Carbon Disclosure Project and Environmental Corporate Governance

Abstract:     
We assess the effectiveness of a not-for-profit organization, the Carbon Disclosure Project (CDP), as a corporate governance mechanism to encourage firms to disclose environmental information. Employing a sample of 319 Canadian companies over a four year period, we use a binary logistic model to study the characteristics that distinguish disclosing and non-disclosing firms. In particular, we focus on how shareholder activism, litigation risk and the opportunity for low cost publicity impacts management’s decision to respond to the request for information made by the CDP on behalf of institutional “signatory” investors that have agreed to advocate for its environmental agenda. Our results indicate that management’s decision to release climate change data is influenced by 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 shareholder activism may be more successful at altering the behaviour of firms that are less likely to be negatively impacted by stricter environmental regulations.

Number of Pages in PDF File: 31

Keywords: Environmental Disclosure, Carbon Disclosure Project, Environment Corporate Governance, Signatory and Institutional Investors

JEL Classification: M14, Q5

working papers series