Factors Influencing Corporate Environmental Disclosures

Abstract

We investigate the effectiveness of the Carbon Disclosure Project (CDP), a notfor-profit organization that facilitates environmental disclosures of firms with institutional investors, thereby serving as a corporate governance mechanism for shareholders to influence the firm's environmental disclosures. We examine firm characteristics associated with firms' decisions to disclose carbon-related information via the CDP for a sample of 319 Canadian firms over a four-year period. In particular, we examine how firms' decisions to disclose via CDP are associated with shareholder activism, litigation risk, and the opportunity for low-cost positive publicity once requested by the firms' "signatory" investors. Our results also show that management's decision to release climate change data is associated with domestic, but not foreign, signatory investors. We also find that disclosing firms tend to be those from lower polluting industries with less exposure to litigation risk. This suggests that this new form of coordinated shareholder activism may not be successful at altering the behavior of firms that are heavier polluters.

The effect of greenhouse gas emissions on cost of debt: Evidence from Canadian firms

“…Following prior studies that used CDP data (e.g., Luo & Tang, ; Matsumura et al, ; Wegener et al, ), I measured GHG emissions in two different ways: total GHG emissions and GHG emissions intensity. Total GHG emissions (in metric tons) are measured as the total of direct emissions from GHG sources owned or controlled by the firm (Scope 1) and indirect emissions caused by the firm's consumption of electricity, heat, or steam (Scope 2; Matsumura et al, ). GHG emissions intensity is measured as the ratio of total GHG emissions to total sales.…”

“…This intensity measure allows to control for the extreme difference that exists between sectors. Moreover, relative to total emissions, this intensity measure is more comparable across firms and between different reporting periods (Kim et al, ; Luo & Tang, ; Wegener et al, ).…”

“…Since 2002, the CDP, an independent not‐for‐profit organization acting on behalf of over 800 institutional investors around the world, sends every year a questionnaire to the world's 6,000 largest firms to ask information about their GHG emissions, risks, strategies, and plans for managing and reducing these emissions (Lee et al, ; Matsumura et al, ; Wegener, Elayan, Felton, & Li, ). Today, nearly a fifth of global GHG emissions are reported through CDP, giving it the largest database of primary corporate climate change information in the world (CDP, ).…”

“…According to many authors (He et al, ; Lee et al, ; Luo & Tang, ; Matsumura et al, ; Wegener et al, ), the evidence has shown that the standard CDP report allows for less flexibility for managers to manipulate the outcome, implying that the GHG information that it provides is useful for decision makers.…”

“…According to Matsumura et al (), GHG emissions must be an essential element in analyzing a company's risk profile. Indeed, with increasing GHG‐related legislations and regulations, financial institutions may face additional costs and risks when lending money to GHG‐intensive firms (Li et al, ; Wegener et al, ).…”