study extends the BAM to explain CEO risk-taking behavior toward climate change and integrates the social capital theory. It offers practical implications to design CEO compensation to reduce the adverse impact of corporations on climate change.

Critical masses and voluntary climate change disclosures: evidence from Türkiye

PurposeThis paper aims to examine the effect of critical mass of women managers on corporate boards on the voluntary disclosure of climate change in a developing country in which the regulations on climate change disclosure is an area of growing research interest.Design/methodology/approachThis study uses logistic panel regression models with a sample of 1,001 firm-years for companies in the Borsa Istanbul 100 Index that were asked to disclose voluntary climate change indicators over the seven-year period from 2014 to 2020 through the Carbon Disclosure Project.FindingsThis paper provides evidence from an emerging country that the critical mass of women on the board has no impact on voluntary climate change disclosure. In addition, the presence of independent managers on the board was found to have a significant impact on climate change disclosure. In addition, the results show that larger companies are more likely to report their climate change activities. Large companies are more visible due to their size, are perceived by stakeholders as more polluting and are, therefore, more likely to report on the environment.Social implicationsThe results show that the critical mass of women on the board has no effect on voluntary disclosure of climate change. Empirical tests are still needed to strengthen the overall validity of the critical mass of at least three women on boards in Türkiye.Originality/valueDespite many valuable insights provided by critical mass theory, very few studies directly address critical mass and voluntary disclosure of climate change. To the best of the authors’ knowledge, this study is the first empirical and comprehensive paper in the Turkish context evaluating critical masses and voluntary corporate climate change giving a comparison between firms listed on financial industry and nonfinancial industry.

Corporate climate change disclosures and capital structure strategies: evidence from Türkiye

PurposeThere has been an increase in research examining whether and how companies disclose climate change impacts and how these disclosures influence capital structure strategies in recent years. However, prior literature has generally focused on developed countries. This paper proposes to examine the impact of voluntary climate change disclosures on corporate financing decisions in an emerging economy.Design/methodology/approachThe dataset includes 335 firm-year observations listed in the Borsa Istanbul (BIST) 100 manufacturing industry firms that participated in the Carbon Disclosure Project (CDP) questionnaire from 2016 to 2020, characterized by high public awareness of greenhouse gas emissions in Turkey. To accomplish this aim, two models have been constructed that link capital structure strategies with voluntary corporate climate change disclosures while controlling for firm-level attributes in terms of size, profitability, market value and free float ratio (FFR).FindingsThe significant and negative relationship between the voluntary disclosure of climate-related activities and long-term borrowing is consistent with the arguments that companies with high commitments are unlikely to reduce default risk in emerging markets. This paper also provides empirical evidence that the high size and the level of low profitability magnify this relationship between CDP and financial leverage.Originality/valueThe Paris Agreement seems to be a significant point where corporate lenders have become aware of the commitment of policymakers to fight climate change. The results have significant implications for both managerial strategies and environmental regulatory policy-making issues. In addition, the findings shed light on the strategic behavior of managers in the consideration of climate change risks and related transparency.

Corporate Climate Change and CEO Compensation: Behavioral Agency Model and Social Capital

Corporate Climate Change and CEO Compensation: Behavioral Agency Model and Social Capital

Greening the Future: Foresight, Imagination, Attention and Corporate Climate Change Strategies

Greening the Future: Foresight, Imagination, Attention and Corporate Climate Change Strategies

Determinants of corporate climate change disclosure: Is the mediating role of corporate strategic response to environmental governance and policy matter? Evidence from emerging market

AbstractWe examine the determinants and the mediating role of corporate strategic response to environmental governance and policy (EGP) with the extent of corporate climate change disclosure (CCD) through the isomorphic pressures. We collect data from annual reports of Bangladeshi listed manufacturing corporations and we analyze data via partial least square‐structural equation modeling (PLS‐SEM). Our study findings indicate that board specialty in terms of independent directorship, board human capital reflected by education, and experience, as well as the corporate values include corporate convictions and commitments reflected by vision, mission, core objectives have significant and positive relationships with CCD. The EGP also mediates the abovementioned relationships. Furthermore, the EGP mediates the relationship between corporate attributes (total assets, ROA, ROE, leverage) and CCD. Our findings suggest that when corporations strategically response to environmental issues by putting in place environmental‐related governance and policy, factors such as corporate attributes, board specialty, and corporate values play stronger role in promoting corporate climate change disclosure in developing economies like Bangladesh. Our results offer implications to policymakers, governmental units, professional bodies, social catalysts, and industry practitioners, on their important role in promoting sustainable development by encouraging corporations to manage their environmental issues strategically via corporate governance, strategic environmental management and climate change disclosure.

온실가스 규제가 비대칭적 원가행태에 미치는 영향

Purpose – This study analyzes the relationship between asymmetric cost behavior and greenhouse gas (GHG) regulation. This study examines cost behavior for cost of goods sold (CGS), selling, general and administrative cost (SG&AC), general and administrative cost (G&AC), and selling cost (SC). Design/Methodology/Approach – This study analyzes companies listed on the Korean Stock Exchange (KSE), and the analysis period is from 2011 to 2020. The sample taken for this study includes 5,120 firmyear observations. Findings – The main results are as follows. First, we find that when sales are decreased, the downward stickiness of CGS is accentuated in firm-related GHG regulation. This is interpreted as an increase in committed cost as much as idle resources due to an increase in facility investment to reduce GHG emissions. Second, this study demonstrates that the accentuation of the downward stickiness of CGS and G&AC by GHG regulation mainly occurs in owner manager firms. This study is the first in which GHG regulation affects asymmetric cost behavior. Research Implications – The results of this study will contribute to the development of corporate climate change strategies and government GHG regulation policy. This can provide a basis for market participants, such as financial analysts, in predicting the effect of GHG regulation on firm performance.

Do foreign institutional investors influence corporate climate change disclosure quality? International evidence

AbstractResearch Question/IssueWe examine the association between foreign institutional ownership and climate change disclosure quality from 2006 to 2018 across 34 countries. We find that firms with a higher level of foreign institutional ownership demonstrate better quality climate change disclosures, whereas domestic institutional ownership has immaterial impacts on such disclosures. We utilize a difference‐in‐differences (DiD) analysis using a firm's addition to the Morgan Stanley Capital International (MSCI) index as an exogenous shock to control for endogeneity. Our findings are robust to various other endogeneity controls. We also establish evidence on an indirect effect of climate change disclosure quality in mediating the positive association between foreign institutional investors and firm valuation.Research Findings/InsightsWe find that the positive association between foreign institutional ownership and climate change disclosure quality is more pronounced for (1) firms domiciled in stakeholder‐orientated countries, (2) firms domiciled in countries that adopt emission trading schemes, and (3) firms with a greater level of information asymmetry. Additionally, our results are more robust when foreign investors are domiciled in countries that care more about the environment.Theoretical/Academic ImplicationsOur study contributes to climate change disclosures, corporate governance, and international business literature by showing that foreign rather than domestic institutional investors contribute to improved corporate climate change disclosure quality in their portfolio firms.Practitioner/Policy ImplicationsOur study urges regulators to increase their market oversight, especially in firms with less foreign institutional ownership. This is required because such firms are prone to exhibiting poorer accountability for their climate risk management practices, and their disclosures are bereft of effective external monitoring mechanisms.

Mapping global conversations on twitter about environmental, social, and governance topics through natural language processing

Social networks represent an important communication vehicle for various stakeholders, including political organizations, civil society, public figures, digital influencers, and companies. Corporations use social networks to interact with their audience, seeking to externalize their achievements related to the issues of interest to their customers. The primary purpose of this study was to provide insight into the general behavior of companies based on their Twitter conversations related to Environmental, Social, and Governance (ESG) issues and activities. As an underlying idea, the study advocates that social media play a significant role in setting the agenda of Environmental, Social, and Governance factors in business conversations on Twitter. Therefore, it was based on a sample of tweets from 167 Brazilian, French, and American companies, from February 7, 2008, to September 29, 2021. Natural language processing (NLP) techniques were used to analyze conversations about ESG issues on Twitter and identify the network of topics and their trend. More than 6 million tweets were collected in 3 different languages. It was found that in recent years, the popularity of Twitter as a platform for discussions on Corporate Social Responsibility (CSR) and ESG issues, clean and cleaner production has increased significantly. Although incipient and embryonnaire, the analyzed companies are investing and sharing their practices related to clean production in their social networks. Discussions on twitter are focused on corporate environmental management (Planet, Environmental impacts, Environmental Management, Water, Energy, etc.), corporate climate change management (Emissions, Carbon, Climate change, Commitment to tackling climate change etc.) and clean and cleaner production (Re-cycling, Emission Reduction, Reducing impacts and waste, waste management, circular economy, green development etc.). Practically, all company twitter conversations about ESG revolve around these topics. This demonstrates the concern of companies with these issues. In this context, it is important for companies to invest more and more in clean energies, innovations, clean and cleaner technologies. The effective implementation of these practices is essential for the transition to a low-carbon economy.