Firms with Effective Boards More Likely to Disclose Climate Change Risks, Study Finds
A new study by the CGA-Canada Accounting and Governance Research Centre (CGA-AGRC) at the Telfer School of Management found a positive relationship between effective corporate governance and the likelihood of voluntary climate change disclosures. It suggests that board attributes can influence a firm’s decision to reveal climate change risks and take action to mitigate those risks.
“An effectively governed firm can be expected to voluntarily disclose climate change risks to increase its transparency to investors and enhance its economic performance,” says professor Walid Ben Amar, PhD, CGA, the study’s lead author.
These findings support recent corporate governance reforms in Canada and other countries that aim to enhance board effectiveness through the alignment of directors’ and shareholders’ interests. “Such an alignment favours corporate transparency in the reporting of climate change information, including disclosure of greenhouse gas emissions, climate change risks and opportunities to address them,” Ben Amar says.
The voluntary public disclosure of greenhouse gas emissions requires an operational commitment to track emissions and can be seen as a first step towards the recognition and reduction of the firms’ carbon footprint.
Firms from high carbon emission industries tend to respond to the CDP request for public disclosure of greenhouse gas emission data* less often than firms from low carbon emissions industries. However, their climate change disclosures usually contain more detailed information about the effects of their activities on climate change. High carbon emission industries account for 54% of the firms in the study sample and include automobiles, chemicals, forest products, gas & electrical utilities, oil & gas, mining, pipelines, steel and transportation.
Board Effectiveness and the Voluntary Disclosure of Climate Change Information is authored by professors Ben Amar and Phillip McIlkenny of the University of Ottawa. The study used a sample of 559 observations collected from companies listed on the Toronto Stock Exchange (TSX) between 2008 and 2011. Board effectiveness was measured through the Board Shareholder Confidence Index (BSCI) developed by the University of Toronto Clarkson Centre of Business Ethics and Board Effectiveness. The firms’ climate change disclosure was assessed through data from CDP. The study was published online in Business Strategy and the Environment earlier this year and is forthcoming in a print edition of the journal.
*CDP is a not-for-profit organization that annually requests the largest companies around the globe to disclose climate change-related information by completing a standardized questionnaire.
Founded in 1908, the Certified General Accountants Association of Canada serves Certified General Accountants and students in Canada and nearly 100 countries. CGA-Canada establishes the designation’s certification requirements and professional standards, offers professional development, conducts research and advocacy, and represents CGAs nationally and internationally. CGA-Canada is currently working with the Chartered Professional Accountants of Canada (CPA Canada) to integrate operations under the CPA banner. Unification will enhance the influence, relevance and contribution of the Canadian accounting profession both at home and internationally.
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About the Telfer School of Management
Located in the heart of Ottawa, the Telfer School of Management is the proud academic home of some 4,200 students, 200 full- and part-time faculty members, and 25,000 alumni. Our accreditations from the three most demanding international organizations (AASCB, EQUIS & AMBA) place our school in the top one percent of the world’s business schools.