Financial effects of carbon risk and carbon disclosure: A review

Abstract

Carbon risk has generated significant adverse impacts on firms, investors and other stakeholders. Carbon disclosure may provide market participants with information to effectively manage risks and explore opportunities. We conduct a critical review of the growing literature in these fields and seek to examine the financial effects of carbon risk and carbon disclosure. A total of 78 papers, published in influential accounting, finance, business, economics and management journals between 2011 and 2021, are reviewed. We categorise the financial effects into four groups: financial performance, valuation relevance, cost of capital and risk profiles (measures). The proxies for carbon risk and carbon disclosure are summarised. This review demonstrates inconclusive relationships between carbon risk (carbon disclosure) and firms' financial measures. These inconclusive findings may result from different carbon risk (carbon disclosure) measures, financial performance measures, sample geographies, sizes and periods, and model specifications. This review further identifies and highlights future research opportunities in relevant areas and calls for more research work to understand the influence of climate change on firms' value and activities.

Climate Change Risk Disclosure and Accounting Choice: Evidence From U.S. Oil and Gas Companies

“…Our study contributes at both academic and practical levels. From an academic perspective, our study points out a new direction for research on corporate CCR disclosure and its financial reporting impact (e.g., Downar et al, 2021;Lemma et al, 2020;Matsumura et al, 2014;Tang and Demeritt, 2018;Wang, 2023) by investigating the relationship between CCR disclosure and accounting choices under increasing global warming risks. From a practical perspective, our research provides corporate valuation assistance for oil and gas industry investors facing severe CCRs and helps raise public awareness of CCR disclosure and emission reductions.…”

“…First, this study contributes to the previous research regarding corporate CCR disclosure and accounting choice topics. Although scholars have begun to study carbon disclosure and its corporate financial impact (e.g., Borghei, 2021;Downar et al, 2021;Matsumura et al, 2014;Tang and Demeritt, 2018;Wang, 2023), our study fills the gap between the CCR disclosure and E&D accounting choices by oil and gas firms, following the 2018 SEC's climate disclosure investigation of ExxonMobil. We manually collected companies' CCR disclosures from multiple sources and updated CCR disclosure research data with richer dimensions, providing a new influencing factor for oil and gas firms' procedural accounting choice (Begley, 1990;Bryant, 2003;Lilien and Pastena, 1982;Misund et al, 2008).…”