Carbon Emissions and Corporate Financial Performance

This assignment delves into the relationship between corporate carbon emissions and financial performance. It examines empirical studies investigating direct and indirect impacts, considering factors like carbon disclosures and firm characteristics (size, leverage, profitability). Studies from Australia and the UK are analyzed, employing methods such as structural equation modeling and econometric models to assess the relationships between these variables.

Running head: CARBON EMISSION AS PER AGENCY THEORY
Carbon Emission as Per Agency Theory
Name of the Student
Name of the University
Authors Note
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1CARBON EMISSION AS PER AGENCY THEORY
Table of Contents
Introduction................................................................................................................................2
Practical Motivation...................................................................................................................2
Theoretical Motivation...............................................................................................................3
Literature Review.......................................................................................................................4
Hypotheses.................................................................................................................................5
Conclusion..................................................................................................................................6
Reference List............................................................................................................................8
Appendix..................................................................................................................................10

2CARBON EMISSION AS PER AGENCY THEORY
Introduction
It is discerned that in general there are several issues which relates to global warming
and its consequence on environment and economy. This particular consideration is seen with
the uniformity of “United Nation Framework Convention on Climate Change (UNFCCC) and
the Kyoto Protocol”. The important agreements to address the global warming are taken into
account with reducing the disclosures pertaining to the GHG emission. The study will
consider the practical motivation and the importance of this practice. The important aspects
of the study will state the theoretical motivation which will address the gaps in the existing
research study. Some of the other aspects of the study is able to depict the relationship
between the identified practical and theoretical motivational factors. The part of the study is
able to evaluate the hypothesis which as related to the selected areas of learning (Golosov et
al. 2014).
Practical Motivation
The important form of the effect of the carbon emission is based on its impact on
general public.
There are many organisations which offers the footprint calculators for public and
corporate use for depiction of carbon footprints of products. This particular consideration is
seen to be important for both accountant’s public in general. As per the number of previous
articles which are seen to be published by “US Environmental Protection Agency” these are
addressed with several issues pertaining to paper, plastic (candy wrappers), glass, cans,
computers, carpet and tires (Liao, Luo and Tang 2015). In Australia the regulators and the
managers pertaining to this consideration has been able to contribute to the number of issues
related to the matters of lumber and other building materials. Several companies and non-
profit making academics have been able to address number of issues pertaining to mailing

3CARBON EMISSION AS PER AGENCY THEORY
letters and packages. In several types of the other cases the main form of the initiatives is
related to introducing CO2 label on the products. This particular initiative was takin in March
2007 by the UK manufacturers on foods, shirts and detergents. The evaluation of the
packages in the several types of the other incidences are seen to be addressed as per the
actively participating with the “Carbon Trust state” (Rodrik 2014).
The evaluation of the significant nature of the other packages are taken into account
with the number of the factors which are related to carbon footprint. These considerations has
highlighted number of the factors which are seen to be taken into account with using aseptic
carton and aluminium to prevent the impacts of carbon footprints in the environment (Hale
and Roger 2014).
Theoretical Motivation
In general, there are different types the of other theories which are seen to be related
to address the theories associated to carbon footprint. Some of the different types of the
specific theories for the carbon footprint are taken into account with investigating impact of
the carbon risk management and disclosure of the same with non-investor stakeholders. The
quality of the carbon climate change disclosers is seen to be related to the specific aspects of
implementing quality of the climate change disclosures. This particular factor is seen to be
related to the disaggregated carbon risk management and the different types of the disclosure
which are made from the scores of the other sources. There have been significantly less
associated factors for the carbon risk management and ex-ante cost of equity capital and
market value. It has been also discerned that carbon emissions do not provide any additional
information on the non-investor stakeholders over and above carbon risk management. As per
the findings of the previous study the carbon risk management of the research study refers to
performance of the firm with respect to the carbon emissions and climate change (Kalu,
Buang and Aliagha 2016).

4CARBON EMISSION AS PER AGENCY THEORY
It needs to be also discerned that the significant factors taken into account for the
carbon emissions are seen to be evident with the consideration of the number of factors
considered with the firm’s efficiency and effectiveness in managing these issues. Several
types of the other aspect of the study are associated to minimise the risks and focus more on
the opportunities. The important purpose of this study has been able to discuss on the firm’s
carbon risk management and climate change performance. Previous research investigations
have been able to discuss the potential issues associated to the climate change disclosures.
These factors are seen to be taken into consideration with the discussion of the “company
size, leverage, profitability, shareholder resolutions, regulatory threats, economic
consequences and institutional investor engagement” (Ben-Amar, Chang and McIlkenny
2017).
Literature Review
Carbon footprint is defined as the overall set of the greenhouse emissions which is
caused by an individual, product and event. The measure of the carbon footprint is able to
consider the total amount of the emission of “carbon dioxide (CO2) and methane (CH4)”.
The “Greenhouse gases (GHGs)” in general are taken into account with the production,
consumption of food, fuels, manufactured goods, materials, wood and land clearance
(Grosjean et al. 2016).
Agency theory is defined as the relationship between agents and principals in
business. This theory has been further seen to be concerned with the unalignment of the goals
or different aversion levels of the risk (Zhang, Zhou and Kung 2015).
The first study of the literature review has been able to discuss the relationship
between environmental performance and disclosures pertaining to the topical type of
environmental performance. The learning related to this has considered disaggregated scores

5CARBON EMISSION AS PER AGENCY THEORY
analyses thereby revealing the role of particular carbon risk management practices. The
historical carbon risk management is seen with the measurement of the significant factors
which has enumerated the carbon emission’s intensity and the actual emission. The advantage
of this study has been able to depict the key performance indicators. The limitation for this
seen with less information available (Rehmatulla and Smith 2015).
Some of the other learnings have identified the connection between carbon risk
management and the quality of carbon disclosure. Carbon disclosure project states on the
areas to measure and manage the environmental impacts. The main advantage of this
literature has identified the most comprehensive collection of self-reported environmental
data in the world. The limitation for this is seen to be identified with the cost constraints for
the devices required for reporting on the quality of carbon disclosures (Geels 2014).
The measurement of the carbon footprint has been able to quantify the carbon content
with the relevant portfolio for allocating the carbon emissions of a company. The traditional
portfolio analysis allows the investors to assess the investors to state the reasons related to
address the low carbon footprint. This is mainly due to the underweighted carbon intensive
sectors (Amran, Periasamy and Zulkafli 2014).
Hypotheses
There will be two theoretical aspects explained for the non-financial and financial
disclosures phenomenon. These theories are will be classified with the socio-political theories
and economic-based disclosures. The considerations for the socio-political theories has been
able to assume the disclosure behaviour with the function of political pressure and social
stakeholders. The legitimacy theory is seen to operate within the standards and the norms
which is considered with the social contract.

6CARBON EMISSION AS PER AGENCY THEORY
The investigation and the determinants from the corporate responses are addressed
with the CDP questionnaires and the type of information considered in the responses. The
hypothesis statement will be able to address disagreement with the quality of the disclosures.
The solicit political theories are based on the assumptions to improve the environmental
performance with higher quality of environmental disclosure.
The first hypothesis will be able to provide the relationship between carbon risk
management and the quality of carbon disclosure. The second hypothesis has ascertained the
association between CSR and accounting performance as per the agency theory.
The hypothesis formulated for the research study are listed below as follows:
 Null Hypothesis (H01): There does not exist a positive relationship between carbon
risk management and the quality of carbon disclosure
 Alternative Hypothesis (H1): There does exists a positive relationship between
carbon risk management and the quality of carbon disclosure
 Null Hypothesis (H02): There does not exist a positive relationship for CSR and
accounting performance which is based on agency theory
 Alternative Hypothesis (H2): There exists a positive relationship for CSR and
accounting performance which is based on agency theory
Conclusion
As per the practical motivation discussion there has been number of previous article
which are seen to be published by “US Environmental Protection Agency” which has
addressed several issues pertaining to the use of paper, plastic (candy wrappers), glass, cans,
computers, carpet and tires. Several companies and non-profit making academics have been
able to address issues pertaining to mailing letters and packages. The theoretical motivation

7CARBON EMISSION AS PER AGENCY THEORY
has discerned specific theories for the carbon footprint which are taken into account with
investigating impact of the carbon risk management and disclosure of the same with the non-
investor stakeholders. The quality of the carbon climate change disclosers is seen to be
related to the specific aspects of implementing quality of the climate schange. disclosures.
The hypothesis of the study will be able to determine relationship between carbon risk
management and the quality of carbon disclosure and relationship for CSR and accounting
performance which is based on agency theory.

8CARBON EMISSION AS PER AGENCY THEORY
Reference List
Amran, A., Periasamy, V. and Zulkafli, A.H., 2014. Determinants of climate change
disclosure by developed and emerging countries in Asia Pacific. Sustainable
Development, 22(3), pp.188-204.
Ben-Amar, W., Chang, M. and McIlkenny, P., 2017. Board gender diversity and corporate
response to sustainability initiatives: evidence from the Carbon Disclosure Project. Journal of
Business Ethics, 142(2), pp.369-383.
Geels, F.W., 2014. Regime resistance against low-carbon transitions: Introducing politics and
power into the multi-level perspective. Theory, Culture & Society, 31(5), pp.21-40.
Golosov, M., Hassler, J., Krusell, P. and Tsyvinski, A., 2014. Optimal taxes on fossil fuel in
general equilibrium. Econometrica, 82(1), pp.41-88.
Grosjean, G., Acworth, W., Flachsland, C. and Marschinski, R., 2016. After monetary policy,
climate policy: is delegation the key to EU ETS reform?. Climate Policy, 16(1), pp.1-25.
Hale, T. and Roger, C., 2014. Orchestration and transnational climate governance. The review
of international organizations, 9(1), pp.59-82.
Jolley, D. and Douglas, K.M., 2014. The social consequences of conspiracism: Exposure to
conspiracy theories decreases intentions to engage in politics and to reduce one's carbon
footprint. British Journal of Psychology, 105(1), pp.35-56.
Kalu, J.U., Buang, A. and Aliagha, G.U., 2016. Determinants of voluntary carbon disclosure
in the corporate real estate sector of Malaysia. Journal of environmental management, 182,
pp.519-524.
Liao, L., Luo, L. and Tang, Q., 2015. Gender diversity, board independence, environmental
committee and greenhouse gas disclosure. The British Accounting Review, 47(4), pp.409-424.

9CARBON EMISSION AS PER AGENCY THEORY
Rehmatulla, N. and Smith, T., 2015. Barriers to energy efficiency in shipping: A triangulated
approach to investigate the principal agent problem. Energy Policy, 84, pp.44-57.
Rodrik, D., 2014. Green industrial policy. Oxford Review of Economic Policy, 30(3), pp.469-
491.
Zhang, N., Zhou, P. and Kung, C.C., 2015. Total-factor carbon emission performance of the
Chinese transportation industry: A bootstrapped non-radial Malmquist index
analysis. Renewable and Sustainable Energy Reviews, 41, pp.584-593.

10CARBON EMISSION AS PER AGENCY THEORY
Appendix
Author Dat
e
Title Journal Type of
Paper
(Theoreti
cal or
Empirica
l)
If
empirical
, research
method
and
sample
If
empirical,
dependen
t and
independe
nt
variables
100-word
summary
of
contributio
n to the
research
question
Muftah M.
Najah and
Julie Cotter
201
3
“Are
climate
change
disclosures
an indicator
of superior
climate
change risk
managemen
t?”
“Australian
Centre for
Sustainable
Business
and
Developme
nt”
Empirical Primary
Data
Analysis
and
regression
“Depende
nt
Variable:
CDP
carbon
disclosure
score,
based on
annual and
sustainabil
ity reports
and
corporate
websites
for firm i
for year t.
“The
research has
shown
mixed
result on
the relation
with
environmen
tal
performanc
e and
disclosure.
The results
have
implied
carbon risk
managemen

11CARBON EMISSION AS PER AGENCY THEORY
Independe
nt
Variable:
The ratio
of net
profit to
shareholde
rs’ equity
for firm i
for fiscal
year-end
year t,
dichotomo
us
variables
equal 1 if
the
amount of
debt
and/or
equity
capital
that is
raised in
2010 is
more than
5%, 0
t is
significantl
y and
positively
associated
with carbon
disclosure
quality that
made via
CDP and
sustainabilit
y reports.
The
research has
been further
supported
with
economics-
based
disclosure
theories.
The firms
responding
with the
carbon
change risk
and
opportunitie

12CARBON EMISSION AS PER AGENCY THEORY
otherwise,
the total
debt to
total assets
for firm i
for fiscal
year-end
year t, the
log of total
sales for
firm i for
fiscal
year-end
year t, a
binary
variable
that equals
one for
firms from
countries
that have
ratified the
Kyoto
protocol,
zero
otherwise,
a series of
nine
s are based
on the
disclosures
for the
strategies
and
policies.
Firms'
managemen
t have
committed
to reduce
their carbon
emission
levels and
adopted
several
strategies to
mitigate
climate
change
risks, these
practices
have not
associated
with neither
a reduction
in the ex-

13CARBON EMISSION AS PER AGENCY THEORY
industry
dummy
variables
equal 1 if
a firm is
from a
particular
industry
group, 0 =
otherwise,
the share
price
volatility
for firm i
for fiscal
year-end
year t”.
ante cost of
equity
capital or a
increase in
market
value”.
Dan Song,
Meirong Su,
Jin Yang,
and Bin
Chen
201
3
Greenhouse
Gas
Emission
Accounting
and
Manageme
nt of Low-
Carbon
Community
Scientific
World
Journal
Empirical Secondar
y
Research,
Extended
LCA
Dependent
Variable:
“Carbon
footprint
of the
communit
y
Independe
nt
Variable:
direct
“The study
has been
able to find
that CO2
emission
factors of
primary
energy are
based on
the CO2
content of

14CARBON EMISSION AS PER AGENCY THEORY
emissions
from
household
fossil fuel
combustio
n and
vehicles,
including
emissions
from
natural
gas,
gasoline,
diesel oil,
and jet
kerosene”.
indirect
emissions
from
purchased
energy
(mainly
contains
electricity,
water, and
heat) for a
communit
y”.
the fuels
and the type
of energy,
which are
elaborated
in IPCC.It
has been
further
depicted
that CO2
emissions
from the
consumptio
n of
electricity
and heating
are not
considered.
The energy
inputs for
the
production
of
electricity
and district
heating are
estimated as
the final

15CARBON EMISSION AS PER AGENCY THEORY
“Total
supply
chain
emissions
embodied
in the
consumpti
on of
goods and
activities”.
consumptio
n of energy
production;
that is, all
emissions
caused by
energy
production
are
specified
for each of
the fuel
inputs.The
consumptio
n data are
developed
based on
the survey
carried out
in the
community.
Based on
the previous
studies
engaged to
classify the
sectoral
compositio

16CARBON EMISSION AS PER AGENCY THEORY
n of
consumptio
n”.
Yang
Stephanie
Liu,
Xiaoyan
Zhou,
Jessica H
Yang,
Andreas G F
Hoepner
201
6
“Corporate
Carbon
Emission
and
Financial
Performanc
e: Does
Carbon
Disclosure
Mediate the
Relationshi
p
in the UK?”
“Henley
Discussion
Paper
Series”
Empirical Secondar
y and
Descriptiv
e
Statistics
Dependent
Variable:
“Carbon
disclosure,
Log
carbon
emission,
Sector
adjusted
return”.
Independe
nt
Variable:
“Log
(MV),
MTBV,
Profit
margin,
Leverage,
Dividend
yield,
Current
ratio,
Capital
expenditur
“The
structural
equation
modelling
analysis
shows that
corporate
carbon
emission
impacts on
corporate
financial
performanc
e through
both direct
and indirect
mechanism
s. For the
direct
impact, it is
found that
corporate
carbon
emission is

17CARBON EMISSION AS PER AGENCY THEORY
e and
Return on
equity”.
negatively
associated
with
corporate
financial
performanc
e, which
indicates
that the UK
market does
respond to
corporate
carbon
emission
performanc
e. For the
indirect
impact, the
results
show
that
corporate
carbon
emission is
positively
related to
the level of
corporate

18CARBON EMISSION AS PER AGENCY THEORY
carbon
disclosures
(companies
with more
carbon
emissions
make more
extensive
disclosures)
, and also
show a
significant
positive
relation
between
corporate
carbon
disclosure
and
corporate
financial
performanc
e (more
carbon
disclosures
lead to
higher
subsequent

19CARBON EMISSION AS PER AGENCY THEORY
share return
for the
company).
Thus, the
higher
levels of
corporate
carbon
disclosures
appear to
mediate the
potential
negative
effects of
more
carbon
emissions
of the
company.
The results
are
consistent
with prior
studies
investigatin
g the three
links
respectively