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Exploring the impact of carbon emission disclosure on firm financial performance: moderating role of firm size
Abstract
Purpose
Based on stakeholder and legitimacy theory, this paper aims to investigate the impact of carbon emission disclosure on firm financial performance. Further, the study attempts to explore the potential moderating effect of firm size on this relationship.
Design/methodology/approach
The study is based on BSE 100 Indian firms for the period of 2018–2019 to 2020–2021. The association between carbon emission disclosure and firm financial performance, along with the moderating role of firm size, has been explored through regression models.
Findings
The present study confirmed the significant and negative association between carbon emission disclosure and firm financial performance. Furthermore, results reveal that firm size positively moderates the relationship between carbon emission disclosure and firm financial performance.
Social implications
Carbon emission disclosure helps corporate organizations advance the issues of climate change disclosure both nationally and globally.
Originality/value
To the best of the authors’ knowledge, the current study is the first of its kind to explore the potential moderating effect of firm size on the relationship between carbon emission disclosure and firm financial performance. The current study provides significant novel insights into sustainability, climate change and finance literature.
... In contrast, Iriyadi and Antonio (2021) employing the TCFD framework find an inverse association in the context of Indonesia. Likewise, the findings of Bedi and Singh (2024) indicate that climate-related information is negatively associated with FP for Indian firms. Apart from contradictory findings, the outcome of the studies cannot be considered sufficient for emerging nations because of limited sample size, lack of cross-country evidence and industry-specific studies. ...
... Maji and Kalita (2022) and Kumar and Firoz (2018) have observed a positive association between CCFD and FP. However, in the same context, Bedi and Singh (2024) find an inverse association between CCFD and FP. Likewise, Iriyadi and Antonio (2021) also advocate the negative impact of climate-related information on FP in the short run for top Indonesian firms. ...
... This implies that an increase in CCFD reduces financial performance, which is contrary to the theoretical proposition as well as the hypothetical assumption. The results support the propositions of the neoclassical approach (Bedi and Singh, 2024). Although there are limited empirical studies relating to the impact of CCFD on FP, the observed negative association is in line with the findings of Freedman and Jaggi (2005) Bedi and Singh (2024) and Iriyadi and Antonio (2021) who have observed negative relationship between CCFD and FP. ...
Purpose-The study aims to investigate the association between climate change financial disclosure and financial performance, considering the moderating effect of industry sensitivity on developing nations. Design/methodology/approach-The study analyzes a panel data set of 93 non-financial companies from developing countries listed in the Fortune Global 500 from 2018 to 2022. The authors have used system generalized method of moments model followed by two-stage least square model and fixed effects model to test the hypotheses. Three cultural dimensions and a sub-sample analysis have been included to check the robustness of the results. Findings-The findings indicated that climate change financial disclosure negatively affects financial performance, supporting the propositions of neoclassical theory of corporate social responsibility. Also, climate sensitivity negatively moderates the relationship between climate change disclosure and market performance. The results are robust to alternative estimation techniques, country differences and sectors. Originality/value-To the best of the authors' knowledge, this is a novel attempt to examine the impact of climate change disclosure on financial performance in a crosscountry context using the task force on climate-related financial disclosure (TCFD) framework. It also contributes to the existing literature by incorporating climate-sensitive sectors as moderating variables. The study recommends a mandatory "framework of law" to protect the environment.
... Bedi et al., based on an exhaustive data analysis of 100 firms in India over the period of 2018 to 2021, found that firms' implementation of carbon disclosure strategies can accelerate the process of global climate disclosure practices, and pointed out that there is a significant positive correlation between this initiative and the improvement of firms' financial performance. The study provides empirical evidence on how firms can enhance their competitiveness in the marketplace by being transparent about their environmental performance [21]. Focusing on Korean firms, Lee et al. found that voluntary carbon disclosure by firms can effectively reduce the risk of stock price crashes and help firms achieve more stable returns in the capital market. ...
... By calculating the Pearson correlation coefficient, Table 4 can be obtained. According to the Table 4, the correlation coefficient between Roa and Cdi is 0.086, which is significant at the 1% level, which indicates that corporate carbon disclosure has a significant positive impact on financial performance in the whole sample, and this finding is the same as the existing literature [19,[21][22][23][24][25]. In addition, the absolute value of the correlation coefficients of the variables is less than 0.5, which indicates that there is no serious multicollinearity relationship among the variables. ...
Global climate change has become one of the most large-scale, widespread, and far-reaching challenges facing mankind. Against this background, China has proposed a "dual-carbon" target in 2020, which greatly demonstrates China’s determination and commitment to carbon emission reduction, and the burden of realizing the "dual-carbon" target is mainly borne by heavy polluters. The burden of achieving the "dual-carbon" goal is mainly borne by the heavily polluting firms. Although this has increased the economic burden of the firms to a certain extent, carbon information disclosure reduces the degree of information asymmetry and also obtains the support of the government, which improves the financial performance of the firms. Based on the data of A-share listed companies in Shanghai and Shenzhen in the heavy pollution industry in 2013–2023, this paper analyzes the relationship between carbon information disclosure, and corporate financial performance according to signaling theory, rent-seeking theory, and sustainable development theory. It is found that enhanced corporate carbon disclosure can significantly improve corporate financial performance, and the main effect is realized through reducing debt financing costs and increasing the proportion of institutional investors’ shareholding. In the heterogeneity analysis, this paper finds that the main effect is more significant in the samples of firms located in the western region and the central region. Based on existing research, this paper deepens the study of the relationship between carbon disclosure and corporate financial performance. By integrating the multiple perspectives of signaling theory, rent-seeking theory and sustainable development theory, this paper systematically analyzes how creditors, institutional investors and other stakeholders play a role in the dynamic interaction between carbon disclosure and corporate financial performance, and reveals the motives and mechanisms behind the behaviors of these stakeholders. In order to further refine the analysis path, this paper constructs an intermediary model in order to deconstruct the deep logic of the path and mechanism through which carbon disclosure indirectly affects corporate financial performance. This model not only enhances the theoretical explanatory power, but also provides a more refined analytical framework for empirical testing, which helps to reveal the “black box” mechanism of carbon disclosure’s impact on corporate financial performance. In addition, in view of China’s vast territory and the uneven level of economic development between regions, this paper adopts a differentiated analysis strategy, based on the economic characteristics of the regions where the heavy polluters are located, and divides the whole sample into three sub-samples for independent regression analysis. This heterogeneity test incorporates inter-regional development differences into the scope of analysis, making the research conclusions more geographically specific and policy-guiding significance. By comparing and analyzing the differences in the impact of carbon disclosure on the financial performance of enterprises in different regions, this paper provides a reference for the government to formulate differentiated carbon disclosure policies in the future, accurately promote the construction of the carbon trading market, and efficiently achieve the carbon emission reduction targets at the national level.
... Through their financed emissions, larger banks have been pointed to be responsible for a huge share of the world pollution. 22 At the same time, the literature shows that firm size is a driver for improving its carbon emission disclosure (Eleftheriadis and Anagnostopoulou, 2015;Nasih et al., 2019;Bedi and Singh, 2024). ...
The carbon footprint of banks depends not only on their own operations but also, and more significantly, on their customers, who are or could become polluters in the future. This article examines the relationship between greenhouse gas emissions and market valuations for a sample of banks worldwide. We find that increasing scope 1, scope 2, and scope 3 emissions are negatively associated with the bank’s price-to-book ratio. Moreover, we find that highly polluting banks have poor asset quality and low deposit shares. We believe that investors consider carbon footprints in equity valuation, recognizing that carbon exposure makes banks financially unstable. This finding is significant for bank managers and regulators, suggesting that initiatives to curb greenhouse gas emissions could enhance bank value and lead to better financial conditions. JEL Codes: G21; Q54; G12.
The study examines the impact of greenhouse gas emissions on the financial performance of India’s top 100 BSE-listed firms as of March 2022. It also studies the moderating role of environmental sensitivity in impacting this relationship. Greenhouse gas emissions and their components are measured in terms of their intensity per unit of sales, while financial performance is measured by Return on Assets and Tobin’s Q. Using random effects and interaction models, the analysis finds a negative relationship between emissions and financial performance, moderated by environmental sensitivity. The results highlight the need for stricter environmental regulations in India and encourage firms, especially in sensitive industries, to reduce emissions through renewable energy or improved efficiency. The study supports the “win–win” hypothesis, suggesting that reducing emissions can enhance firm performance. Future research could expand to include all listed Indian firms and those in other developing economies to gain a broader perspective.
Purpose
This study aims to clarify the value of sustainable development goals (SDGs) commitment by examining the moderating role of firms’ commitment to SDGs on firms’ carbon emissions (CE) and firm value (FV) nexus.
Design/methodology/approach
The study uses ordinary least squares and other robust estimations on data from 89 listed firms on the Johannesburg Stock Exchange (JSE) from 2013 to 2021.
Findings
Firms with high CE are associated with lower FV. However, firms’ commitment to SDGs moderates the relationship by averting the value-destroying tendencies of high carbon-emitting firms.
Practical implications
Firms should integrate SDGs into their core business strategy and governance frameworks to enhance their environmental performance and FV. As market participants on the JSE, they should also focus on the allocation of resources for SDGs and the management of CE.
Social implications
The findings provide a basis for governments and policymakers to promote firm-level commitment to SDGs to help reduce the harmful effects of CE on society and help achieve SDG targets.
Originality/value
The study adds a new dimension to the existing environmental performance and financial outcomes literature by clarifying the moderating value of firms’ commitment to SDGs in the CE and FV discourse.
By concentrating on determining the effect of mandatory carbon disclosure on financial performance, the study assists corporate managers in effectively understanding the significance of carbon information disclosure and searching for enhanced ways of amplifying carbon disclosure. The paper examines the impact of mandatory carbon disclosure on the corporate financial performance of 45 Johannesburg Stock Exchange-listed cement and mining companies considered carbon-intensive entities from 2014 to 2021. This examination is based on the legitimacy theory. To attain the critical aim of the study, panel regression analysis is conducted with the assistance of SPSS 28. Financial performance was measured by return on assets, return on equity and net profit margin. Carbon disclosure was measured by carbon disclosure scores developed by Carbon Disclosure Project (CDP). The study reports that all financial performance proxies are positively and significantly related to carbon disclosure. To upsurge financial performance, the sampled companies must keep extensively disclosing carbon information in their annual reports per the mandatory expectations. Therefore, this paper provides evidence that mandatory carbon disclosure is a source of better financial performance and critical for the corporate sector to accomplish sustainability.
Nowadays, firms are expected to actively respond and take actions to respond to global warming and carbon emissions reduction. As a part of a circular economy, recycling improves waste management and reduces carbon emissions for firms. In the development of firms' strategies, the problem of enhancing the recycling performance becomes a challenge. This paper explores how carbon disclosure influences firms' recycling performance from consumers' purposive inference of firms' recycling behaviors. First, based on a sample of 442 firms' data, we demonstrate that firms' carbon disclosure increases firms' recycling performance. To further explain this effect from the consumer's point of view, two online experiments (N1 = 445 and N2 = 433) show that firms' carbon disclosure increases consumers' recycling willingness, as it acts as an environmental appeal that raises consumers' communal intention inference about firms' recycling and thus enhances consumers' recycling willingness. Furthermore, we find that economic incentives do not increase consumers' recycling willingness. Our study suggests that firms should be cautious in using economic incentives when developing strategies to improve recycling performance and actively improve their carbon disclosures. Carbon disclosure can be used as an environmental appeal to increase consumers' recycling willingness and firms' recycling performance. It is also important to note that these findings have practical implications for governments, policy‐making authorities, and the Carbon Disclosure Project (CDP). The results of our study contribute to the literature on firms' recycling performance in circular economy (CE) and carbon disclosure from a theoretical perspective.
This study aims at exploring the impact of ESG scores on the value and FP of firms in the airline industry. The potential moderating role of firm size and age has also been studied in an effort to disentangle their relationships in this context. In particular, the analysis involves interaction effects for two types of firms: full-service and low-cost carriers. Based on the collected data from 38 airlines worldwide for the period 2009 to 2019, we observed that contributions to governance initiatives improve a firm’s market-to-book ratio. We also found that a firm’s participation in social and environmental activities is positively and significantly rewarded by a higher level of financial efficiency. Additionally, firm size is the relevant moderator for the association between sustainability disclosure and both firm value and FP in the air transport industry. We therefore propose that a managerial strategy of participating in these initiatives may adapt them based on their total assets as proxy of firm size. In regard to firm age, we did not find it to be a significant moderator.
Carbon emission disclosure serves to justify firms' sustainable business endeavors. This study contributes to the minor discussions of this topic in the context of Indonesian. The role of media exposure to moderate the firms' size, profitability, leverage, and environmental performance toward carbon emission uses is also inadequately addressed in previous studies. This study aims to fill these discrepancies by investigating financial statement data of firms listed in the Jakarta Islamic Index, Indonesia (JII), from 2012 to 2016, employing moderated regression techniques. All direct relationships are significant. The media exposure significantly moderates firms' size and leverage, but not to profitability and environmental performance. We also discuss several considerations with environmental disclosure issues in Islamic Index along with its implications.
Keywords: Carbon Emission Disclosure, Firms' Size, Leverage, Environmental Performance, Media Exposure.
JEL Classifications: L82, F64, G10
DOI: https://doi.org/10.32479/ijeep.10142
To assess the robustness and sensitivity of the findings in Delmas, Nairn-Brich, and Lim, we conduct a replication and an extension study. In the replication, we use their research design but analyze another time frame. In our extension, we furthermore expand the geographical scope, and use another carbon performance measure as well as a different set of control variables. We show that the finding that higher carbon emissions are associated with higher short-term financial performance is very robust. By contrast, we also find strong evidence for higher carbon emissions being associated with higher long-term financial performance. This outcome is supported by several supplementary analyses and robustness checks. We derive theoretical implications for the debate on tackling grand challenges. Since there seem to be negative financial performance implications for firms reducing carbon emissions, we highlight a clear need for further policy intervention to pave the way for a low-carbon economy.
We examine the interrelationships among executive compensation, environmental‐social‐governance‐based (ESG) sustainable compensation policy, carbon performance and market value. Using one of the largest datasets to date, consisting of 4379 firm‐year observations, covering a period of 15 years (2002–2016) from 13 industrialized European countries and insights from neo‐institutional theory (NIT), our findings are fourfold. First, our results suggest that process‐oriented carbon performance is positively associated with market value, whereas actual carbon performance has no effect on market value. Second, we show that the market value–process‐oriented carbon performance nexus is moderated by executive compensation. Third, our results indicate that executive compensation has a positive effect on process‐oriented carbon performance, but has no similar effect on actual carbon performance. Fourth, we show that the process‐oriented carbon performance–executive compensation nexus is reinforced for companies that adopt ESG‐based sustainable compensation policy. Our results are generally robust to controlling for governance mechanisms, alternative measures/estimations and endogeneities. Overall, our evidence supports the legitimization aspect of NIT and suggests that the market tends to reward firms with superior process‐oriented carbon performance instead of undervaluing firms with excessive actual carbon emissions. This implies that firms appear to use incentive‐based mechanisms to symbolically improve their process‐oriented carbon performance without substantively improving their actual carbon performance.
In the context of the Chinese government’s strategy for sustainable development, the study of sustainable supply chain management (SSCM) for enterprises has important practical significance. Drawing data from 172 Chinese firms, the model studied the moderating role of firm size on the SSCM practices and the sustainable performance of the firms (economic, environmental, and social), using hierarchical regression analysis on SPSS 22.0. The results suggest that SSCM practices and firm size are positively related to the firm’s environmental and social performance. Firm size moderates the effect of SSCM practices on economic performance. Additionally, SSCM internal practices have a significant positive impact on the economic performance of large enterprises, but not so much on the economic performance of the Small and medium enterprises(SMEs). This paper proposes a comprehensive SSCM practice performance model that identifies firm size as a moderating role. Through research on the moderating effect of firm size, the implementation and recommendation of SSCM for different firm size are given.
This study examines the effects of board characteristics and sustainable compensation policy on carbon reduction initiatives and greenhouse gas (GHG) emissions of a firm. We use firm fixed effect model to analyse data from 256 non-financial UK firms covering a period of 13 years (2002–2014). Our estimation results suggest that board independence and board gender diversity have positive associations with carbon reduction initiatives. In addition, environment-social-governance based compensation policy is found to be positively associated with carbon reduction initiatives. However, we do not find any relationship between corporate governance variables and GHG emissions of a firm. Overall, our evidence suggests that corporate boards and executive management tend to focus on a firm's process-oriented carbon performance, without improving actual carbon performance in the form of reduced GHG emissions. The findings have important implications for practitioners and policymakers with respect to the effectiveness of internal corporate governance mechanisms in addressing climate change risks, and possible linkage between corporate governance reform and carbon related policies.
While corporate sustainability has been defined as an approach that creates long-term value
with minimum environmental damage, there is still little understanding of the time horizon
over which improved environmental performance leads to improved financial performance.
We investigate the relationship between environmental and financial performance under
increasing likelihood of environmental regulation. We leverage longitudinal data for 1,095 U.S.
corporations from 2004 to 2008, a period of increasing activity for climate change legislation,
in order to estimate the effect of greenhouse gas emissions on short- and long-term measures
of financial performance. We find that during this period, improving corporate environmental
performance causes a decline in an indicator of short-term financial performance, return on
assets. Nonetheless, investors see the potential long-term value of improved environmental
performance, manifested by an increase in Tobin’s q. These results suggest that limited uptake
of proactive strategies may in part be attributable to short-term financial performance targets
that guide managerial decision making.
This paper investigates the effect of the 2009 guidance of the Department for Environment, Food & Rural Affairs on greenhouse gas (GHG) disclosure. The sample comprises 215 companies from a population of London Stock Exchange FTSE 350 companies over four years (2008-2011). To quantify GHG disclosure, a research index methodology is employed, with information derived from several GHG reporting frameworks. The econometric model is estimated using panel fixed effects. Our findings suggest that the publication of the 2009 guidance has had a significant effect on the level of GHG disclosure, and that corporate governance mechanisms (board size, director ownership, and ownership concentration) also affect the extent of GHG information disclosure. The results also indicate that companies increased their disclosures prior to the 2009 guidance in anticipation of its publication. These results have important implications for the government, suggesting that non-mandatory guidance could increase disclosure as much as do mandatory requirements.
Purpose
– The ambiguous effect of sustainable business practices on business financial performance is explained empirically as the result of the disparity of the practices analyzed, the inadequate relation proposed and the misspecification of the moderating variables. The purpose of the present study is to determine the effect that each of these factors can have as justification for the divergence of outcomes in previous studies.
Design/methodology/approach
– Several dependence models have been estimated in order to observe the type of effect of greenhouse gas emissions (GHGE) practices on FP, attempting to establish whether this relationship is linear, positive or negative, or a curve. Additionally, the authors interacted these GHGE practices with the level of firms' innovation in relation to their competitors.
Findings
– The results show that greenhouse gas emission controls have an inverse‐linear effect on firm performance, independently of their level of innovation. This relationship is justified in that in contrast to previous articles, the authors have evidence of a null relationship between particular corporate social responsibility (CSR) practices and research and development expenses.
Originality/value
– It is shown that it is the type of CSR practice observed and the business motives underlying it that is the determining factor of these divergences.
Purpose
– The main purpose of this study is to examine the impact of corporate carbon emissions and disclosure on corporate value, especially regarding whether disclosure helps to reduce uncertainty in valuation as predicted by carbon emissions using a unique data set on Japanese companies.
Design/methodology/approach
– Empirical analysis of the relations between corporate carbon emissions using compulsory filing data to Japanese Government covering more than 1,000 firms, corporate carbon management disclosure (CDP disclosure), and the market value of equity.
Findings
– The authors find that corporate carbon emissions have a negative relation with the market value of equity, the disclosure of carbon management has a positive relation with the market value of equity, and the positive relation between the disclosure of carbon management and the market value of equity is stronger with a larger volume of carbon emissions.
Practical implications
– The results may be important when considering the inclusion of carbon disclosure as a component of nonfinancial disclosure. In addition, the findings encourage Japanese companies to reduce carbon emissions and to disclose their carbon management activities.
Originality/value
– The authors provide the first empirical evidence of an interactive effect between the volume of carbon emissions and carbon management disclosure on the market value of equity. And, the results concerning the relation between environmental performance, disclosure, and market value are readily generalizable, especially as all companies emit carbon, either directly or indirectly. In addition, the results are arguably free of problems with sampling bias and endogeneity as the authors employ data obtained from the compulsory filing of carbon emissions information.
This paper examines the impact of corporate board’s characteristics on the voluntary disclosure of greenhouse gas (GHG) emissions in the form of a Carbon Disclosure Project report. Using both univariate and regression models with a sample of the 329 largest companies in the United Kingdom, we find a significant positive association between gender diversity (measured as the percentage of female directors on the board) and the propensity to disclose GHG information as well as the extensiveness of that disclosure. In addition, a board with more independent directors or environmental committee show a higher tendency to be ecologic transparent. However, if the committee is not sufficiently large, independent or active, its effect seems insignificant. The results are consistent with stakeholder theory, suggesting that a diversified and independent board and the existence of a board-level environmental committee may balance a firm’s financial and non-financial goals with limited resources and moderate the possible conflicting expectations of stakeholders who have disparate interests. The findings should be useful for top managers and regulators who are interested in improving corporate governance practices and climate-change strategies.
Purpose
The purpose of this study is to analyse different factors behind the disclosure of corporate information on issues related to greenhouse gas emissions and climate change world‐wide.
Design/methodology/approach
The empirical analysis carried out was performed in two stages: analysis of the data obtained through content analysis and analysis of the factors that influence the disclosure of greenhouse gas emissions and climate change using a dependency model, a multiple linear regression. Several variables were introduced to represent the size of the companies, leverage, return on assets (ROA), return on equity (ROE) and Market‐to‐Book ratio. Also, other dummy variables have been incorporated: Kyoto Protocol, activity sector in which the company operates and inclusion in the Dow Jones Sustainability Index.
Findings
The results obtained show a direct relationship between corporate size, its market capitalization and the disclosure of information in addition to proposed Global Reporting Initiative (GRI) indicators on greenhouse gas emissions. Conversely, an inverse relationship between ROE and disclosure is detected.
Practical implications
The findings emphasize that the main quoted companies operating in industries related to greenhouse gas emissions typically reveal information on almost all the GRI core indicators as well as the additional items specifically proposed for this issue. Moreover, the results suggest a trend for companies to utilize information on greenhouse gas emissions as a mechanism that enables them to legitimise themselves with those groups that can be of benefit to them.
Originality/value
The paper has analysed the disclosure of greenhouse gas emissions and other information of importance to climate change in companies from different countries, some of which have ratified, approved, adhered to or accepted the Kyoto Protocol, and some of which have still not accepted it.
Purpose
This paper seeks to explore the gaps between regulatory requirements and authoritative guidance regarding climate disclosure in Australia; reporting practices; and the demands for increased disclosure and standardization of that disclosure.
Design/methodology/approach
The Draft Reporting Framework of the Climate Disclosure Standards Board (CDSB) is used to develop a scoring system against which the climate disclosures of one large Australian company that has received awards for its disclosure record are assessed. Relevant theories of voluntary disclosure are used to explain the findings.
Findings
The results of this analysis indicate an inadequate amount of disclosure in this company's reports about some aspects of climate change impacts and their management. Further, the disclosures that are made tend to lack technical detail and are somewhat skewed towards the more positive aspects of climate change impacts and management.
Research limitations/implications
These findings are based on just one large Australian company that has received commendations for its climate disclosure record, and may therefore not reflect the climate disclosure practices of other Australian companies.
Practical implications
The results of this case study appear to support calls for increased guidelines for the disclosure of climate change related information and greater standardization of reporting. Several potential policy options for doing this are assessed.
Originality/value
The paper uses an objective measure to assess climate change disclosures which was developed for this research. The results are expected to be useful for informing the continuing debate around the regulation of and/or provision of guidance to Australian companies about the disclosure of climate change related information.
There is a small, but positive, relationship between corporate social performance and company financial performance. However, research in this area has provided little guidance to managers on how they should measure the financial impacts of their CSP strategies. Commonly used market measures, such as share price, or accounting measures, such as return on equity, are impacted by a host of other variables. These metrics do not provide the necessary level of detail for managers who want to establish an optimal level of CSP investment for their company. Further, academic research has tended to overlook the mediation process between CSP and financial performance. This gap limits the practical application of research and leaves the question of causality unaddressed. The author reviews the research examining the business case for CSP from both the academic and practitioner literatures, and provide recommendations for managers interested in measuring the impacts of CSP investment on financial performance.
Using hand-collected carbon emissions data for 2006 to 2008 that were voluntarily disclosed to the Carbon Disclosure Project by S&P 500 firms, we examine the effects on firm value of carbon emissions and of the act of voluntarily disclosing carbon emissions. Correcting for self-selection bias from managers' decisions to disclose carbon emissions, we find that, on average, for every additional thousand metric tons of carbon emissions, firm value decreases by 2.3 billion higher than that of comparable non-disclosing firms. Our results indicate that the markets penalize all firms for their carbon emissions, but a further penalty is imposed on firms that do not disclose emissions information. The results are consistent with the argument that capital markets impound both carbon emissions and the act of voluntary disclosure of this information in firm valuations.
JEL Classifications: G14, Q51, M14.
Data Availability: Data are available from the sources identified in the study.
This study evaluates disclosures on pollution and greenhouse gases by firms domiciled in countries that have ratified the Kyoto Protocol compared to others. The study is based on disclosures made in the annual reports, environmental reports, and websites of 120 of the largest (in terms of revenues) public firms from the chemical, oil and gas, energy, and motor vehicles and casualty insurance industries. The study uses content analysis to construct weighted and unweighted disclosure indices.The results show that firms from countries that ratified the Protocol have higher disclosure indexes as compared to firms in other countries. Additionally, larger firms disclose more detailed pollution information. Multinational firms that operate in countries that ratified the Protocol but have their home offices in countries that did not are associated with lower disclosures. This lack of consistency in disclosure is not likely to be helpful in informing shareholders about the social responsibility of their investments.
This paper takes issue with the Porter-van der Linde claim that traditional benefit-cost analysis is a fundamental misrepresentation of the environmental problem. They contend that stringent environmental measures induce innovative efforts leading to improvements in abatement and production technologies that offset the costs of the regulations. Drawing both on basic economic theory and existing data on control costs, the authors argue that such offsets are special cases. The data indicate offsets are minuscule relative to control costs. There is no free lunch here: environmental programs must justify their costs by the benefits that improved environmental quality provides to society. Copyright 1995 by American Economic Association.
Carbon risk has generated significant adverse impacts on firms, investors and other stakeholders. Carbon disclosure may provide market participants with information to effectively manage risks and explore opportunities. We conduct a critical review of the growing literature in these fields and seek to examine the financial effects of carbon risk and carbon disclosure. A total of 78 papers, published in influential accounting, finance, business, economics and management journals between 2011 and 2021, are reviewed. We categorise the financial effects into four groups: financial performance, valuation relevance, cost of capital and risk profiles (measures). The proxies for carbon risk and carbon disclosure are summarised. This review demonstrates inconclusive relationships between carbon risk (carbon disclosure) and firms' financial measures. These inconclusive findings may result from different carbon risk (carbon disclosure) measures, financial performance measures, sample geographies, sizes and periods, and model specifications. This review further identifies and highlights future research opportunities in relevant areas and calls for more research work to understand the influence of climate change on firms' value and activities.
Purpose
The paper aims to examine the climate change-related disclosure patterns of listed Indian firms and its impact on firm performance. Specifically, it strives to analyse the conformance of the selected firms with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) established by the Financial Stability Board of G20 nations.
Design/methodology/approach
The study conducts content analysis of the annual reports and/or sustainability reports of 22 selected firms from the energy sector for the period spanning 2018–2019 and 2019–2020 based on the four-fold recommendations of TCFD, namely, governance, strategy, risk management and target and metrics, to compute the overall and respective climate-change disclosure scores. Further, a panel data regression model is used to appraise the impact of such disclosure on the performance of the firms.
Findings
The findings of the study indicate that the disclosure level of Indian firms in the energy sector is moderate. The regression results establish a positive relation between climate change-related financial disclosure and firm performance indicating that firms can witness improved financial performance by disclosing more information on climate change.
Originality/value
This is the first study in the Indian context to evaluate the climate change-related disclosure practices of the selected firms based on the TCFD’s recommendations and to trace its association with the performance of the firms. The results of the study shall hence be of relevance for the policymakers and diverse stakeholders.
This study analyzes the relationship between firms’ financial performance and their environmental performance, with a particular focus on greenhouse gas-intensive industries. Using financial and environmental data of international listed companies from 2011 to 2017, the financial impact of environmental performances was estimated, measured with multiple indicators that take into account disclosure aspects. The analysis was conducted across different industry aggregation levels, namely the entire group of industries, the Global Industry Classification System (GICS) Industry Group, and the GICS Industry. We found that environmental disclosure indexes are mostly not significant after controlling for environmental performance, suggesting that the effect of environmental disclosure on corporate financial performance is limited, if not altogether absent. In contrast, environmental performance seems to play an important role, and that holds even for high-emitting companies. Overall, our results were consistent with the interpretation that financial markets effectively consider the actual environmental performance of listed companies and, only to a minor extent, the quality of their disclosure.
Our study focuses on the value relevance of corporate voluntary carbon disclosure. Our sample includes firms from the United States (listed in the S&P 500) and firms from Brazil, Russia, India, and China that are targeted by the CDP. We examine whether the capital market rewards firms’ voluntary carbon disclosure. Voluntary carbon disclosure is measured as firms’ propensity to voluntarily disclose carbon information and the comprehensiveness and quality of their disclosure. We find that firms with greater carbon disclosure have higher firm value. Furthermore, the positive association between firm value and voluntary carbon disclosure is stronger in developing countries. We also find that large emitters with sufficient carbon disclosure experience a less negative valuation than firms with inadequate carbon disclosure. Furthermore, a subcomponent analysis suggests that the disclosure of specific types of climate risk and opportunity is rewarded by investors and can mitigate the valuation penalty of carbon emissions. These results have important implications for companies, investors, and regulators. Our analyses enhance understanding of the consequences of voluntary carbon reporting, which enriches the reporting of current financial information.
This research aims to examine (1) the effect of carbon emission disclosure on firm value, (2) the effect of good corporate governance on firm value, (3) the mediating role of financial performance between carbon emission disclosure and firm value, and (4) the mediating role of financial performance between good corporate governance and firm value. The research sample includes 43 mining, agro, and manufacturing firms listed in the Indonesian Stock Exchange over the 2015-2017 period. Carbon emission disclosure is measured by an indicator of the Global Reporting Initiative Series of Environmental Aspect. Good corporate governance is measured by the corporate governance score of shareholder rights, boards of directors, outside directors, audit committee and internal auditor, and disclosure to investors. Financial performance is measured by return on assets, while firm value is measured by Tobin's Q. Data analysis uses the structural equation modeling. The result shows carbon emission disclosure and good corporate governance have no direct effect on firm value. On the other hand, financial performance mediates the effect of carbon emission disclosure and good corporate governance on firm value. It shows that higher carbon emission disclosure and good corporate governance are meaningless for the investor if they do not give any financial performance improvement.
Corporate social responsibility (hereafter, CSR) continues to be generally relevant, with growing interest from academic researchers, businesspeople, public administrations and society as a whole. Numerous works have studied the influence of CSR on economic performance (hereafter, EP) in large businesses, but very few studies have focused on micro-, small- and medium-sized enterprises (MSMEs). This study analyzes the moderating effect of firm size on the influence of CSR actions on the economic performance of MSMEs. This work has two purposes: first, to empirically test the “social impact” hypothesis of stakeholder theory, which assumes that CRS positively impacts EP; second, to analyze the moderating effect of the MSME size on this hypothesis. The results obtained using the PLS-SEM technique based on a sample of 278 Spanish firms confirm that MSMEs that carry out CSR activities in their economic, social and environmental aspects improve their economic performance, and this relationship is moderated by the size of these organizations; the larger the size is, the stronger the relationship is.
Although the current empirical literature has focused predominantly on the direct relationship between corporate social responsibility (CSR) and firm value, in this paper, we aim to explore firm‐level moderators that may contribute to disentangling this relationship. On the basis of a dataset of Western European listed companies, we use a moderation analysis of panel data to examine whether firm size and age drive the impact of CSR on firm value. Our estimations show that the relationship between CSR and firm value is moderated by firm size and age so that it is negatively impacted when small and/or young companies are considered. This finding seems to be consistent with the view that CSR initiatives could be ineffective in smaller and younger companies due to their lack of financial resources, experience, reputation, and so forth. Implications for firms are also discussed.
Using a cost-benefit framework, this research examines the impact of voluntary greenhouse gas (GHG) disclosure on accounting-based performance. Previous studies suggest that the implementation of carbon management and reporting may be associated with the improvement of accounting-based performance by the identification of cost savings opportunities or the introduction of innovation opportunities in products and services. This study is the first that applies several proxies of accounting-based performance, such as, return on assets, return on equity and return on sales, to empirically examine the association between voluntary GHG disclosure by non-GHG registered Australian companies and accounting-based performance. The level of GHG disclosure is scored through content analysis of the annual reports of sample organisations for the financial years 2009 to 2011. This research highlights that GHG disclosure is positively associated with ROA in the year following disclosure. The findings are consistent with the predictions of the cost-benefit framework. It indicates that companies bear the extra voluntary disclosure costs to gain the perceived benefits of voluntary disclosure. Our findings are useful for organisations and stakeholders who are concerned about the cost-benefit of voluntary carbon disclosure.
This article uses econometric techniques to examine the effect of corporate carbon performance on corporate financial performance. I extend the existing literature in this research field by differentiating between two measurement perspectives: carbon performance expressed as annually reported carbon dioxide (CO2) emission equivalents and improvements in carbon performance over time. Thereby, the article re-addresses the research question ‘when and how does it pay to be green?’ in the context of carbon emissions and climate change mitigation. Using a nonlinear modeling technique, the findings indicate that it pays to be green for companies with superior carbon performance but not for companies with inferior carbon performance. The results also show that carbon emission mitigation is linearly and significantly positive related to return on sales (ROS) but negatively related to Tobin's q. These contradictory findings help us to understand why – in spite of growing regulatory pressure – companies have been slow to respond with effective action to tackle climate change beyond marginal efficiency improvements that correspond to ‘low-hanging fruits’. The empirical analysis is based on an unbalanced sample of 7625 firm-year observations covering carbon emission data (Scope 1 and Scope 2) for 1640 international firms from 2003 to 2015. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment
The purpose of this research is to examine how environmental committees, institutional shareholdings, and board independence affect managerial carbon disclosure decisions, particularly those of firms belonging to highly polluting industries. We focus on Italian firms that operate in a code law environment but that have the option either to adopt the unitary corporate structure prevalent in common law countries or to retain the dual corporate structure used in code law countries. We use weighted and unweighted carbon disclosure indexes based on the Kyoto Protocol requirements. The findings show that all factors greatly affect voluntary carbon disclosure and that their impact is especially strong for firms in highly polluting industries. This study has important implications for managers and regulators.
Purpose
– The present paper aims to identify, map and assess the existing empirical evidence on this body of knowledge to examine what actions for corporate climate change mitigation (3CM hereafter) decision-makers undertake, under what circumstances and with what results. Firm-level activities conducted to mitigate climate change are increasingly becoming a strategic issue for all corporations worldwide.
Design/methodology/approach
– By using a systematic review, and a vote-counting approach, the vastly dispersed collection of qualitative and quantitative data available in the literature is integrated, to explore how 3CM is conceptualised and measured in empirical research. In particular, common trends and contradictory findings are illustrated.
Findings
– The present review demonstrates that no researchers have yet analysed the role of 3CM in corporate management control systems. Furthermore, three shortcomings of existing empirical research were identified and some directions for future research were outlined. These regard analysing the positioning of 3CM in corporate management control systems, the further development of measurements of 3CM performance and a consideration of the evolution of 3CM over time.
Originality/value
– Firm-level activities carried out to mitigate climate change are increasingly becoming a strategic issue for all corporations worldwide. However, the growing stream of management literature on climate change has not yet diffused across disciplinary boundaries, as it suffers from a remarkably diverse terminology and differing conceptualisations and measurements of its research objectives. The present review elaborates on the existing empirical evidence and suggests recommendations for future research.
Despite the importance of the Carbon Disclosure Project (CDP), the question of how firms' voluntary carbon disclosure influences capital markets and shareholder value remains unanswered. Using the event study methodology with a sample of firms from the CDP Korea 2008 and 2009, this paper investigates market responses to firms' voluntary carbon information disclosure. The results suggest that the market is likely to respond negatively to firms' carbon disclosure, implying that investors tend to perceive carbon disclosure as bad news and thus are concerned about potential costs facing firms for addressing global warming. In addition, the study examines the moderating effect of frequent carbon communication on the relationship between carbon disclosure and shareholder value. The results suggest that a firm can mitigate negative market shocks from its carbon disclosure by releasing its carbon news periodically through the media in advance of its carbon disclosure. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment.
The quantifying and reporting of greenhouse gas emissions is one of the most important tools for monitoring and auditing proposed to mitigate climate change, and it also directly affects business. It is thus vital that at this time we learn in detail whether firms actually report on greenhouse gas emissions and make the account entries that must be included within it.
This research is twofold: first to analyse the reports on greenhouse gas emissions of international firms in the 2007 and 2008 period and to see what kind of variation occurs in CO2 emissions between 2006–2007 and 2007–2008, and second to determine the impact that this variation (2006–2007) can have on firm performance in four time periods (t, t + 1, t + 2 and t + 3) that correspond to 2007, 2008, 2009 and 2010, taking two variables as a measure of firm performance, ROE and ROA, and considering a time period affected by a financial crisis.
The results obtained show that there was a reduction in CO2 emissions in the 2006–2007 period, and also in the 2007–2008 period. As regards the impact that the variation in CO2 emissions has on ROE and ROA, CO2 emission variation is a significant but negative variable only for ROA_2007 and for the rest of the years it is not statistically significant either for ROE or ROA. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment.
Purpose
– This study aims to report the extent of voluntary carbon emission disclosures by major Australian companies during the years 2006 to 2008. This paper provides contemporary data and explanations about carbon emissions reporting in Australia. Additionally, the paper aims to determine the variables that explain the extent of carbon disclosures.
Design/methodology/approach
– The carbon disclosure score is measured directly from individual companies' annual reports and sustainability reports. A checklist is established to determine the breadth and depth of the information related to climate change and carbon emissions incorporated in these publicly available reports.
Findings
– The overall carbon disclosure score has increased significantly over the authors' research period. Furthermore, regression results show that larger firms with higher visibility tend to make more comprehensive carbon disclosures. Overall, the authors' results indicate that the legislation of the National Greenhouse and Energy Reporting Act (the NGER Act) in 2007 may have enhanced the voluntary carbon emission disclosures in 2008, even though the NGER Act was not operative until the 2009 financial year. From a theoretical perspective, the findings of the paper are consistent with legitimacy theory.
Originality/value
– Previous studies examining environmental disclosures in Australia are based on a time period prior to widespread public discussion and interest in climate change and carbon emissions. By investigating voluntary disclosures made by large Australian companies around the time that the mandatory emission reporting scheme was introduced, this paper investigates whether the prominence of discussion and impending operation of the mandatory environmental disclosures have led to a greater extent of voluntary carbon disclosures. The findings can help regulators draft appropriate legislation that targets industries and specific practices where disclosure is of greatest importance to relevant stakeholders. In addition, an understanding of who and why entities disclose carbon gas emission information can arm green groups and other stakeholders with an appropriate level of understanding about the motivation for such disclosures.
This paper uses South Africa as an example to explore how crises of trust – stemming from the legacy of Apartheid, local and international corporate failures and the changing regulatory framework in the United States – have contributed to shaping aspects of South African corporate governance. Using Giddens' theory of modernity, the research considers how the country's racist past and recent corporate scandals have converged to shape South Africa's corporate governance landscape. In turn, mechanisms of modernity explain why South Africa has developed a highly sophisticated system of corporate governance.
Purpose – The purpose of this study is to examine the current state of sustainability efforts within the field of supply chain management, more specifically supply chain logistics operations, and to identify opportunities and provide recommendations for firms to follow sustainable operations. This study also aims to stimulate further research within the area of sustainable logistics operations. Design/methodology/approach – The reasons why it is important to implement sustainability into supply chain operations is discussed. Based on a review of the extant literature, various areas within the logistics function where sustainability can be implemented are then presented. Some short-term and long-term recommendations for the successful implementation of sustainability in the logistics function of supply chains are provided. Findings – There has been very little work done to understand the role and importance of logistics in an organization's quest towards sustainability. For firms to implement a sustainability strategy in their supply chain operations, the logistics function needs to play a prominent role because of the magnitude of costs involved and the opportunity to identify and eliminate inefficiencies and reduce the carbon footprint. Practical implications – Firms in their quest for sustainable logistics operations must start early and start simple. A top management commitment is required for such efforts to be successful. Also, firms need to be able to visualize and map out their supply chains and benchmark their sustainability efforts with other firms in their industry. Social implications – Firms need to follow sustainable practices in their overall operations and in their logistics operations in particular because not only does it have financial and other intangible benefits, but it is also the right thing to do. Firms have a great social responsibility especially with respect to use of non-renewable sources of energy and materials and also with respect to how their products are used and handled once they reach the end of their life cycles. Originality/value – This paper is the first of its kind which examines the state of sustainability within the field of supply chain logistics operations and identifies areas and sets the agenda for future research in this field.
This paper serves as an introduction to this special issue of Accounting, Auditing & Accountability Journal; an issue which embraces themes associated with social and environmental reporting (SAR) and its role in maintaining or creating organisational legitimacy. In an effort to place this research in context the paper begins by making reference to contemporary trends occurring in social and environmental accounting research generally, and this is then followed by an overview of some of the many research questions which are currently being addressed in the area. Understanding motivations for disclosure is shown to be one of the issues attracting considerable research attention, and the desire to legitimise an organisation’s operations is in turn shown to be one of the many possible motivations. The role of legitimacy theory in explaining managers’ decisions is then discussed and it is emphasised that legitimacy theory, as it is currently used, must still be considered to be a relatively under-developed theory of managerial behaviour. Nevertheless, it is argued that the theory provides useful insights. Finally, the paper indicates how the other papers in this issue of AAAJ contribute to the ongoing development of legitimacy theory in SAR research.
Sweden is of interest because of the rapid growth in the Stockholm Stock Exchange and because of the country's disproportionate number of multi-national enterprises. This paper reports on the extent of voluntary disclosure in the corporate annual reports of unlisted and listed Swedish companies. A wide-ranging definition of voluntary disclosure is adopted because of the flexibility of approach accepted in Sweden. This should not be construed that Swedish accounting is largely unregulated, rather it reflects a problem of interpretation of what constitutes generally accepted accounting principles in Sweden. In addition, the paper assesses whether there is a significant association between a number of independent variables and the extent of disclosure.
In order to help understand the environmental disclosure mechanism from the corporate perspective, this paper identifies the determinant factors affecting the disclosure level of corporate environmental information on the basis of stakeholder theory, and gives an empirical observation on Chinese listed companies. The corporate environmental information disclosure (EID) level appears to be marginal in current Chinese context. Nearly 40% of the sampled companies opened no substantial environmental data to the public as could be seen from the content analysis of disclosed information. The present condition is that the EID strategy of Chinese listed companies is oriented to fill up the government's environmental concerns. The corporate EID effort is significantly relative to its environmental sensitivity (a proxy of the pressure from the government) and its size. The role of other stakeholders, like shareholders and creditors tested in this study in effecting the EID, is found to be still weak. Another interesting finding is that the sampled companies are selectively opening their environmental information. Companies operating in eastern coastal regions, where the economy has been relatively developed, are more likely to disclose emission-related data. The better the company's economic performance, the more information on environmental investment and pollution control cost is disclosed. More concerns of the firm's stakeholders on environmental issues shall be promoted in order to encourage Chinese enterprises to disclose more environmental information and accordingly become more proactive for improving their environmental performance.
This paper analyzes the shareholder value effects of environmental performance by measuring the stock market reaction associated with announcements of environmental performance. We examine the market reaction to two categories of environmental performance. The first category includes 417 announcements of Corporate Environmental Initiatives (CEIs) that provide information about self-reported corporate efforts to avoid, mitigate, or offset the environmental impacts of the firm's products, services, or processes. The second category includes 363 announcements of Environmental Awards and Certifications (EACs) that provide information about recognition granted by third-parties specifically for environmental performance. Although the market does not react significantly to the aggregated CEI and EAC announcements, we find statistically significant market reactions for certain CEI and EAC subcategories. Specifically, announcements of philanthropic gifts for environmental causes are associated with significant positive market reaction, voluntary emission reductions are associated with significant negative market reaction, and ISO 14001 certifications are associated with significant positive market reaction. The difference between the market reactions to the CEI and EAC categories is statistically insignificant. Overall, the market is selective in reacting to announcements of environmental performance with certain types of announcements even valued negatively.
Actualmente, Internet está proporcionando a las empresas un nuevo medio para que puedan distribuir voluntariamente todo tipo de información relativa a sus principales aspectos económicos y financieros. En la literatura académica existente se pone de manifiesto que la información revelada por las empresas a través de este mecanismo va más allá de la que es normativamente exigible. Por otro lado, la publicación de información de carácter obligatorio en Internet puede considerarse una práctica de revelación voluntaria en sí misma. En este trabajo se analiza la información suministrada actualmente por las principales empresas a nivel mundial en Internet. A continuación, se identifican empíricamente las variables que pueden influir sobre el mayor o menor nivel de contenidos de la información corporativa. Para ello, se realiza un estudio de la información que suministran a través de Internet las empresas
con mayor valor de capitalización bursátil de los Estados Unidos, Europa del Este y la Unión Europea. Posteriormente, se analizan las posibles relaciones entre la transparencia de las empresas y tres de las variables que con mayor frecuencia se ha empleado en los distintos estudios recogidos en la literatura contable sobre determinantes de la revelación voluntaria: sector, localización geográfica y tamaño. Los resultados permiten concluir acerca de relaciones significativas entre el volumen de información suministrada y estas variables independientes.
This study examines the association between pollution disclosures and pollution performance and between pollution disclosures and economic performance for firms in highly polluting industries. An index of pollution disclosures is developed and correlated with indices of pollution performance and economic performance. The results confirm earlier findings that there is no association between pollution disclosures and pollution performance. As far as the association between economic performance and pollution disclosures is concerned, the results show that the subgroup of large firms with poor economic performance provides the most detailed pollution information. For smaller firms there is no association between economic performance and pollution disclosures.
Modeling the impacts of corporate commitment on climate change
Managing legitimacy: strategic and institutional approaches