Effects of Mandatory Carbon Reporting on Unrepresentative Environmental Disclosures

67 Pages Posted: 10 Aug 2022 Last revised: 8 May 2023

See all articles by Jody Grewal

Jody Grewal

Joseph L. Rotman School of Management - University of Toronto

Gordon D. Richardson

University of Toronto - Rotman School of Management

Jingjing Wang

University of Calgary - Haskayne School of Business

Date Written: July 18, 2022

Abstract

We study whether mandatory carbon reporting reduces the disclosure of favorable versus unfavorable environmental information (unrepresentative disclosure). Our setting is a regulation mandating firms to report carbon emissions, or mandatory carbon reporting (MCR). Measuring unrepresentative disclosure as the difference between how much a firm discloses and how much of the disclosure is indicative of the firm’s overall environmental damage, we find that MCR leads to a decline in unrepresentative carbon disclosure, consistent with MCR requiring firms to disclose environmentally impactful carbon information that they did not report when disclosure was voluntary. We also find MCR curtails firms’ unrepresentative disclosure of other, non-carbon environmental information disclosed voluntarily before and after MCR. Further analyses reveal worse carbon performers had higher levels of unrepresentative carbon disclosure prior to MCR, and their revealed poor carbon performance impels them to decrease unrepresentative non-carbon disclosure more after MCR. Firms experiencing a reduction in unrepresentative carbon disclosure around MCR also reduce their carbon emissions.

Keywords: Greenwashing, selective disclosure, mandatory ESG reporting, climate change, greenhouse gas emissions

Suggested Citation

Grewal, Jyothika and Richardson, Gordon D. and Wang, Jingjing, Effects of Mandatory Carbon Reporting on Unrepresentative Environmental Disclosures (July 18, 2022). Available at SSRN: https://ssrn.com/abstract=4166184 or http://dx.doi.org/10.2139/ssrn.4166184

Jyothika Grewal (Contact Author)

Joseph L. Rotman School of Management - University of Toronto ( email )

105 St. George Street
Toronto, Ontario M5J 2Z6
Canada
6172060366 (Phone)

HOME PAGE: http://https://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Grewal

Gordon D. Richardson

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8601 (Phone)
416-971-3048 (Fax)

Jingjing Wang

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

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