Influence of institutional activism on carbon disclosures
To what extent has institutional investor activism influenced carbon disclosures by ASX200 companies?
Aims and intended outcomes
This research investigates whether the activities of institutional investors are driving corporate disclosure about carbon risk in Australia. Carbon risk includes risks related to climate change and the emission of greenhouse gasses. The Carbon Disclosure Project (CDP) represents a powerful coalition of 475 institutional investors globally (www.cdproject.net). In 2009, the CDP requested information from thousands of corporations globally, including Australia’s top 200 publically listed companies (ASX200), about the extent to which their firms had identified carbon risk and devised or implemented a corresponding carbon risk management strategy. This research investigates the association between ASX200 company responses to CDP information requests and disclosure of information about carbon risk in company reports and/or on their websites.
No known prior research has documented the extent and nature of carbon risk disclosures by Australian corporations, nor has it documented the extent and nature of the information that these companies are providing to the CDP. In addition to providing these descriptive summaries, the proposed research provides insights about the extent to which investor demand for information about corporations’ climate risk and green house gas emissions has impacted voluntary corporate disclosure in this area. This research contributes to knowledge in the broad areas of voluntary disclosure, information efficiency and investor activism. The results are expected to be useful for accounting and capital markets regulators, and the CDP and Climate Disclosure Standards Board (CDSB).
It is the contention of this research that demand for carbon risk information by the investment community, spearheaded by institutional investors, is driving corporate disclosure in this area. There is currently no requirement for Australian firms to publicly disclose climate-risk related information. The CDP commenced sending its questionnaire to Australian companies in 2006, and publically discloses company responses to the questionnaire on its website. While this information is accessible to anyone with internet access, it is not as readily available to stakeholders outside of the CDP as is the case for information provided using other communication channels such as the annual report or company website.
The formation and activities of the CDP indicate a clear demand for carbon risk information by the investment community. If the activities of the CDP have impacted voluntary corporate disclosure about carbon risk, the extent of disclosure will be higher in 2009 than it was before the CDP commenced sending its questionnaire to Australian companies. It is possible that an observed increase in the extent of these disclosures could be due to incentives other than those related to institutional investor activism. However, if the CDP is an influential driver of carbon risk disclosure, the nature of the information disclosed will have become more closely aligned with the CDP questionnaire content. Further, if the activities of the CDP have impacted voluntary corporate disclosure about carbon risk, both the extent and nature of disclosure will be positively correlated with the extent and nature of corporate responses to the CDP. The research tests these hypotheses.
Julie Cotter (ACSBD), Muftah Najah (PhD student – ACSBD)
This research is funded by the Accounting and Finance Association of Australia and New Zealand