The state of climate change-related risk disclosures and the way forward

Abstract

Research suggests that mandated emissions disclosure incentivises firms to reduce emissions by increasing anticipated regulatory and reputational threats, and enables firms to benchmark their own performance. Research also suggests that broader voluntary climate change-related disclosures are valued in capital markets, providing insights into physical and transition risk, which guide more efficient capital allocations. One course of action for regulators is to mandate a broad range of climate-related disclosures to better inform stakeholders. An alternative is for regulators to rely on moral suasion to pressure firms to report on their climate performance. The likelihood of adoption of these alternatives is discussed.

Keywords: GHG emissions disclosure; climate change risk disclosure; TCFD; mandated versus voluntary disclosure

JEL Classification: M42,M48