Climate Change Disclosure and Business Strategy

This assignment delves into the critical topic of climate change disclosure within businesses. It requires students to examine the link between how companies voluntarily disclose information about their greenhouse gas emissions and their overall business strategies. The analysis should draw upon relevant academic research, particularly focusing on the Carbon Disclosure Project (CDP) and corporate reports, to understand the motivations behind such disclosures and their potential impact on environmental performance.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of the student
Name of the University
Author note

1CONTEMPORARY ISSUES IN ACCOUNTING
Executive summary:
The report is done in order to find the relation between the climate change and voluntary CDP
disclosure. The report has used the agency theory in order find the relation and various
perspective has been found. Firstly, the report has found that there is a positive relation with the
firm’s activity and the climate change, which are influenced by the management of the firm, its
size and risk management. Besides this, the report has also found that capital is another
important factor that alters the CDP disclosure of the firm. To conclude, the report has
mentioned the various previous researches related with the CSR and climate change and
portrayed how important climate change study is.

2CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Introduction:....................................................................................................................................3
Practical motivation:........................................................................................................................3
Theoretical motivation:....................................................................................................................4
Literature review:.............................................................................................................................4
Hypotheses:......................................................................................................................................6
Conclusion:......................................................................................................................................6
Appendix:........................................................................................................................................7
Reference:......................................................................................................................................17

3CONTEMPORARY ISSUES IN ACCOUNTING
Introduction:
Climate change is one of the vital issues around the world to discuss owing to its great
importance to the sustainability of the livelihood in the earth as well as growth of an economy.
Carbon Disclosure Project (CDP) is one of the ambitious projects that have been collecting the
carbon emission data of the firms, who willingly disclose their Green House Gas (GHG)
emission data (Hahn, Reimsbach and Schiemann 2015). Most of the prior analysis on the climate
change effect on the firm’s activity has considered either the legitimacy theory or the stakeholder
theory; however, an analysis cannot be completed without the help of agency theory. Thus, this
report used the agency theory along with the CDP disclosure data to discuss the effect of climate
change. Besides this, the report will provide various views of the previous researches regarding
the climate change effect on firm’s activity.
Practical motivation:
Thus, there have been various researches regarding the issues related to the climate
change and its effect on the economic activities. However, most of the researches have
considered the macro economic scenario while assessing the effect of climate change, though
there is strong evidence that climate change cause alteration in the economic activity in micro
level (Robson and McCartan 2016). Agency theory aligned with the stakeholder theory is being
used by the various agencies to demonstrate their CDP disclosure. Moreover, the agency theory
is aligned with the maximisation value of the stakeholder theory of the firms; however, it
opposes the legitimacy theory (Mitnick 2015).

4CONTEMPORARY ISSUES IN ACCOUNTING
Theoretical motivation:
This research paper is meant to analyze the importance of agency theory and its inclusion
with the CDP data in order to assess the voluntary disclosure of carbon emission by the firms.
Various researchers have used the agency theory as the tool in their literature review to discuss
the voluntary reporting practices of climate change by the firms. Agency theory argues that with
the reduction in the information asymmetry in the organisation and lower agency cost, higher
amount of reduction in carbon emission is possible. Moreover, agency theory provides a ground
to disclose that strong corporate governance proxy aids the agency to reduce the information
asymmetry (Javaid and Saboor 2015). Previous researches has displayed that there is negative
relationship between the GHG emission and the voluntary disclosure, however with rise in
corporate executive the relationship tends to prominence.
Literature review:
Agency theory entails that carbon disclosure has an impact on the liquidity of the firm’s
share. In other words, agency theory argues that there is high probability of voluntary carbon
disclosure with the rise in share prices as proposed by the stakeholder theory. Besides this,
previous researches argue that firm size has an impact on the carbon disclosure. With rise in size
of the firm, GHG emission will also rise and the firms will disclose more voluntarily in order to
reduce the scope of detailed scrutiny. Considering the CDP data on the carbon emission by the
firms, it can be found that agency theory along with the stakeholder and the legitimacy theory,
emission reduction can be reduced by the 25.64% (Agoglia, Hatfield and Lambert 2015). When
it comes to energy conservation by the firms as the means of reduction of carbon emission,
strong organisational structure can be beneficial, because it can reduce the emission level the
9.49% (Benn, Dunphy and Griffiths 2014). Examining the GHG disclosure and considering the

5CONTEMPORARY ISSUES IN ACCOUNTING
comprehensive theoretical framework of the carbon emission a positive significance among the
firm size, corporate governance and GHG emission has been found in the prior literature reviews
with the help of stakeholder theory and the agency theory. Another important factor that agency
theory highlights is that firms with newer equipments produces lower amount of GHG
(AAtkinson et all. 2015). Thus it is valid to assume that not only the agents of the firm moreover
the capital of the firm and their lifetime affects the voluntary disclosure of the firm (Loannou, Li
and Serafeim 2015). The report has considered agency theory along with the CDP data in order
to investigate the legitimizing capacity of revelations as the form of voluntary carbon disclosure
(Dahlmann, Branicki and Brammer 2017). Compared to the natural performance of a firm, this
report has included the ecological performance and importance of budget along with good
governance in the organisation to find out how much climate change affects the economic
activity of the firm. The report portrays that if there is good governance in the firm and the
organisation includes Corporate Social Responsibility into their organisational structure, then it
would be beneficial for the firm to reduce the carbon emission (Kaymak and Bektas 2017).
Previous CDP disclosure analysis with the help of agency theory portrays that climate
change not only brings in the negativity in the firm, it brings scope to development for the firms
too. For instance, firms can induce more funds in their budgetary expenditure in order to bring in
new capital and invest more in their R&D to reduce the carbon emission (Intergovernmental
Panel on Climate Change 2014). Previous researches display that development in the
governmental plans regarding the climate change and corporate responsibility has acted as the
stimulus to the firms.

6CONTEMPORARY ISSUES IN ACCOUNTING
Hypotheses:
The report is aimed to analyze the environmental responsibility and social accountability
of firms with respect to the climate change. With the help of the CDP data and the agency theory
the report has outlined how further research on the effect of climate change on the corporate risk
management can be done. From the CDP data, carbon disclosure of the 1046 companies is
traceable and regression analysis can be utilized as the means of analysis of climate change
effect on the firm’s activity. This report argues in favour of the following test hypothesis:
H0: No relationship exists between the independent and depend variables
H1: Firms with higher carbon emission reflects higher amount of carbon disclosure
At 5% level of significance, if the p value of the test is less than 0.05, then the test can
reject the null hypothesis and alternative can be accepted.
Conclusion:
Climate change is certainly a burning issue that has been attracting researcher’s attention
since decades. There is lack of microeconomic analysis of climate change effect on the firm’s
activity, thus this report has used the agency theory along with the CDP data to interpret the
effect in microeconomic level. The report has found from its literature review that with rise in
carbon emission, the firms tend to disclose their GHG data more. Besides this the report has
found that agency theory and CDP data has successfully analyzed the public accountability. In
order to lead this report into further research, test hypothesis has been mentioned and the
rejection criterion has been set to determine the level of integration of climate change and firm’s
activity.

7CONTEMPORARY ISSUES IN ACCOUNTING
Appendix:
Author
Dat
e
Title Journal
Type of
Paper
(Theoreti
cal or
Empirica
l)
If
empiric
al,
researc
h
method
and
sample
If
empirical
,
dependen
t and
independ
ent
variables
100 word
summary
of
contributi
on to the
research
question
Depoers,
Jeanjean
and
Jerome
201
6
Voluntary
disclosure
of
greenhouse
gas
emissions:
Contrasting
the carbon
disclosure
project and
corporate
reports.
Journal of
Business
Ethics
Theoretic
al
This paper
analyzes
the effect
of global
warming
and it
highlights
how the
economic
performanc
e of the
firm is
affected by
the GHG.

8CONTEMPORARY ISSUES IN ACCOUNTING
In order to
perform the
analysis,
the report
considers
the French
industries
and
applying
the
stakeholder
theory with
the agency
theory it
demonstrat
es that
climate
change has
positive
effect on
the
efficiency
of the firm.

9CONTEMPORARY ISSUES IN ACCOUNTING
Ben-
Amar
and
Mcllken
ny
201
5
Board
effectivenes
s and the
voluntary
disclosure
of climate
change
information.
Board
effectivene
ss and the
voluntary
disclosure
of climate
change
informatio
n.
Theoretic
al
This report
analyze the
firm’s
voluntary
CDP
disclosure
along with
the risk
assessment,
strategy
manageme
nt. The
report has
found that
there is a
positive
relation
between
the firms
CDP
disclosure
and
effectivene

10CONTEMPORARY ISSUES IN ACCOUNTING
ss of the
firm. As
portrayed
in the
literature
review of
this report,
it has been
found that
with the
CSR of a
firm is
highly
influenced
by the
corporate
governance
of the firm.
This report
highlights
the
importance
of board of

11CONTEMPORARY ISSUES IN ACCOUNTING
directors’
in the risks
assessment
and it
suggest
that firms
with good
organisatio
n structure
has better
level of
carbon
disclosure.
Dahlman
n,
Branicki,
and
Brammer
201
5
Shooting for
the Moon?
Relationship
s between
Corporate
Environmen
tal
Aspirations
and
Achievemen
In Academ
y of
Manageme
nt
Proceeding
s
Empirical This report
analyzes
the growth
of salience
in case of
environme
ntal
degradatio
n and
climate

12CONTEMPORARY ISSUES IN ACCOUNTING
ts. change. To
trace the
relationshi
p the report
has taken
the
empirical
studies.
Regression
analysis
done in this
report has
portrayed
that firms
with
greater
level of
emission
are more
prone to
chose
voluntary
disclosure

13CONTEMPORARY ISSUES IN ACCOUNTING
of their
carbon
emission.
Moreover
significanc
e has been
observed in
this
research
between
the
conceptual
debates
regarding
influencing
organisatio
n
performanc
e.
Lee,
Park and
Klassen
201
5
Market
responses to
firms'
voluntary
climate
change
information
Corporate
Social
Responsibi
lity and
Theoretic
al
This
research
paper
argues in