Corporate Carbon Emissions and Financial Performance: Does Carbon Disclosure Mediate the Relationship in the UK?
35 Pages Posted: 27 Mar 2017
Date Written: March 26, 2017
Abstract
Academic debate around the link between corporate environmental disclosures, environmental performance and financial performance is persistent and controversial. In this paper, we investigate whether and, if so, how carbon emission performance is related to corporate financial performance and how the disclosure of carbon emissions in the annual and standalone reports mediates such relationship. Specifically, we construct a 42-item disclosure index to quantify the quality of corporate carbon emissions disclosure for 62 FTSE 100 firms from the period 2010 to 2012. We find that while carbon emissions are negatively associated with financial performance, they are positively related to the level of carbon disclosure, which then leads to better financial performance at a marginal significance level. The findings show that the market responds to excessive carbon emissions; however, firms with poor carbon performance tend to use disclosure strategically to manage the legitimacy threat and to reduce information asymmetry.
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