Essays on carbon disclosure and financial consequences

PhD ThesisIn boardrooms around the world, climate change has recently emerged as a major issue, matching the level of public concern. This thesis is motivated by the growing interest in assessing the financial consequences of corporate involvement in climate change beyond regulatory compliance, as evidenced by firms’ voluntary participation in the Carbon Disclosure Project (CDP). This thesis contributes to the ongoing literature by extending insights into three financial consequences of voluntary carbon disclosure, namely, financial performance, firm risk, and market reaction. We empirically investigate these financial consequences by conducting three essays using a unique dataset containing firms listed on the London Stock Exchange’s FTSE350 index for the period 2007 to 2015. In the first essay, we empirically conceptualise and investigate the impact of adopting proactive carbon strategies on financial performance, building on the resource-based view (RBV) of the firm as a theoretical framework. For this, we employ a panel data approach. The finding provides strong evidence that voluntary carbon disclosure and firm financial performance are positively associated. In the second essay, we build on the RBV theory and consider the potentially positive association between information asymmetry and firm risk, and subsequently the relationship between corporate carbon disclosure and firm risk, by appointing the panel data approach. We find that the adoption of carbon strategies significantly reduces the firm’s total, systematic, and idiosyncratic risks. In the third essay, we examine the market reaction to carbon disclosure announcements by adopting an event study method. This is done by considering investors’ perspective on the costs and benefits of carbon disclosure. The results show that the market reacts significantly negatively to carbon disclosure announcements via the CDP. Furthermore, additional tests are applied, including investigating the influence of the global financial crisis and industry status on the examined relationships. Our research findings offer fresh insights and updated policy implications for investors, management, regulators, and sustainability institutions.The Public Authority for Applied Education and Training in the State of Kuwai

Market responses to firms’ voluntary carbon disclosure: Empirical evidence from the United Kingdom

In corporate boardrooms around the world, climate change has quickly risen to become a major issue, matching public concern. Recently, corporate management has encountered stakeholder pressure to disclose more information about their carbon profile and their plans to improve it. They have also been challenged to find the appropriate strategy for carbon disclosures, requiring an understanding of the costs and benefits of both carbon improvement initiatives and the reporting of them. Using a unique data set that contains firms listed on the FTSE 350 index on the London Stock Exchange market from 2009 to 2015, we apply the event study method to examine market reaction to carbon disclosures. The results show that investors respond significantly negatively to carbon disclosure announcements via Carbon Disclosure Project (CDP) of FTSE 350 firms. Moreover, for firms working in carbon-intensive industries, investors react to carbon disclosure announcements in a more significantly negative way compared with the main sample. We also find that the study’s main findings are driven by the smaller FTSE 350 firms. Furthermore, a subsample of observations for the financial crisis period of 2007–2008 was analyzed to explore the examined relationship during the crisis. In contrast, a significant positive market reaction to carbon disclosure was found for the 2007–2008 crisis period. Our study’s findings offer fresh insight and updated policy implications for investors, management and sustainability institutions. We recommend management accompanies their carbon disclosures with more explicit statements of reasons for carbon initiatives and the benefits arising from them

Carbon disclosure and firm risk: evidence from the UK corporate responses to climate change

By considering the theoretical association between corporate transparency, information asymmetry and firm risk, this paper investigates the relationship between corporate carbon disclosure and firm risk in the UK context. Using a sample of FTSE350 firms with Carbon Disclosure Project-based year-observations from 2007 to 2015, we find that enhanced voluntary carbon disclosure reduces a firm's total, systematic, and idiosyncratic risks. We also find that this negative association is driven mainly by carbon-intensive industries. Additional tests show that carbon disclosure was not a significant determinant of a firm's risk until after the global financial crisis of 2007–2008. Our findings are of interest to stakeholders, including business managers and investors as they have considerable interest in assessing firms' survival and sustainability