Climate change disclosure ratings: the ideological play

Abstract

Purpose The purpose of this paper is to investigate the impact of climate change rating organisations on rated firms, to understand whether disclosure ratings can facilitate enhanced emissions performance. Design/methodology/approach This study uses 1,848 cross-country firm-year observations from organisations that responded to the carbon disclosure project (the rater) between 2011 and 2015 and, hence, were rated for their disclosure. Drawing on the ideology of numbers, this paper hypothesises that the disciplinary power of ratings will result in rated firms improving their subsequent disclosure scores. Following the environmentally-friendly ideology, this study hypothesises that poorly-rated firms will adopt decoupling behaviour, by improving their climate change disclosure scores without reducing the intensity of their greenhouse gas (GHG) emissions. Findings The results indicate that climate change disclosure ratings pressure poorly-rated firms to improve their disclosure scores in subsequent years, yet these firms are not inclined to lower their GHG emissions. Further, the direct publication of firms’ GHG emissions intensity can exert some restricted disciplinary impact on rated firms, as the more polluting firms tend to improve their subsequent climate change performance compared with those having lower emissions levels. Practical implications This paper argues that the ability of corporate sustainability rating schemes to influence corporate behaviour comprehensively is limited and should be used with caution. Originality/value This paper sheds new light on the ideological dynamics at play between the rater and the rated, while highlighting new aspects of the power-rating nexus in the climate change arena.

The climate-related information in the changing EU directive on non-financial reporting and disclosure: first evidence by Italian large companies

“…However, findings draft the current climate-related disclosure as an early stage in complying with the EU guidelines (Communication from the Commission, 2019). Our findings enlarge previous theories on corporate disclosure (Heitzman et al , 2010; Cotter et al , 2011; Kılıç and Kuzey, 2019), proposing new insights in the light of the recent interest in the climate-related information (Abhayawansa and Adams, 2021; Bui et al , 2021).…”

“…In the current scenario, climate change has become one of the most relevant risks companies have to face (Cotter and Najah, 2011; Kılıç and Kuzey, 2019; Abhayawansa and Adams, 2021; Bui et al , 2021). Greenhouse gases emissions (GHG emissions) will cause further global warming, responsible for environmental and economic damages, even if there is still no exact estimate of timing and severity of physical effects.…”

“…In October 2014 the EU published the European Union Directive, 2014/95/EU (or EU directive) requiring large undertakings which are public interest entities (PIEs) exceeding the average number of 500 employees to disclose a non-financial report (www.eur-lex.europa.eu). In the current scenario, climate change is one of the most outstanding risks companies have to face (TCFD, 2017;Abhayawansa and Adams, 2021;Bui et al, 2021) and non-financial reporting could assume a pivotal role in the transition toward a sustainable economy, combining long-term profitability and environmental protection (Muserra et al, 2020). Additionally, non-financial disclosure can contribute to the development of corporate social responsibility (CSR) policies and achievement of the 2030 United Nations Sustainable Development Goals (SDGs) (ONU, 2015;Pizzi et al, 2020) as well as to the environmental accounting (Bebbington et al, 2021) Many initiatives, frameworks and guidelines on climate change-related information to be disclosed were published (Cotter and Najah, 2013;GRI, 2016;www.sasb.org;www.cdsb.net;www.cdp.net) enriching the possibility to make more transparent corporate actions.…”

Corporate governance perspective on environmental reporting: Literature review and future research agenda

“…The scarce evidence available in the literature suggests a positive relationship between the number of analysts following a firm and its level of ER (Déjean & Martinez, 2009). In similar vein, Bui et al (2022) find that climate change disclosure ratings are effective in pressuring poorly‐rated firms to improve their disclosure scores in subsequent years. However, how these external governance mechanisms influence reporting quality and the likelihood of greenwashing remains an open question.…”

“…lar vein,Bui et al (2022) find that climate change disclosure ratings are effective in pressuring poorly-rated firms to improve their disclosure scores in subsequent years. However, how these external governance mechanisms influence reporting quality and the likelihood of greenwashing remains an open question.…”