Relationship between Corporate Climate Change Disclosures and Firm Factors

Abstract

As carbon regulation evolves and becomes specialized in addressing carbon reduction issues, stakeholders will demand that firms provide increased information regarding corporate climate change practices. This paper contributes to the international research that examines the relationship between environmental information disclosures and additional firm factors. To do so, we have conducted an empirical analysis of the relationship between the corporate climate change disclosure practices of firms listed in the Athens Stock Exchange and firm factors, such as size, profitability, leverage and activity sector. Our results indicate there is a significant positive relationship between size and increased corporate disclosures regarding climate change practices. However, no significant relationship is detected between profitability or leverage and corporate climate change disclosures.The need to reach Kyoto targets gave rise to the adoption of national and international climate change mitigation policies. These include putting a price on carbon emissions in the form of carbon taxes, mandatory process and product standards or by establishing carbon trading programs (Bebbington and Larrinaga-Gonzalez, 2008). As a result, GHG-intensive activity sectors will face direct regulation risks in the form of increased costs, related to their obligation, for example, to have GHG emission allowances matching the amount of their emissions. On the other hand, non-intensive business sectors will most likely face the indirect effects of climate regulation through increased energy prices, which could affect their production costs.These increased risks that companies face have caught the attention of various stakeholders, such as institutional investors, banks, accounting firms, governmental agencies, NGOs and consumers, who have been demanding information disclosure regarding the corporate climate change practices of firms. On the financial front there is evidence that institutional investors view climate change as a major source of risk (Solomon et al., 2011). Consequently, they have begun to pay more attention to the corporate climate change practices of firms and to demand information regarding corporate climate change mitigation policies. The reason why institutional investors insist on companies disclosing information, especially those belonging to GHG-intensive sectors, is that inadequate disclosure of climate change related risks could reduce an investor's ability to estimate a firm's performance and future cash flows (Venugopal et al., 2009). Indeed, scientific research on credit risk management has shown that by incorporating sustainability criteria in financial assessment of projects, for example, banks can not only lower the chances of having to deal with credit default cases but have also more chances of gaining an advantage against their competitors by improving their credit risk management assessment procedures (Weber et al., 2008(Weber et al., , 2010.This paper contributes to the discussion of enhancing climate change corpor...

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