The valuation relevance of environmental performance revisited: The moderating role of environmental provisions

This study attempts to broaden our understanding of the value relevance of environmental performance by providing empirical evidence on the moderating role of financial environmental reporting. Previous studies find that firms' environmental performance can be both positively and negatively associated with market value. Such contradictory findings can be attributed to the fact that environmental performance is associated with future economic benefits and costs. This study suggests that firms with recognized environmental provisions on their balance sheets enable investors to disentangle these opposite effects either by signaling strong future financial performance or by enhancing the reliability of environmental performance information. Regardless of the mechanism by which this moderation effect is invoked, it is hypothesized that capital market participants place a positive and significantly higher value on the environmental performance ratings of firms with recognized environmental provisions than on the ratings of firms without environmental provisions. Utilizing a sample of 692 firm-year observations of French listed firms and employing a linear price-level model that associates the market value of a firm's equity with its environmental performance, I provide empirical evidence to corroborate this thesis. In addition to contributing to the academic debate on the market valuation implications of environmental performance, this study intends to provide useful insights from a country that can be considered a pioneer of environmental reporting legislation; hence, it provides valuable lessons for other jurisdictions that are in the process of developing their sustainability reporting regulations. Finally, the findings of this study support the calls for more integrated reporting showing that the interaction of financial and non-financial information has market valuation implications

Climate-change risk-related disclosures in extractive industries: A comparative study

No abstract available

Climate Change Risk Related Disclosures in Extractive Industries

Extractive industries (mining, oil and gas) are one of the sectors that are most exposed to changes that governments may be making in order that climate change can be restricted. This report looks at the annual reports of extractive companies around the world to gauge how well and completely they are communicating that exposure to their investors and other stakeholders. The study looks at 60 of the most carbon-intensive extractive companies and at the extent and quality of disclosures they make in the management report and in the financial statements about the potential impact of climate change on their business. Clearly there are risks to the long-term viability of their activities which would impact their mineral or hydrocarbon reserves and the related infrastructure and leave them with ‘stranded’ assets. Overall the findings are that the reporting is not good enough and that annual reports lack clarity of and depth in climate change related disclosures. In the management report (the ‘front end’of the annual report) though most make reference to the issue, not all by any means provide adequate information for example about their reserves, the impact of different climate change scenarios or how their business model is adjusting to the risks. The visible impact on the financial statements is scantier still. Only 10% refer to climate change when considering impairment of their assets and none acknowledge its impact on their estimates of the useful lives of the assets