The Role of Disclosure in Mitigating Carbon Risk of Corporates from a Global Perspective

Abstract

This working paper is written by Victor Leung (Hong Kong Monetary Authority) and Wilson Wan (Hong Kong Monetary Authority).

This study examines the role of corporate Greenhouse Gas (GHG) emissions disclosure in mitigating their emissions, which reduces investors’ exposure to carbon risks via their investment portfolios at the global level. Firstly, we find that only complete GHG emissions disclosure by corporates could effectively mitigate carbon risk, whereas partial disclosure provides limited help. Secondly, we find that higher public awareness on climate change, stronger government commitment to achieve a net-zero transition, and higher regulatory quality can encourage corporates to make a more complete disclosure of their Scope 1 and 2 GHG emissions. These findings have important policy implications for authorities seeking to improve corporate climate-related disclosure and mitigate climate-related risks to the stability of the financial system.