Corporate Disclosure of Climate Change Risk – A Pilot Study

Abstract

On March 21, 2022, the US Securities and Exchange Commission (SEC) proposed new climate change disclosure rules that would require companies to provide extensive and specific disclosures about the impact of climate change on their corporate policies and financial performance in mandatory company filings. Using hand collected data from 99 annual reports of 34 randomly selected S&P 500 firms from the 2019 to 2021 period, we find that 91% of the annual reports in the sample include some disclosures on climate-related risks. The extent of the disclosure varies across industries but increases over our sample period. We also find that firms with higher fixed-asset intensity, higher profitability, and lower operating cash flows are more likely to make climate-related risk disclosures than their counterparts and tend to disclose more information in their annual reports. Finally, we find a positive relationship between climate-related disclosures and firms’ financial performance. Taken together, our results suggest a potential benefit of the disclosure of climate-related risks.

Keywords: climate change, environment, emission, corporate disclosure, ESG

JEL Classification: M14, M40, M41, M48