Carbon Disclosure, Contextual Factors, and Information Asymmetry: The Case of Physical Risk Reporting

Schiemann, Frank; Sakhel, Alice

doi:10.1080/09638180.2018.1534600

Cited by 97 publications

(73 citation statements)

References 75 publications

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“…Firms can also complete annual surveys on their physical risk exposure, such as through the annual CDP survey(Schiemann and Sakhel;. For example, firms are asked to detail climate risks that have the potential to have a substantive financial or strategic impact on the firm.…”

mentioning

confidence: 99%

The Materiality and Measurement of Physical Climate Risk: Evidence from Form 8-K

Gostlow

2020

SSRN Journal

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Pricing firm-level exposure to physical risk, such as hurricanes, wildfires and floods, poses large informational challenges to investors and policymakers. This leads to difficulties in estimating how the market is pricing climate risk. This paper explores whether Form 8-K, a filing that allows firms to immediately report on unscheduled material events to shareholders, holds any relevant and latent information on physical risk. By utilising a simple textual approach, Form 8-K offers a way to identify material firm-level physical risk information related to severe weather and natural disasters. This paper also compares the measure to others in the literature. When compared to measures of keywords in annual reports, Form 8-K can detect realised and real-time physical risk from firms that predict they will be exposed. This allows for the validation of these less frequent and forward-looking measures. When compared to more frequent measures that utilise quarterly earnings call transcripts between managers and investors, Form 8-K identifies physical risk exposure that is not mentioned in the earnings calls. This is taken as evidence that Form 8-K may hold some latent real-time information on physical risk exposure.

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confidence: 99%

The Materiality and Measurement of Physical Climate Risk: Evidence from Form 8-K

Gostlow

2020

SSRN Journal

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“…However, some studies emphasize that risk reporting is essential to improve market discipline and ensure transparency (Abraham and Cox 2007;Beretta and Bozzolan 2004). In the light of this, some recent studies address issues related to transparency, and information asymmetry in risk reports released not only voluntarily (Schiemann and Sakhel 2019;Kang and Gray 2019) but also mandatorily (De Luca et al 2020;Leopizzi et al 2019;Lobo et al 2019;Campbell et al 2014). Due to these puzzling arguments, it is expected that managers use specific risk communication strategies to achieve several goals: reduce agency costs, potential litigation costs, and ensure a certain level of transparency.…”

Section: Risk Conceptsmentioning

confidence: 99%

The Relationship between the Company’s Value and the Tone of the Risk-Related Narratives: The Case of Portugal

2021

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The present study aims to identify the impact of the tone of risk reporting narratives on company market value. The paper uses a sample of 34 Portuguese non-finance companies with shares traded at the Euronext Lisbon stock exchange market. The paper conducts an automated content analysis of the risk reporting narratives included in the risk and risk management sections of the annual reports for 2018 by using the software DICTION 7 (Digitext, Inc., Austin, TX, USA) to retrieve the speech tone. Main findings indicate that the tone category “activity” is associated negatively with the company’s market value. This result shows that investors misprice risk information that incorporates traces of overconfidence, narcissistic self-confidence and heroic leadership. The present study extends prior literature by analyzing the economic incentives of the tone of risk reporting narratives, not yet studied. Findings are both relevant to investors to support their decision-making processes and managers to strategically manage their risk communication tactics and benefit from the advantages emanated from them. Limitations related to the research setting do not undermine the generalization of findings because the automated algorithm provided by DICTION assures the content analysis’s reliability. The sample used corresponds to the population of the Portuguese non-finance listed companies.

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“…Reporting climate risk information may also help to reduce information asymmetry between a company and its stakeholders concerning its engagement with such issues (Schiemann & Sakhel, 2018). Companies that are perceived as being simultaneously high performers both in the market and for society may face less friction and problems in their business relationships with suppliers, traders, public authorities and other stakeholders.…”

Section: Perceived Costs and Benefits Of Climate Risk Reportingmentioning

confidence: 99%

Climate risk reporting practices by UK insurance companies and pension schemes

Klumpes¹,

Acharyya²,

Kakar³

et al. 2019

Br. Actuar. J.

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Increasing global concern over the impact of climate change has recently led to public scrutiny over the adequacy of existing risk management practices by insurance companies and pension schemes in dealing with these challenges that potentially impact both individual actuaries and the Institute and Faculty of Actuaries generally. Most recently, the Prudential Regulation Authority has issued further guidance concerning its expectations for the UK insurance industry regarding the development of an approach to disclosure on and management of the financial risks from climate change, while a Parliamentary Committee has demanded public clarification from UK pension scheme trustees regarding their degree of engagement with incorporating climate-related financial risks into their investment decision-making. The aim of this paper is to identify the dominating factors of the current evolvement of UK insurance companies’ and pension schemes’ climate risk disclosure practices. This paper analyses both the nature and extent of changes in the risk reporting practices of these entities that have evolved in order to meet these demands for increased accountability. We first analyse relevant sections of latest annual reports produced by a sample of 15 UK insurance companies and 15 pension schemes. We find only limited alignment of insurance firm and pension scheme annual reports with the 11 specific Task Force on Climate-Related Financial Disclosure’s (TCFD) recommended disclosures. We also examine what key financial risk and/or other organisational characteristics are most closely associated with the degree of alignment with TCFD specified disclosures related to governance, strategy, risk management and performance metrics. We find that incentives facing sample insurance companies to align their climate-related disclosures with TCFD recommendations are related to their management of reputation risk (measured on the basis of size and type of business). Whereas the incentives facing pension schemes are related to the desire to reduce information asymmetry (measured by liability risk) among their stakeholders concerning this issue. Further, consistent with a stakeholder theory explanation, it appears that only a minority of large, publicly listed insurance companies and large local government pension schemes are taking action to report on their actions to mitigate climate risk. We also discuss examples of best practice climate risk reporting. The implications for the actuarial profession in engaging with climate risk are discussed in line with the findings of the study.

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Carbon Disclosure, Contextual Factors, and Information Asymmetry: The Case of Physical Risk Reporting

Cited by 97 publications

References 75 publications

The Materiality and Measurement of Physical Climate Risk: Evidence from Form 8-K

The Materiality and Measurement of Physical Climate Risk: Evidence from Form 8-K

The Relationship between the Company’s Value and the Tone of the Risk-Related Narratives: The Case of Portugal

Climate risk reporting practices by UK insurance companies and pension schemes

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