Description
The purpose of this paper is to investigate differences in voluntary carbon disclosure
between developing and developed countries and the role of resource availability in explaining these
differences.
Accounting Research Journal
Comparison of propensity for carbon disclosure between developing and developed
countries: A resource constraint perspective
Le Luo Qingliang Tang Yi-Chen Lan
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Le Luo Qingliang Tang Yi-Chen Lan, (2013),"Comparison of propensity for carbon disclosure between
developing and developed countries", Accounting Research J ournal, Vol. 26 Iss 1 pp. 6 - 34
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Comparison of propensity
for carbon disclosure
between developing and
developed countries
A resource constraint perspective
Le Luo, Qingliang Tang and Yi-Chen Lan
School of Business, University of Western Sydney, Sydney, Australia
Abstract
Purpose – The purpose of this paper is to investigate differences in voluntary carbon disclosure
between developing and developed countries and the role of resource availability in explaining these
differences.
Design/methodology/approach – The authors used a sample consisting of 2,045 large ?rms from
15 countries and representing divergent industries that released Carbon Disclosure Project (CDP)
company reports in 2009. Pro?tability, leverage and growth were used as proxies for the degree of
resource availability and the ?rm’s participation in the CDP was used as a proxy for carbon disclosure
propensity.
Findings – Consistent with the authors’ predictions, the empirical results show that the carbon
disclosure propensity is correlated in the right direction with resource availability proxies; this
relationship is stronger in developing nations, suggesting that the shortage of resources is one reason
for the lack of commitment to carbon mitigation and disclosure in these countries. The results are
robust when disclosure motivation proxies are controlled for. In addition, it is shown that ?rms tend
to disclose carbon information if their shares are owned by CDP signatories, because it allows them to
be viewed as more powerful stakeholders. This ?nding, which enhances the validity of stakeholder
theory, previously has not been documented in the literature.
Research limitations/implications – The ?ndings are relevant to the world’s largest
organisations, as determined by their market capitalisation. Thus, caution should be exercised to
generalise the paper’s inferences to small or medium-sized organisations.
Practical implications – The evidence suggests that resource shortages may constrain a ?rm
management’s carbon decisions. As the regulatory environment becomes more stringent, ?rms,
particularly those in developing countries need to take a more proactive strategy to tackle global
warming challenges and balance the need to achieve ?nancial goals and prevent carbon pollution with
their limited resources.
Originality/value – Although prior studies typically considered external pressures that motivated
voluntary environmental disclosure, the paper’s results offer extra insight and suggest that resource
restriction provides a complementary explanation – largely ignored in the existing literature – for
variation in the carbon-disclosure propensity of ?rms.
Keywords Developing countries, Climate change, Carbon, Information disclosure, Large enterprises,
Carbon disclosure, Financial resources availability, Dependency
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1030-9616.htm
JEL classi?cation – M41, M49, Q54, Q56
Qingliang Tang and Yi-Chen Lan gratefully acknowledge the ?nancial support for the study
from School of Business, University of Western Sydney.
Accounting Research Journal
Vol. 26 No. 1, 2013
pp. 6-34
qEmerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-04-2012-0024
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1. Introduction
There is growing scienti?c evidence that human activity is associated with global
warming (see Bebbington and Larrinaga-Gonza´lez, 2008; Stern, 2006, for an overview
of some of the research). Business organisations are increasingly considered
accountable for their social and environmental impact. National governments and
non-governmental organisations (NGOs) have taken actions to urge ?rms to reduce
carbon emissions. The most notable regulations include the Kyoto Protocol and the
European Union Emission Trading Scheme (EU ETS), whose goal is to minimize
the cost of meeting an emissions reduction target (Pinkse and Kolk, 2009). Businesses
have gradually recognized that they suffer material risks related to climate change,
either through direct physical impact[1] or via climate-change policies or regulations,
changes in consumption pattern (e.g. consumers switching to products with a lower
effect on climate change) and short-term adjustments of contract conditions
(for example, insurance carriers may request higher-risk premiums due to high
climate-change exposure) (Busch and Hoffmann, 2007). Thus, carbon information is
required by stakeholders to aid decision-making (King, 2009).
In response to this demand, mandatory legislation has increasingly been proposed
or implemented throughout the world[2]. In 2007, the National Greenhouse and Energy
Reporting Act (NGER) was introduced by the Australian Government as a national
framework for reporting and disseminating information about greenhouse gas (GHG)
emissions, GHG projects and energy use and production. In addition, the Securities and
Exchange Commission in the USA has decided to require that companies disclose the
impact of climate change on their businesses in their public ?lings. Because of new
regulations or legislation, ?rms may face changes in economic trends or physical risks,
both domestically and abroad (Mounteer and Ranchod, 2010). Moreover, many
industry associations have undertaken environmental initiatives that encourage their
member ?rms to become more transparent with respect to their carbon management
and carbon-reduction performance.
Nonetheless, carbon disclosure is predominately optional, especially in developing
countries. Although an increasing number of studies have examined the factors
driving the voluntary disclosure of carbon information in developed countries, the
propensity to disclose carbon information in developed and developing countries
remains an unexplored area. Although the carbon disclosure project (CDP)[3] notes
signi?cant improvement in carbon disclosure from 2007 to 2009 in developing
countries (OECD, 2010), our result shows that the overall response rate in developing
countries is disappointing and signi?cantly lower than that in developed countries.
This motivates us to further investigate the main factors hindering ?rms in developing
countries from voluntary carbon disclosure. Prior studies overwhelmingly focused on
drivers (or external pressures) to explain a ?rm’s incentive under the framework of the
legitimacy theory, stakeholder theory or signal theory, and found that ?rms would
voluntarily disclose carbon information to gain legitimacy and meet stakeholders’
demands or signal their true carbon reduction commitment to the outsiders to
differentiate themselves from their counterpart. In contrast to those studies, the current
study considers internal constraints that affect the disclosure decision. Given the
voluntary nature of carbon reporting, we argue that ?nancial resources are likely to be
a constraining factor. This is because carbon disclosure is part of an overall climate
strategy that requires considerable ?nancial, personnel and technological resources.
Propensity
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Thus, we hypothesize that ?rms in developing countries are more likely to be
constrained by scarce ?nancial resources that hinder them from making – and
disclosing – carbon-reduction activities, although they are under pressure to do so.
To test this proposition, we used a sample of more than 2,000 large ?rms from
15 countries. These ?rms have volunteered to publish 2009 CDP company reports. We
use pro?tability, leverage and economic growth as proxies for the degree of resource
availability. We expect that pro?table ?rms are likely to have more resources to invest
in a GHG reporting system, whereas higher-leverage ?rms have more debt burden;
growth ?rms, in contrast, tend to give priority to economic expansion and therefore may
be reluctant to commit their limited ?nancial resources to voluntary carbon disclosure.
The empirical evidence shows that developing countries are falling behind in
carbon disclosure relative to developed countries. Further, the regression tests results
show that ?rms’ disclosure propensity is correlated in the right direction with resource
availability proxies: pro?tability, leverage and growth. This relationship is more
pronounced in developing nations, suggesting that the lack of transparency of ?rms in
developing countries likely arises from a lack of ?nancial resources. Our interpretation
is robust when we control for motivation factors such as social, economic and legal
pressures, which have been identi?ed in previous research (Luo et al., 2012). The
?ndings indicate that stakeholder theory and resource-constraint theory offer different
but complementary explanations for a voluntary carbon-disclosure choice. The
practical implication is that a “green” decision may represent a long-term investment in
a GHG-restrictive economy.
This study contributes to current trends in environmental research in a number of
ways. First, we examine the corporate carbon-disclosure propensity through a
resource-constraint framework that has been largely ignored in prior literature.
Second, although the social and environmental reporting practices of organisations
operating in developed countries have previously been explored in great detail
(see Deegan, 2002, for an overview of some of the research), few studies have explored
the differences in climate-change behaviour between developing and developed
countries (Islam, 2010; Islam and Deegan, 2008). In addition, developing countries play
an increasingly important role in the transition to a low-carbon economy, and our
study should enhance the awareness of resource restriction in these nations, thus
encouraging the transfer of more resources and/or technology to these developing
countries. Fourth, although a previous study showed that some shareholders of large
?rms appear to be less interested in carbon information (Luo et al., 2012), we show that
a particular group of institutional investors – the CDP signatories – are important
users and drive the voluntary disclosure of carbon information, thus enhancing the
validity of stakeholder theory and the ?ndings of Cotter and Najah (2012). Fifth, prior
studies have often used socially oriented reports (e.g. sustainability reports) to obtain
GHG information, which are typically incomplete and dif?cult to compare between
different reporting entities (Luo et al., 2012). In contrast, our data were all obtained
from a single source-CDP reports. As long as the ?rms have voluntarily chosen to
participate in CDP, they must follow a certain set of speci?c disclosure rules, which
signi?cantly improves the consistency and comparability of carbon information.
Finally, our sample size is relatively large compared to the data sets used in prior
studies, which allows us to conduct a more systematic and comprehensive evaluation,
substantially increasing the power of our analysis.
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The remainder of this paper is organized as follows. Section 2 is a literature review.
Section 3 develops the hypotheses and Section 4 describes our research design. Section 5
reports the empirical results and Section 6 further discusses the impact of institutional
investors on voluntary CDP disclosure. The concluding comments are in Section 7.
2. Literature review
2.1 Social and environmental disclosure in developing countries
As developing countries seek to enhance economic performance and expand their
economic activities, environmental conservation is often given low priority (Hassanien,
2011; Islam and Deegan, 2008). As a result, there are serious environmental issues in
some developing countries. For example, Belal (2008) pointed out the following
problems in one such developing country, Bangladesh: urban air pollution, arsenic
contamination of ground water, loss of wetlands, aggravation of ?oods and dying
rivers, indiscriminate use of chemical fertilisers and pesticides resulting in chemical
runoff into water bodies, inappropriate disposal of household waste, discharge of
industrial toxic and other harmful wastes, and deforestation.
Most prior studies have concluded that corporate reporting of social and
environmental impact in developing countries is in an early stage, and is generally
inadequate in terms of the level and quality of the disclosed information relative to the
developed world. For example, Liu and Anbumozhi (2009) found that the disclosure
level of corporate environmental information appeared to be marginal in the current
Chinese context, with 40 per cent of sampled companies making no disclosure.
Disclosure appears to be signi?cantly associated with a government’s environmental
concerns and pressure they place on companies, whereas the roles of other stakeholders
such as shareholders and creditors tend to be minor. These results are consistent with a
recent survey conducted by the Chinese Association of Listed Companies and Securities
Daily (2012), which showed that among 2,338 A-share companies listed on the Shanghai
Stock Exchange in 2012, the majority (75 per cent) did not release a CSR report[4], even
though more than 40 per cent of these were mandatory.
Other studies have documented similar evidence (Hossain et al., 2006; Imam, 2000).
Speci?cally, Azim et al. (2009) analysed annual reports published in 2007 and found
that only 15.45 per cent of listed companies in Bangladesh made CSR disclosures.
Moreover, three-fourths of all disclosures were generalized qualitative statements
without any attempt at attestation, and the mean length of disclosures was less than
half a page. Kuasirikun and Sherer (2004) pursued a critical perspective sensitive to the
context of Thailand, and concluded that:
[. . .] the disclosures of the sample companies remain inadequate for effective monitoring of
the environmental dimension of corporate activity. Companies are not giving suf?ciently
detailed information about the impacts of business activity and about the actions taken to
prevent or counter possible negative effects on the environment. Furthermore, the
information given is often unaudited. [. . .] At the current level of corporate environmental
disclosure, it is very dif?cult for investors or the public to get suf?cient knowledge of exactly
how the company’s activities may impact on [sic] the environment and the community at
large (p. 645).
Comparable results have also been found in Malaysia (Elijido-Ten, 2004) and Lebanon
( Jamali and Mirshak, 2007). Note that the gap in CSR disclosure exists in newly
industrialised economies as well. Perry and Sheng (1999) compared Western
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experience with environmental disclosure with that in Singapore. The surveys
revealed a low commitment to environmental disclosure amongst Singaporean
organisations, which is symptomatic of the gap between the corporate environmental
responsibilities accepted in Western countries and that in this newly industrialised
economy.
On the other hand, there are also encouraging signs of improvement. For example,
the recent Chinese survey mentioned above (Chinese Association of Listed Companies
and Securities Daily, 2012) showed that, although only 25 per cent of ?rms in the
sample released separate CSR reports in 2012, the number of reports increased by
11.49 per cent relative to 2011. Moreover, there were six companies that released a
separate, stand-alone environmental report in addition to a CSR report (which did not
occur in a previous survey), suggesting an increased awareness of environmental
issues by the general public and stakeholders. Other developing countries have also
gradually begun to adopt CSR reporting initiatives. Brazil, for instance, has developed
a national system of “social balance sheets” (SBS) for large publicly traded ?rms. The
SBS report is voluntary for the disclosure of direct and indirect social and
environmental impacts of a company’s operations (O’Rourke, 2004). The Indonesian
Environmental Agency (BAPEDEL) decided in 1995 to create a simple pollution
disclosure system called PROPER. The idea of PROPER was to “create incentives for
compliance through honour and shame” by publicly rating the environmental
performance of factories. PROPER assigned a colour-coded rating – black, red, blue,
green, and gold (in order from worst to best) – to factories based on their compliance
with environmental standards. This program motivated managers and resulted in
signi?cant reductions in pollution, as the ratings served as an environmental audit of
the factory (Afsah and Ratunanda, 1999). Similar programs supporting public
reporting of environmental information have been or are currently being developed in
the Philippines, China, Mexico, India, Colombia, Bangladesh, Mexico, Czech Republic,
and Thailand (O’Rourke, 2004).
Quite a few studies have examined the factors associated with disclosure of social or
environmental information in developing countries. Belal and Momin (2009) found that
the CSR agenda in emerging economies is largely driven by external forces, namely,
pressures from parent companies, the international market and international agencies.
Apart from governmental in?uence, these studies also reported that disclosure
tendency and behaviour in developing countries are related to industry membership
and ?rm size (Gao et al., 2005), which is consistent with the evidence obtained in a
Western context. Newson and Deegan (2002) explored the social disclosure policies
of large Australian, Singaporean, and South Korean multinational corporations and
reported a minimal association between global expectations and social disclosure
policies; they also found that country of origin and industry of operation appeared
to signi?cantly in?uence disclosure practices. These results suggest that CSR
disclosure in developing countries could be affected by international in?uences via the
operation of multinational enterprises in developing countries. Dobers and Halme
(2009) argued that the capacities of organisations and their managers to understand
and address pressing CSR issues vary in different cultural contexts. Weak institutional
environments, such as those commonly associated with developing countries, often
harbour illicit ?nancial out?ow from poor countries to rich ones. This strips developing
nations of critical resources and contributes to failed states.
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The results of these studies seem to be largely consistent with legitimacy theory and
stakeholder theory (Belal and Owen, 2007; Islam, 2010; Islam and Deegan, 2008). In
particular, De Villiers and Van Staden (2006) conducted a content analysis of more than
140 corporate annual reports over a nine-year period to identify trends in environmental
disclosure bySouthAfricancompanies over time. Their ?ndings appearedtobe consistent
with legitimacy theory. In particular, they concluded that legitimising objectives may
also be served by changing the type (general/speci?c) or reducing the volume of
environmental disclosures when a ?rm confronts a legitimacy crisis. This ?nding is
contrary to the evidence in developed countries, namely, that the level of disclosure
increases when a ?rm faces threatened legitimacy.
Some authors have argued that the disclosure of social and environmental
information depends on a trade-off between bene?ts and costs (Cormier et al., 2005).
From the bene?t perspective, CSR reporting might be bene?cial to a developing
country because the CSR achievements of local ?rms may attract investments and
export opportunities, and also the use of CSR reporting of multinational corporations
may support local economic development efforts (O’Rourke, 2004). From the cost
perspective, ?rms (both in developed and developing nations) face costs of both
gathering and disseminating information, and potential costs from public responses to
their reporting. Costs also appear to increase as reporting gets more detailed and
comprehensive. In addition, to make the information easily understood or used by
stakeholders, third-party intermediary organisations are also required to invest
resources, time and technical capacities to translate complex raw information obtained
from social or environmental reports into simple-to-understand indicators. Thus, these
costs create signi?cant incentives for ?rms either to avoid reporting altogether, or to
produce CSR reports that are simply for public-relations purposes (O’Rourke, 2004).
In addition, there are weaknesses and problems with current systems of
social/environmental reporting, and important barriers to expanding public
disclosure systems in developing nations. For example, as these countries often do
not have a developed capital market, the market does not appear to provide suf?cient
incentives for companies to report on their social and environmental impacts. Another
dif?culty is how to measure environmental performance for organisations in general
and for companies in particular[5]. Finally, ?rms in developing countries seldom
release separate environmental reports (even if the ?rm has serious environmental
problems) but rather cover such issues in its social report or in annual reports, and thus
it is dif?cult to assess the effect of its operations on the environment.
In sum, authors (Dobers and Halme, 2009) have made an urgent call for concerted
efforts by the international community to develop structures and institutions that
contribute to environmental protection and disclosure in developing nations. Thus, our
study contributes to the ?eld by providing quanti?ed evidence of the gap in disclosure
of carbon information between developed and developing countries. To the best of our
knowledge, this is the ?rst published evidence of such a gap and thus our ?ndings
should enhance understanding of the new challenges related to climate change that
developing countries are facing.
2.2 Carbon disclosure
Carbon accounting is now regarded as a signi?cant stream of research that has attracted
a growing international community of scholars (Bebbington and Larrinaga-Gonza´lez, 2008;
Propensity
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Kolk and Pinkse, 2008). Prior studies typically focused on the economic consequences of
carbon emissions (Chapple et al., 2012; Grif?n et al., 2012; Matsumura et al., 2011) or
managerial incentives to the voluntary disclosure of GHGinformation (Prado-Lorenzo et al.,
2009; Stanny, 2010; Stanny and Ely, 2008). In particular, some studies investigated
country-level factors and found that rati?cation of the Kyoto Protocol (Freedman and
Jaggi, 2005), environmental regulatory stringency, environmental responsiveness of the
private sectors, the market structure (Peters and Romi, 2009) as well as shareholder
resolutions (Reid and Toffel, 2009) are determinants of corporate GHG disclosure. In
addition, Luo et al. (2012) examined the social, economic, market and legal/institutional
in?uence in a global context and concluded that the attitudes of the general public and
government appear to be the decisive determinants, whereas the ?nancial market may not
be a driving force for carbon disclosure. Most of these carbon studies have focussed on
developed economies.
Overall, we have observed a number of limitations in the prior literature, so our
paper differs from these studies along several important dimensions. First, a majority
of studies that examined the disclosure of social and environmental information were
carried out within a sole developing country or region, for example, Bangladesh
(Azim et al., 2009; Belal, 2000, 2001, 2008; Hossain et al., 2006; Imam, 1999, 2000; Islam
and Deegan, 2008) or China (Gao et al., 2005; Gao, 2009; Liu and Anbumozhi, 2009;
Lynn, 1992). Few studies have explored the differences in the propensity of carbon
disclosure between developing countries and developed countries (Elijido-Ten et al.,
2010; Islam, 2010; Islam and Deegan, 2008). Our study ?lls the gap. Second,
Clarkson et al. (2011b) suggest ?rms without suf?cient resources cannot pursue
proactive environmental strategies. However, few researchers have attempted
to evaluate the effects of ?nancial restrictions on voluntary disclosure decisions in
an international setting. To our knowledge, this paper is the ?rst to systematically
use a resource-constraint perspective to analyse the disclosure decision of ?rms in
developing countries. Third, Luo et al. (2012) did not control for carbon
emissions/performance, which potentially could be related to disclosure, whereas we
included this variable in the empirical model. Fourth, the samples analysed in previous
environmental studies have tended to be small, or to be restricted in some polluting
industries, which could lead to inappropriate inferences. In contrast, this study
employed a large sample covering 15 countries and ten sectors, which substantially
increases its statistical power. Finally, while prior studies (Luo et al., 2012) mainly
focused on the external driving forces, the current research simultaneously considered
both external and internal conditions that impacted the disclosure propensity. In sum,
we conducted a broader investigation so as to provide additional insight beyond that
offered by the existing literature (Collier, 2008; Friedman and Miles, 2002; Jensen, 2001;
O’Dwyer, 2005; O’Sullivan and O’Dwyer, 2009; Roberts, 1992). Figure 1 shows the
framework of the factors that may, both individually and interactively, play a role in
corporate carbon-disclosure decisions.
3. Hypothesis development
Carbon disclosure: motivation versus constraint
Prior studies have submitted that ?rms would voluntarily disclose environmental/carbon
information to legitimise themselves to help ensure their continuing operation/existence
in the society, to meet the demands of various stakeholders (Collier, 2008; Friedman and
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Miles, 2002; Jensen, 2001; O’Dwyer, 2005; O’Sullivan and O’Dwyer, 2009; Roberts, 1992) or
to signal their true carbon reduction commitment to outsiders to differentiate themselves
fromothers (Clarksonet al., 2008; Clarkson et al., 2011a). Luo et al. (2012) analyseda broader
set of variables, in an international setting, that incentivise management to disclose carbon
information. Their evidence suggests that ?rms face increasing pressures from outside
stakeholders to make public disclosures.
However, the existing literature has largely overlooked the other side of the picture.
We argue that managers do not only face external pressures but also internal
restrictions when deciding whether or not to disclose information about their carbon
mitigation efforts. These restrictions can arise from a variety of cultural or institutional
factors such as industrial traditions, management philosophy, organisational structure
and existing expertise. In the absence of compulsory legal requirements, the disclosing
decision is the result of a cost and bene?t analysis. From a resource-constraint theory
perspective, even emission mitigation is a desirable action, and there is still a question
of whether there are suf?cient funds to implement and disclose it[6] (Bansal, 2005). In
our study, we focus on ?nancial resources, which play a number of roles in shaping
corporate strategy and allowing optimum behaviours to arise and persist (Brammer
and Pavelin, 2006).
A ?rm’s carbon reporting is just a part of its overall carbon-mitigation activities,
which involve a substantial investment and a long-term commitment. Carbon
reporting often requires the creation of an emissions inventory and the establishment
of a carbon management system. These activities are not budget neutral and inevitably
require the input of resources[7]. Also note that once a ?rm initiates public carbon
disclosure, the expectation is that the ?rm will continue to do so (Graham et al., 2005;
Stanny and Ely, 2008). The cessation of disclosure may be viewed by the market as a
signal of the ?rm’s unawareness of climate change issues or inability to manage carbon
risks, which may ultimately establish a negative reputation with its stakeholders
(Verrecchia, 2001). Therefore, the lack ?nancial resources does not permit ?rms to
adapt successfully to internal and external pressures for change (Bourgeois, 1981)
Figure 1.
The framework of factors
that affect corporate
carbon disclosure
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and to implement innovative decision-making (Bansal, 2005; Hart, 1995). Ullmann
(1985) posited that a ?rm’s ?nancial position determines the relative weight of a social
demand and the attention it receives from top decision makers and the capability to
undertake costly programs related to stakeholder demands. Husted (2005, p. 363)
concluded that “economic development is the main driver of social and institutional
capacity for environmental sustainability”.
We apply the resource-constraint theory and argue that ?rms in developing
countries are less likely to voluntarily disclose carbon information in the absence of
legally binding international targets[8]. First, there is general consensus that funding
shortages are endemic in many developing countries, and advanced industrialised
societies could provide more resources, economic security and technology for social
and environmental initiatives (Baughn and McIntosh, 2007; Welford, 2005). As a result,
there are various international agreements through which developed nations provide
funding for developing countries for carbon mitigation programs. For example, under
the Copenhagen Accord (December 2009 Copenhagen Climate Change Summit),
developed countries committed to delivering “prompt start” funding (US$30 billion) to
assist developing countries in deploying clean energy technologies, reducing
forest-related emissions and adapting to the impacts of global warming[9]. The UN
Durban Climate Change Conference in 2011 con?rmed this commitment to create a
green climate fund to help developing nations to confront climate change, including
expanding clean energy, avoiding deforestation and adapting to shifting conditions in
sea levels, ?ood patterns and drought. In addition, it called for the establishment of a
Technology Center and Network to help developing countries access and embrace the
latest in low-carbon technologies[10]. Second, prior studies conducted in a developing
nation setting have provided empirical evidence that funding shortages negatively
affect environmental/carbon disclosure, as ?rms may have inadequate systems to
record, measure and report their GHG emissions. For example, Liu and Anbumozhi
(2009) found that companies located in the Northeast, Middle and Western provinces of
China, where economic development is relatively lower, are less likely to disclose
emissions-related data. Third, the effects of funding shortages are exacerbated by
excessive investments to achieve ?nancial goals, as ?rms’ management in developing
countries may give priority to economic growth over carbon-pollution prevention
(Waldman et al., 2006) and awareness of corporate social responsibility. In addition,
environmental protection in developing countries appears to emerge rather slowly
(Baughn and McIntosh, 2007; Ramasamy and Ting, 2004). Therefore, we propose that
?nancial resources are among the most important and prevalent constraints on
voluntary carbon disclosures, particularly for ?rms in the less-developed world:
H1. All else being equal, ?rms in developing countries are less likely to
voluntarily disclose carbon information because of their lack of ?nancial
resources.
The study uses pro?tability, leverage and growth opportunities as proxies for the
availability of ?nancial resources. It can be argued that pro?table ?rms are more likely
to be able to afford the expenditures needed to conduct and report carbon actions.
Moreover, higher-leverage ?rms have heavier debt burdens, and thus fewer assets
available for proactive carbon-reporting system. Because carbon disclosure is optional
(particularly in the form of a CDP report), it is likely that resource restrictions prevail
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over stakeholder needs. Thus, we expect that ?rms with higher leverage would decline
disclosure requests. In ?rms with high growth opportunities, economic objectives
would be given higher priority than environmental considerations (Prado-Lorenzo et al.,
2009; Ullmann, 1985). Therefore, these ?rms would prioritise their actions to achieve
?nancial goals, with the result that fewer resources would be available for
carbon-reduction activities and disclosure. We expect that the resource restriction
would be more pronounced for ?rms in developing nations.
4. Research design
4.1 Empirical model
Our research setting encompassed 15 countries with widely different socio-political
and legal environments. Such a setting allowed us to assess how institutional
dynamics affect ?rms’ incentives and behaviour regarding carbon reporting. A logistic
model was used to examine the factors that determine public disclosure of carbon
information:
PrðDISCLOSURE ¼1Þ ¼b
0
þb
1
DevelopingCountry þb
2
ROAþb
3
LEVERAGE
þb
4
GROWTH þb
5
CarbonEmissionþb
6
SIZE
þb
7
LegalSystem þb
8
ETS þb
9
NEW þ
X
SectorDummy
The variables in the regression models are de?ned as follows.
Dependent variable.
Carbon disclosure (DISCLOSURE). DISCLOSURE is an indicator variable that is
equal to 1 if the ?rm disclosed carbon information to the public in the form of a 2009
CDP company report and 0 otherwise[11].
Our decision to use participation in the CDP (referred to as the “response status”) as a
proxy for carbon-disclosure propensity was based on the following reasons. First, CDP
response status has been widely used in many recent carbon studies (Kolk and Pinkse,
2008; Stanny and Ely, 2008). Second, the quality and quantity of CDP reporting have
increased signi?cantly in the last ten years (CDP Global 500 Report, 2010) and the vast
majority of prominent companies (e.g. Financial Times 500 (FT500) companies) are now
using the CDP as a mechanism for carbon communication (Kolk et al., 2008; Pinkse and
Kolk, 2009). Thus, participation in the CDP represents a commitment to communicate
the ?rm’s internal carbon performance to outside stakeholders. Third, the CDPdesigns a
universal questionnaire for all participants, which largely overcomes the obstacle of its
voluntary disclosure nature and allows all responses to be compared across companies
(Luo et al., 2012). This uniform data structure ensures that our research is based on
relatively consistent and reliable GHG information.
Independent variables.
Developing country (DevelopingCountry). DevelopingCountry is an indicator
variable that equals 1 if a company is operated in a developing country and 0
otherwise (Wikipedia, 2012).
Financial resource proxies.
Pro?tability (ROA). We argue that pro?table ?rms are less constrained by ?nancial
resources in making green decisions, whereas unpro?table or less pro?table ?rms
would have to struggle to achieve their ?nancial objectives and to enhance their
economic performance. As a result, these ?rms would have fewer resources that could
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be used for the prevention of carbon pollution and for reporting that pollution
(Prado-Lorenzo et al., 2009). Therefore, we used return on assets (ROA) as the proxy,
which is expected to have a positive coef?cient (Bewley and Li, 2000; Cormier and
Magnan, 1999; Li and McConomy, 1999; Luo et al., 2012).
The level of leverage (LEVERAGE). We expect that the level of leverage is
negatively associated with disclosure, because a heavier liability for debt and interest
repayment would restrict a ?rm’s ability to undertake strategies for carbon reduction
and disclosure and high-leverage ?rms would be more sensitive to carbon-prevention
expenditures. Moreover, previous studies have suggested that ?rms with high leverage
may not be able to absorb the adverse ?nancial impact of disclosing proprietary
carbon information[12], because of the high ?nancial risk inherent in such
disclosures (Clarkson et al., 2008). The variable LEVERAGE was calculated as the
ratio of total debt divided by total assets (Clarkson et al., 2011c; Cormier and Magnan,
2007).
Growth opportunities (GROWTH). Firms with higher growth opportunities are
likely to be in an expansionary period, and therefore require more funding to ?nance
this expansion. Hence, these companies have fewer resources for carbon-reduction
activities and disclosure (Dhaliwal et al., 2011). We used a three-year revenue growth
rate as a proxy for growth opportunities; the rate was calculated as the current year’s
revenues divided by the revenues four years prior, minus one. We predicted that there
would be an inverse association between growth and disclosure propensity.
Control variables. To test our hypothesis, we controlled for motivation factors
because of the vast amount of evidence in the literature indicating that outside
stakeholders exercise pressure that incentivises ?rms to take mitigation actions and
report the results (Luo et al., 2012). Thus, we used a vector of variables as a proxy for
disclosure incentives.
Firm size (SIZE). Larger ?rms are under higher pressure from the public and their
stakeholders have a higher expectation about ?rms’ carbon management practices.
Therefore, large ?rms are more responsive to disclosure demands; a positive
relationship between ?rm size and disclosure was reported in previous study
(Freedman and Jaggi, 2005). We used the natural logarithm of total assets as a proxy
for ?rm size (Al-Tuwaijri et al., 2004; Brammer and Pavelin, 2006, 2008; Clarkson et al.,
2008; Cormier et al., 2005).
Carbon performance (CarbonEmission). It can be argued that ?rms with better
carbon performance (i.e. with low emissions) tend to disclose good news, as suggested
by signal theory. However, legitimacy theory posits that poor environmental/carbon
performers are more likely to disclose their carbon information, in an attempt to
legitimise their operations. Emissions also increase with carbon-risk exposure, which
refers to climate-change liabilities related to compliance and mitigation costs (such as
carbon price or tax) imposed by current or proposed legislation (Al-Tuwaijri et al.,
2004). As heavy emitters are likely to be the target of climate regulations (Patten,
2002a) and are subject to intense scrutiny from environmental pressure groups
(Brammer and Pavelin, 2006), they tend to disclose carbon information, both to ful?l
the information demands of stakeholders and to reduce potential compliance costs
(Clarkson et al., 2008, 2011a; Patten, 2002b).
Because carbon performance decreases with the amount of GHG emitted, we used
the natural logarithmof the total Scopes 1 and2 emissions[13] as a proxy. Carbonemissions
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data are available only for CDP-participating ?rms, so we followed the approach of
Grif?n et al. (2012) to estimate carbon emissions for non-disclosing ?rms. The model is:
CarbonEmission ¼ a
0
þa
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lnðREVENUEÞ þa
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lnðCapitalSpendingÞ
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LongtermDebt þa
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where CarbonEmission – the natural logarithmof the total Scopes 1 and 2 GHGemissions
in metric tons, ln(REVENUE) – the natural logarithm of the total revenue,
ln(CapitalSpending) – the natural logarithm of capital expenditures, LongtermDebt –
long-term debt to total assets and MARGIN – net income before extraordinary items and
preferred dividends divided by net sales; SectorDummy – 1 for each of the nine two-digit
GICS sectors and otherwise – 0.
Legal system (LegalSystem). Disclosures are signi?cantly in?uenced by a country’s
legal system (Ball et al., 2000; Freedman and Jaggi, 2005). In particular, La Porta et al.
(1998) showed that common-law countries generally have the strongest legal protection
of small investors and ?rms in these countries have a long tradition of transparent
?nancial-reporting systems. We adopted this argument and predicted that companies
in common-law countries would tend to disclose carbon information; we used a
variable, LegalSystem, to indicate whether or not a ?rm is a common-law country.
Emission trading scheme (ETS). ETS is a mechanism used by governments to
in?uence individuals as well as businesses to reduce emissions. By imposing ?nancial
costs (i.e. a carbon price), the scheme creates incentives for companies to invest in
lower-emitting technologies and report the impact of climate change (Blyth and House,
2007). Because the carbon costs have a direct ?nancial effect on ?rms’ operations and
cash ?ow, investors require this information to explicitly evaluate the value of the ?rm.
Therefore, our expectation was that ?rms from countries establishing an ETS would
be more likely to disclose emission information. ETS is an indicator variable that
equals 1 if the ?rm in a country with ETS, and 0 otherwise[14]; and the coef?cient of
the variable is expected to be positive.
Asset newness (NEW). The variable NEW, a proxy for the newness of assets, was
calculated as net properties, plants and equipment (PPE) divided by total PPE at the
end of ?scal year 2008. Firms with newer assets are likely to have adopted more
environmentally friendly technologies so that they might have superior environmental
performance and will have more incentives to disseminate the “good news”
(Clarkson et al., 2008, 2011a; Stanny and Ely, 2008). Thus, we expect that the coef?cient
of NEW is positive.
Financial data were collected from Datastream and winsorised at the 0.01 level (with
the exception of indicator variables) to reduce the impact of extreme observations. The
results reported later were based on winsorised ?nancial data.
4.2 Sample selection
We selected companies that were included in the 2009 CDP country reports (English
version), which are available on the CDP web site. We chose only 2009 CDP reports
because this was the most recent report when we started the project and these ?rms had
relatively well-developed responses to the questionnaire[15]. The initial sample consisted
of 2,737 companies from 15 countries[16]. We deleted 26 observations that had duplicate
reports or were from companies that had been delisted from the stock exchange[17].
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In addition, 666 companies without complete ?nancial data in the DataStream
were eliminated. The ?nal sample includes 2,045 ?rms that meet all of these selection
criteria (Table I).
5. Empirical results
5.1 Carbon disclosure by country and sector
Panel A of Table II shows carbon disclosure by country. The USA, Japan and the
UK had the most observations, accounting for 20.49, 19.90 and 11.78 per cent of
the sample, respectively. Canada (53.52 per cent), the USA (52.74 per cent) and the UK
(52.7 per cent) had the highest percentage of disclosure ?rms, followed by The
Netherlands (52.38 per cent); China and Russia had the lowest percentages (8.97 and
12.20 per cent, respectively). Overall, only 41.12 per cent of ?rms had publicly disclosed
carbon related data in the CDP, which is not satisfactory, given that these ?rms
represent the largest companies in each country. In untabulated results, we found
that 20 per cent of ?rms in developing countries made public disclosures of their green
activities, compared to 45.1 per cent in developed countries. Using both a two-tailed
t-test and the Wilcoxon rank-sum test, the difference between the two groups is
statistically signi?cant at the 0.01 level. This initial result is consistent with our
hypothesis. Panel B of Table II shows carbon disclosure by GICS sector. Companies
from the utilities sector (which is carbon-intensive) exhibited the highest
tendency (62 per cent) to disclose, followed by ?rms in telecommunication services
(54.90 per cent) and information technology (46.73 per cent).
5.2 Descriptive statistics and correlation coef?cients
Table III reports the descriptive statistics of dependent and independent variables.
We found that 16 per cent of our sample ?rms are from developing countries; the mean
ROA is approximately 5.6 per cent and the mean LEVERAGE is 24.9 per cent of
total assets. The average growth opportunity (GROWTH) of the sample ?rms is
148.3 per cent (i.e. three-year sales growth). The meanvalue of CarbonEmissionis 12.277,
which is equivalent to an average total annual GHG emission (Scopes 1 and 2) of
214,700.6 tonnes in our sample. In addition, 57.7 per cent of ?rms in the sample are
in common-lawcountries; 31.3 per cent of companies have participated in an established
ETS. The average natural logarithm of total assets is 8.344, implying average total
assets in dollar terms of $4.204 billion. This suggests that our sample consists of
relatively larger ?rms. The mean (and median) asset newness, measured as the ratio of
net PPE to gross PPE, is comparable with that reported by Clarkson et al. (2008).
Initial sample Observations
Firms retrieved from CDP country reports (15 countries) 2,737
Less
Firms with duplicate CDP reports 21
Companies with “SA” or “delisted in 2009” response status 5
Missing ?nancial data 666
Final sample 2,045
Note: CDP – carbon disclosure project
Table I.
Sample selection process
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Table IV reports both parametric and non-parametric correlation coef?cients for
all variables. Consistent with our expectation, both the Pearson and Spearman correlation
coef?cients for DISCLOSURE and DevelopingCountry are negative and signi?cant,
which indicates that ?rms in developing countries have a lower propensity to voluntarily
disclose carbon information. Meanwhile, consistent with the resource-constraint theory,
both parametric and non-parametric correlation coef?cients for DISCLOSURE and
LEVERAGE(GROWTH) are signi?cantlynegative. Inaddition, the correlationcoef?cient
for DISCLOSURE and CarbonEmission is positive and signi?cant at the p , 0.01 level.
Overall, cross-correlations between variables do not suggest multicollinearity problems.
5.3 Multivariate regression
The results of the four logit models are presented in Table V. We ?rst used Model (1)
to examine whether there is a signi?cant difference in terms of carbon disclosure
Panel A: carbon disclosure by country
Carbon disclosure
Total DISCLOSURE ¼ 0 DISCLOSURE ¼ 1
Country n Percentage n Percentage n Percentage
Australia 68 62.39 41 37.61 109 5.33
Canada 66 46.48 76 53.52 142 6.94
China 71 91.03 7 8.97 78 3.81
Germany 76 49.03 79 50.97 155 7.58
India 120 83.92 23 16.08 143 6.99
Ireland 18 78.26 5 21.74 23 1.12
Japan 248 60.93 159 39.07 407 19.90
South Korea 65 84.42 12 15.58 77 3.77
The Netherlands 20 47.62 22 52.38 42 2.05
New Zealand 27 72.97 10 27.03 37 1.81
Russia 36 87.80 5 12.20 41 2.00
South Africa 35 53.03 31 46.97 66 3.23
Switzerland 42 64.62 23 35.38 65 3.18
USA 198 47.26 221 52.74 419 20.49
UK 114 47.30 127 52.70 241 11.78
Total 1,204 58.88 841 41.12 2,045 100.00
Panel B: carbon disclosure by GICS sector
Carbon disclosure
No Yes Total
GICS code GICS sector n Percentage n Percentage n Percentage
10 Energy 91 60.67 59 39.33 150 7.33
15 Materials 149 53.41 130 46.59 279 13.64
20 Industrials 265 60.09 176 39.91 441 21.56
25 Consumer
discretionary
246 70.09 105 29.91 351 17.16
30 Consumer staples 101 55.19 82 44.81 183 8.95
35 Health care 89 60.14 59 39.86 148 7.24
40 Financials 96 67.13 47 32.87 143 6.99
45 Information
technology
106 53.27 93 46.73 199 9.73
50 Telecommunication
services
23 45.10 28 54.90 51 2.49
55 Utilities 38 38.00 62 62.00 100 4.89
Total 1,204 58.88 841 41.12 2,045 100.00
Notes: DISCLOSURE ¼ 1 if a ?rm answered the CDP 2009 questionnaire and allowed the responses to be publicly
available, otherwise, DISCLOSURE ¼ 0; n – the number of observations; GICS – Global Industry Classi?cation
Standard
Table II.
Carbon disclosure by
country and sector
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decisions between developed and developing countries. Then, Models (2)-(4) were
estimated to determine whether the difference in disclosure tendency is associated with
resource constraint proxies. We found that there is a signi?cantly negative relationship
between DevelopingCountry and DISCLOSURE (Model 1), supporting our hypothesis
that ?rms in developing countries are less likely to disclose. The result is robust when
we control for motivation proxies, such as ?rm size, ETS and legal system.
In addition, ?rms with higher leverage are less likely to disclose (the coef?cient of
LEVERAGE ¼ 20.650, p-value , 0.10), enhancing the validity of the ?ndings of
Cormier et al. (2005) and Cormier and Magnan (2003), who showed that ?rms with poor
?nancial conditions are less likely to disclose and bear the consequences of revealing
proprietary carbon information. The evidence is consistent with the notion that
internal restrictions hinder green actions and disclosure. Also, we found a signi?cant
inverse relationship between GROWTH and DISCLOSURE (b ¼ 20.088, p , 0.01),
suggesting that ?rms with more growth opportunities are less likely to disclose carbon
information. However, the coef?cient of ROA is positive, as predicted, but not
signi?cant (b ¼ 1.056, p . 0.10).
Further, to investigate whether the signi?cantly low percentage of disclosure ?rms
in developing countries are constrained by their ?nancial resources, we include the
interaction variable DevelopingCountry and the resource proxy variables
ROA, LEVERAGE and GROWTH (Models (2)-(4)). In Models (3) and (4), the
coef?cients for DevelopingCountry
*
LEVERAGE (b ¼ 22.396, p , 0.05) and
Variable n Mean SD P25 Median P75
DISCLOSURE 2,045 0.411 0.492 0 0 1
DevelopingCountry 2,045 0.16 0.367 0 0 0
ROA 2,045 0.056 0.09 0.022 0.052 0.094
LEVERAGE 2,045 0.249 0.181 0.097 0.242 0.367
GROWTH 2,045 1.483 3.684 0.229 0.551 1.255
CarbonEmission 2,045 12.277 2.369 10.691 12.206 13.884
SIZE 2,045 8.344 1.468 7.346 8.279 9.336
LegalSystem 2,045 0.577 0.494 0 1 1
ETS 2,045 0.313 0.464 0 0 1
NEW 2,045 0.564 0.18 0.424 0.549 0.684
Notes: n – number of observations; P25 and P75 ¼ 25th and 75th percentiles of the variables,
respectively; ?nancial variable here are winsorised at the 0.01 level and in millions of US dollar;
DISCLOSURE is a dependent variable that equals 1 if the ?rm answered the questionnaire and
made the response publicly available and 0 otherwise; DevelopingCountry is a dummy variable that
equals 1 if a country is a developing country and 0 otherwise; ROA represents net income before
extraordinary items/preferred dividends divided by the total assets at the end of ?scal year 2008;
LEVERAGE is calculated as the total debt (measured as short-term debt, the current portion of long-
term debt and long-term debt) divided by the total assets at the end of ?scal year 2008; GROWTH is
measured as the current year’s revenues divided by revenues four years ago and then minus one;
CarbonEmission is measured as the natural logarithm of total Scopes 1 and 2 GHG emissions; SIZE is
the natural logarithm of total assets at the end of ?scal year 2008; LegalSystem is an indicator variable
that equals 1 if the ?rm is within a common-law country and 0 otherwise; ETS is an indicator variable
that equals 1 if the ?rm is within a country that has an established emission trading scheme and
0 otherwise; NEW is measured as net PPE divided by total PPE at the end of ?scal year 2008
Source: La Porta et al. (1998)
Table III.
Descriptive statistics
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.
(
1
9
9
8
)
Table IV.
Correlation coef?cients
( p-values)
Propensity
for carbon
disclosure
21
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
1
6
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
(1)
(2) (3)
(4)
Independent variables Dependent variable: DISCLOSURE
DevelopingCountry (2) 20.702
* * *
21.016
* * *
20.171 20.172
(0.179) (0.249) (0.274) (0.251)
DevelopingCountry
*
ROA (þ) 3.452
*
(1.799)
DevelopingCountry
*
LEVERAGE (2)
22.396
* *
(0.985)
DevelopingCountry
*
GROWTH
(2)
20.326
* * *
(0.121)
ROA (þ) 1.056 0.625 0.909 1.155
*
(0.660) (0.694) (0.660) (0.661)
LEVERAGE (2) 20.650
*
20.616
*
20.390 20.565
*
(0.334) (0.335) (0.350) (0.336)
GROWTH (2) 20.088
* * *
20.087
* * *
20.083
* * *
20.056
* *
(0.028) (0.028) (0.028) (0.027)
CarbonEmission (^) 0.097
*
0.093
*
0.096
*
0.096
*
(0.052) (0.052) (0.052) (0.052)
SIZE (þ) 0.594
* * *
0.599
* * *
0.592
* * *
0.606
* * *
(0.069) (0.070) (0.069) (0.070)
LegalSystem (þ) 0.890
* * *
0.877
* * *
0.867
* * *
0.869
* * *
(0.113) (0.113) (0.113) (0.114)
ETS (þ) 0.616
* * *
0.613
* * *
0.610
* * *
0.620
* * *
(0.124) (0.124) (0.124) (0.124)
NEW (þ) 21.259
* * *
21.248
* * *
21.237
* * *
21.257
* * *
(0.352) (0.353) (0.352) (0.352)
Constant 26.705
* * *
26.672
* * *
26.722
* * *
26.859
* * *
(0.571) (0.572) (0.572) (0.575)
Sector effect Control Control Control Control
Observations 2,045 2,045 2,045 2,045
Likelihood 21,117 21,116 21,114 21,112
Pseudo R
2
0.193 0.195 0.196 0.197
Notes: Signi?cant at:
*
0.1,
* *
0.05 and
* * *
0.01 levels, respectively (two-tailed); SE are in parentheses;
?nancial variables are in millions of US dollar and winsorised at the 0.01 level; the expected signs for
the independent variables are presented in brackets in the ?rst column; DISCLOSURE is a dependent
variable that equals 1 if the ?rm answered the questionnaire and made the response publicly available,
and 0 otherwise; DevelopingCountry is a dummy variable that equals 1 if a country is a developing
country and 0 otherwise; ROA is net income before extraordinary items/preferred dividends divided
by the total assets at the end of ?scal year 2008; LEVERAGE is calculated as the total debt (measured
as short-term debt, the current portion of long-term debt and long-term debt) divided by the total
assets at the end of ?scal year 2008; GROWTH is measured as current year’s revenues divided by
revenues four years ago and then minus one; CarbonEmission is measured as the natural logarithm of
total Scopes 1 and 2 GHG emissions; SIZE is the natural logarithm of total assets at the end of ?scal
year 2008; LegalSystem is an indicator variable that equals 1 if a ?rm is located within a common law
country and 0 otherwise; ETS is an indicator variable that equals 1 if the ?rm is within a country that
has an established emission trading scheme and 0 otherwise; NEW is measured as net PPE divided by
total PPE at the end of ?scal year 2008
Source: La Porta et al. (1998)
Table V.
Regression results
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GROWTH (b ¼ 20.326, p , 0.01) are signi?cantly negative,
whereas in Model (2), the coef?cient for DevelopingCountry
*
ROA is positive
(b ¼ 3.452), although less signi?cant ( p , 0.10). The asymmetrical signi?cance
between ROA and LEVERAGE (GROWTH) indicates that ?nancial resources are more
likelyto be a constraining factor thana driving factor. These results suggest that ?nancial
resources plays a more important role in disclosure decisions for ?rms in developing
countries and thus these ?rms are more likely to be constrained by scarce green funding.
In other words, non-disclosing ?rms are more likely to reside in a developing country
and these ?rms have higher debt, more growth opportunities and are less pro?table.
Again, our inferences hold when we simultaneously consider and include incentive and
restrictive factors in the empirical models.
As for control variables, CarbonEmission is positively correlated with DISCLOSURE
( p , 0.1), suggesting that heavy emitters are under pressure to be more transparent.
The estimated coef?cients for SIZE in all models are signi?cantly positive, suggesting
that large ?rms tend to disclose due to higher expectations and demands from their
stakeholders. In addition, LegalSystem and ETS are signi?cantly and positively
associated with a ?rm’s propensity to disclose, consistent with Luo et al. (2012).
However, the coef?cient of the variable NEW(asset newness) is unexpectedly negative,
although this is consistent with Clarkson et al. (2008) and Stanny and Ely (2008).
Taken together, the ?ndings enhance our understanding of carbon-disclosure
behaviour and the results are generally consistent with our hypothesis that ?rms in
developing countries are less likely to disclose carbon information; this propensity is
signi?cantly associated with ?nancial resource-constraint proxies.
5.4 Sensitivity tests
Alternative proxy for dependent variable. In our original sample, we de?ned a company
that answered the CDP questionnaire and made their response publicly available as a
disclosing company. However, some studies have de?ned companies that answer the
questionnaire as disclosing companies, even when their responses are not released to
the public (Peters and Romi, 2009; Stanny, 2010; Stanny and Ely, 2008). Hence, we also
adopted this de?nition and re-conducted our evaluation, and found that the regression
results were qualitatively the same as those shown in Table V, with the coef?cient for
ROA signi?cant at the 0.05 level.
Deleting ?nancial ?rms. Because ?nancial ?rms are different than other types of
businesses due to their special accounting and regulatory requirements, the inclusion of
these ?rms might signi?cantly affect the regression results. Therefore, we deleted
?nancial ?rms from our data (Cormier and Magnan, 2007; Cormier et al., 2005). The
regression results were qualitatively the same as those in Table V, except that the ROA
in Model (1) became signi?cant at the 0.05 level, whereas LEVERAGE was not
signi?cant.
Adding an extra control variable – ?nancial activities. Prior research predicts that
?rms reliant on external ?nancing are more likely to undertake a higher level of
disclosure (Clarkson et al., 2008; Francis and Khurana, 2005; Frankel et al., 1995; Lang
and Lundholm, 1993). Thus, we also controlled for the impact of ?nancial activities.
The proxy variable for ?nancial activities was calculated as net sales (minus purchase)
of common stock and preferred shares and scaled by the size of total assets at the end
of the ?scal year 2008. The regression result (not tabulated) shows that the coef?cient
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for ?nancial activities is not statistically signi?cant and the coef?cient and the level of
signi?cance for the other variables are essentially the same as shown in Table V.
6. The impact of institutional investors on CDP disclosure
Luo et al. (2012) showed that the shareholders of some large ?rms play a less
important role in carbon-disclosure decisions than other stakeholders, such as the
government. However, the CDP is sponsored by large institutional investors, namely
CDP signatories that have explicitly demonstrated their interest in carbon information.
Stakeholder theory posits that a ?rm’s carbon disclosure is a response to stakeholder
demands andthat managers will give prioritytomore salient stakeholders (Mitchell et al.,
1997)[18]. It follows that if the CDP signatories are shareholders in a ?rm, they would be
considered the most direct and in?uential stakeholders by management. Thus,
we hypothesise that ?rms with more shares owned by CDP signatories would be more
likely to disclose information about their carbon activities because, all else being equal,
these investors have a powerful in?uence on ?rm disclosure decisions.
Because signatories’ ownership data are available only in the Canadian CDP report,
we use Canadian ?rms to test this prediction (CDP Canada 200 Report, 2009, pp. 67-74).
We constructed two variables: INSTITUTION1, which was measured as the
percentage of the market value of the ?rm shares owned by 45 Canadian signatories in
2009, and INSTITUTION2, which is the percentage of the market value of shares
owned by all 475 signatories in 2009.
The results are summarised in Table VI. On average, in non-disclosing ?rms
(DISCLOSURE ¼ 0), 8.3 per cent (17.3 per cent) of the market value of shares is owned by
45Canadiansignatories (all 475signatories), whereas 10.5 per cent (20.4per cent) is owned
by 45 Canadian signatories (all 475 signatories) for disclosing ?rms (DISCLOSURE ¼ 1).
Using t-tests, the results are signi?cant and suggest that Canadian ?rms are
in?uenced not only by Canadian signatories but also by non-Canadian signatories.
Overall, this ?nding complements the results of Luo et al. (2012) andenhances the validity
of Kolket al.’s (2008) interpretationthat the CDPhas successfullyusedthe strategic power
of these investors to mobilise the world’s largest ?rms to disclose carbon information.
Disclosure status Variables n Mean Median SD P25 P75
DISCLOSURE ¼ 0 INSTITUTION1 93 0.083 0.072 0.076 0.029 0.113
INSTITUTION2 93 0.173 0.173 0.091 0.129 0.24
DISCLOSURE ¼ 1 INSTITUTION1 89 0.105
* *
0.093
* * *
0.066 0.065 0.139
INSTITUTION2 89 0.204
* *
0.198
* *
0.079 0.148 0.267
Total INSTITUTION1 182 0.094 0.085 0.072 0.039 0.123
INSTITUTION2 182 0.188 0.182 0.087 0.134 0.257
Notes: Signi?cant at:
*
0.10,
* *
0.05 and
* * *
0.01 levels, respectively (two-tailed); t-test (Wilcoxon
rank-sum test) is used to test mean (median) difference between non-disclosing ?rms
(DISCLOSURE ¼ 0) and disclosing ?rms (DISCLOSURE ¼ 1); DISCLOSURE ¼ 1 if a ?rm
answered the CDP 2009 questionnaire and allowed the response to be publicly available and
otherwise, DISCLOSURE ¼ 0; P25 and P75 ¼ 25th and 75th percentile of the variables, respectively;
n is the number of observations; INSTITUTION1 is the percentage of market capitalisation owned by
45 Canadian signatories to the CDP 2009 and INSTITUTION2 is the percentage of market
capitalisation owned by all 475 signatories to the CDP 2009
Table VI.
Descriptive statistics of
institutional in?uence
on voluntary carbon
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7. Conclusion
This study has determined that ?rms in developing nations are relatively inactive
compared to developed countries in terms of their propensity to disclose information
about their carbon-mitigation activities. Our explanation for the systematic difference
betweendevelopinganddevelopednations is underpinnedbyresource-constraint theory.
This approach is intuitively appealing because it posits the in?uence of economic factors
in the context of social and environmental disclosure. In addition, our ?ndings suggest
that although resource restriction negatively affects disclosure, strategic stakeholders
exercise considerable in?uence that increases the disclosure propensity.
Our study has some limitations. First, our sample ?rms tend to be large, so caution
should be exercised when generalising the results to small- or medium-sized ?rms.
Second, we have considered only very large developing countries, such as China, India
and Russia, but not small countries that have no or very small capital markets. Third,
although our study suggests that ?nancial resources play an important role, we do not
argue that shortage of funds is the only reason for the lack of transparency.
There are a number of practical implications of the project. First, at the ?rm level,
the literature (Porter and van der Linde, 1995) provides evidence that good regulation
can stimulate innovation, which suggests that carbon regulation would be an
important impetus in the transition to a carbon-constrained economy. Our evidence
shows that institutional factors such as the legal system and ETS play a pivotal role in
motivating ?rms to invest in carbon-ef?cient products and renewable energy and to
ensure the availability of minimum essential carbon information to stakeholders. It
appears that both regulatory control and ?nancial incentives are needed to encourage
genuine carbon-mitigation activities and improve openness by corporations. Second, at
the national/international level, as emerging economies play an increasingly important
role, it will be necessary for developed nations to help ?rms in developing countries
catch up with their global peers in carbon reduction and disclosure.
Notes
1. Direct physical impacts of climate change on a company’s assets and processes include
damage to production facilities or the availability of raw materials due to storms, ?oods,
droughts, sea-level rise and extreme weather, as well as an increased risk to human health
(e.g. the potential spreading of tropical diseases) (Busch and Hoffmann, 2007). The visibility
of these direct effects has increased steadily, e.g. the global economic losses due to natural
catastrophes have increased seven-fold in the last 40 years (Munich Re, 2005).
2. Mandatory reporting rules include the USA Environmental Protection Agency’s Mandatory
Reporting Rules and the Australian National Greenhouse and Energy Reporting rules (CDP
Draft Framework, 2010).
3. The CDP is a London-based non-governmental organization. It is committed to helping
companies throughout the world to measure, manage, disclose and ultimately reduce GHG
emissions. Annually, the CDP sends its questionnaire to the largest companies (based on
their capitalisation of the national market) on behalf of 534 institutional investors with
US$64 trillion in assets (CDP Global 500 Report, 2010). After ten years of development, the
CDP holds the largest database of primary corporate climate-change information in the
world including identi?ed carbon risks and opportunities, the amount of GHG emissions,
carbon accounting, performance, governance and public communication.
4. CSR reports in the survey included CSR, sustainability, environmental and corporate citizen
reports with the exception of CSR information contained in annual reports.
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5. These include problems with measuring CSR performance (indicators of environmental
performance include compliance with environmental laws, rates of non-compliance, ?nes,
legal proceedings, etc.); emissions of toxic chemicals to air, water, and land; emissions of
greenhouse gases; the ?ow of materials including energy, raw materials, water, land, etc.;
product life-cycle assessment; environmental management systems (e.g. ISO 14000);
disclosure of environmental risks to local community members; timeliness and usefulness of
CSR information; incentives to disclose; and costs incurred by information producers and
users, etc. (O’Rourke, 2004).
6. Resources are input factors controlled and used by ?rms to develop and implement their
strategies (Wiley, 1997, pp. 700-701). Grant (1991) classi?ed resources as tangible, intangible
and personnel-based. Tangible resources include ?nancial reserves and physical resources
and intangible resources refer to reputation, technology and human resources;
personnel-based resources include organization culture, skills and the expertise of
employees and their commitment and loyalty.
7. In our review of the reports in our sample, we found anecdotal evidence regarding estimated
disclosing costs that may corroborate the resource-constraint view. For example, Leighton
Holdings Ltd claimed that the estimated annual cost of a new information system and
disclosure compliance is $1 million, which is equivalent to the salaries of at least six full-time
staff (Leighton Holdings CDP Report, 2010). Similarly, Lend Lease Corporation Ltd noted
that ?nancial costs, including the recruitment of resources to collect, manage and report on
energy and emissions data, are equivalent to approximately ?ve full-time employee salaries
at AUD$150K per employee, or $750K (Lend Lease CDP Report, 2010).
8. To provide impetus to cut GHG emissions and stabilise climate change, the Kyoto Protocol
places binding emission reduction targets on developed countries, but not on developing
countries.
9. See UNFCCC, Copenhagen Accord 2009: “3 [. . .] We agree that developed countries shall
provide adequate, predictable and sustainable ?nancial resources, technology and
capacity-building to support the implementation of adaptation action in developing
countries.” “8 [. . .] The collective commitment by developed countries is to provide new and
additional resources, including forestry and investments through international institutions,
approaching USD 30 billion for the period 2010-2012 with balanced allocation between
adaptation and mitigation [. . .]. In the context of meaningful mitigation actions and
transparency on implementation, developed countries commit to a goal of mobilizing jointly
USD 100 billion dollars a year by 2020 to address the needs of developing countries” (http://
unfccc.int/resource/docs/2009/cop15/eng/11a01.pdf).
10. See United Nations Framework Convention on Climate Change (UNFCCC, 15 March 2012):
Report of the Conference of the Parties on its 17th session, held in Durban from 28 November
to 11 December 2011 (http://unfccc.int/resource/docs/2011/cop17/eng/09a01.pdf). The
conference recognises “that developing country Parties are already contributing and will
continue to contribute to a global mitigation effort in accordance with the principles and
provisions of the Convention, and could enhance their mitigation actions, depending on
provision of ?nance, technology and capacity-building support by developed country
Parties”. The conference also reaf?rms that “in accordance with Article 4, paragraph 3, of the
Convention, developed country Parties shall provide enhanced ?nancial, technology and
capacity building support for the preparation and implementation of nationally appropriate
mitigation actions of developing country Parties” (http://unfccc.int/resource/docs/2011/
cop17/eng/09a01.pdf).
11. We treat a company as non-disclosing if it declined to participate in CDP disclosure program,
or did not respond to the invitation, or answered the questionnaire but chose not to make it
public (Luo et al., 2012).
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12. Climate-change-related capital expenditures and operating costs, estimates of carbon risks
and opportunities, budgeted clean-technology investments, carbon-management strategies
and carbon liabilities or commitments are examples of carbon reporting that are of a
proprietary nature (Cormier and Magnan, 2003, p. 47; Li et al., 1997, p. 441).
13. Scope 1 emissions are direct emissions, whichoccur onsite or fromsources that a companyowns
and controls. Scope 2 emissions are indirect emissions that result from the generation of the
electricity, heat or steama companypurchases. Please note that some of prior studies use carbon
emissions relative to a peer group as a measure (King and Lenox, 2001) and argue that relative
emissions measures the ?rm’s ability to manage and reduce its carbon emissions by comparing
the degree to which a ?rm’s facilities are more or less polluting than their peer groups, so we use
a relative emissions variable as an alternative measure, which is calculated as the natural
logarithm of the total Scopes 1 and 2 GHG emissions (CarbonEmission) minus the mean of it
within the same country and two-digit GICS sector. The regression results (not tabulated) were
qualitativelythe same as those in Table Vwithmore signi?cant coef?cient for CarbonEmission.
14. The status of emissions trading schemes for various countries was retrieved from: www.
climatechange.gov.au/government/international/global-action-facts-and-?ction/ets-by-
country.aspx (accessed 1 December 2010).
15. This represents the seventh year since the ?rst CDP inventory, published in 2003; however,
the CDP only targeted FT500 in 2003.
16. The 15 countries are Australia, Canada, China, Germany, India, Ireland, Japan, South Korea,
The Netherlands, New Zealand, Russia, South Africa, Switzerland, the UK and the USA
(CDP Australia 200 & New Zealand 50 Report, 2009; CDP Canada 200 Report, 2009;
CDP China 100 Report, 2009; CDP Germany 200 Report, 2009; CDP India 200 Report, 2009;
CDP Ireland 50 Report, 2009; CDP Japan 500 Report, 2009; CDP Korea 100 Report, 2009; CDP
The Netherlands 50 Report, 2009; CDP South Africa 100 Report, 2009; CDP Switzerland
100 Report, 2009; CDP UK 350 Report, 2009; CDP US500 Report, 2009).
17. That is, of the 2,737 companies, 21 were deleted due to reporting in more than one CDP
country report. For example, the Australia and New Zealand Banking Group is listed in both
the Australia CDP report and the New Zealand CDP report; Tesco is reported in both the UK
CDP report and the Ireland CDP report, etc. Also, four companies were listed with an “SA
(see another)” response status in the Canada report, which may lead to duplicate
observations, and one company was listed with a “delisted in 2009” response status in the
Switzerland report, are thus was excluded from our sample. Note that the study identi?es a
company’s nationality as per the DataStream database.
18. One reason that the CDP has gained a large public basis and a growing number of responses
during these years is that it successfully uses institutional investors to urge ?rms to disclose
extensive information about their climate-change activities (Kolk et al., 2008). According to
the reports published by the CDP, in the period from 2003 to 2009, the number of investors
participating in the CDP increased from 35 in 2003 (with $4.5 trillion in assets) to 224 in 2006
($31.5 trillion in assets), to 475 in 2009 ($55 trillion in assets). Through 2009, more than 1,800
companies globally had reported their climate-change strategies and GHG through CDP
requests (CDP Global 500 Report, 2009).
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Corresponding author
Qingliang Tang can be contacted at: [email protected]
ARJ
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doc_553465870.pdf
The purpose of this paper is to investigate differences in voluntary carbon disclosure
between developing and developed countries and the role of resource availability in explaining these
differences.
Accounting Research Journal
Comparison of propensity for carbon disclosure between developing and developed
countries: A resource constraint perspective
Le Luo Qingliang Tang Yi-Chen Lan
Article information:
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Comparison of propensity
for carbon disclosure
between developing and
developed countries
A resource constraint perspective
Le Luo, Qingliang Tang and Yi-Chen Lan
School of Business, University of Western Sydney, Sydney, Australia
Abstract
Purpose – The purpose of this paper is to investigate differences in voluntary carbon disclosure
between developing and developed countries and the role of resource availability in explaining these
differences.
Design/methodology/approach – The authors used a sample consisting of 2,045 large ?rms from
15 countries and representing divergent industries that released Carbon Disclosure Project (CDP)
company reports in 2009. Pro?tability, leverage and growth were used as proxies for the degree of
resource availability and the ?rm’s participation in the CDP was used as a proxy for carbon disclosure
propensity.
Findings – Consistent with the authors’ predictions, the empirical results show that the carbon
disclosure propensity is correlated in the right direction with resource availability proxies; this
relationship is stronger in developing nations, suggesting that the shortage of resources is one reason
for the lack of commitment to carbon mitigation and disclosure in these countries. The results are
robust when disclosure motivation proxies are controlled for. In addition, it is shown that ?rms tend
to disclose carbon information if their shares are owned by CDP signatories, because it allows them to
be viewed as more powerful stakeholders. This ?nding, which enhances the validity of stakeholder
theory, previously has not been documented in the literature.
Research limitations/implications – The ?ndings are relevant to the world’s largest
organisations, as determined by their market capitalisation. Thus, caution should be exercised to
generalise the paper’s inferences to small or medium-sized organisations.
Practical implications – The evidence suggests that resource shortages may constrain a ?rm
management’s carbon decisions. As the regulatory environment becomes more stringent, ?rms,
particularly those in developing countries need to take a more proactive strategy to tackle global
warming challenges and balance the need to achieve ?nancial goals and prevent carbon pollution with
their limited resources.
Originality/value – Although prior studies typically considered external pressures that motivated
voluntary environmental disclosure, the paper’s results offer extra insight and suggest that resource
restriction provides a complementary explanation – largely ignored in the existing literature – for
variation in the carbon-disclosure propensity of ?rms.
Keywords Developing countries, Climate change, Carbon, Information disclosure, Large enterprises,
Carbon disclosure, Financial resources availability, Dependency
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1030-9616.htm
JEL classi?cation – M41, M49, Q54, Q56
Qingliang Tang and Yi-Chen Lan gratefully acknowledge the ?nancial support for the study
from School of Business, University of Western Sydney.
Accounting Research Journal
Vol. 26 No. 1, 2013
pp. 6-34
qEmerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-04-2012-0024
ARJ
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1. Introduction
There is growing scienti?c evidence that human activity is associated with global
warming (see Bebbington and Larrinaga-Gonza´lez, 2008; Stern, 2006, for an overview
of some of the research). Business organisations are increasingly considered
accountable for their social and environmental impact. National governments and
non-governmental organisations (NGOs) have taken actions to urge ?rms to reduce
carbon emissions. The most notable regulations include the Kyoto Protocol and the
European Union Emission Trading Scheme (EU ETS), whose goal is to minimize
the cost of meeting an emissions reduction target (Pinkse and Kolk, 2009). Businesses
have gradually recognized that they suffer material risks related to climate change,
either through direct physical impact[1] or via climate-change policies or regulations,
changes in consumption pattern (e.g. consumers switching to products with a lower
effect on climate change) and short-term adjustments of contract conditions
(for example, insurance carriers may request higher-risk premiums due to high
climate-change exposure) (Busch and Hoffmann, 2007). Thus, carbon information is
required by stakeholders to aid decision-making (King, 2009).
In response to this demand, mandatory legislation has increasingly been proposed
or implemented throughout the world[2]. In 2007, the National Greenhouse and Energy
Reporting Act (NGER) was introduced by the Australian Government as a national
framework for reporting and disseminating information about greenhouse gas (GHG)
emissions, GHG projects and energy use and production. In addition, the Securities and
Exchange Commission in the USA has decided to require that companies disclose the
impact of climate change on their businesses in their public ?lings. Because of new
regulations or legislation, ?rms may face changes in economic trends or physical risks,
both domestically and abroad (Mounteer and Ranchod, 2010). Moreover, many
industry associations have undertaken environmental initiatives that encourage their
member ?rms to become more transparent with respect to their carbon management
and carbon-reduction performance.
Nonetheless, carbon disclosure is predominately optional, especially in developing
countries. Although an increasing number of studies have examined the factors
driving the voluntary disclosure of carbon information in developed countries, the
propensity to disclose carbon information in developed and developing countries
remains an unexplored area. Although the carbon disclosure project (CDP)[3] notes
signi?cant improvement in carbon disclosure from 2007 to 2009 in developing
countries (OECD, 2010), our result shows that the overall response rate in developing
countries is disappointing and signi?cantly lower than that in developed countries.
This motivates us to further investigate the main factors hindering ?rms in developing
countries from voluntary carbon disclosure. Prior studies overwhelmingly focused on
drivers (or external pressures) to explain a ?rm’s incentive under the framework of the
legitimacy theory, stakeholder theory or signal theory, and found that ?rms would
voluntarily disclose carbon information to gain legitimacy and meet stakeholders’
demands or signal their true carbon reduction commitment to the outsiders to
differentiate themselves from their counterpart. In contrast to those studies, the current
study considers internal constraints that affect the disclosure decision. Given the
voluntary nature of carbon reporting, we argue that ?nancial resources are likely to be
a constraining factor. This is because carbon disclosure is part of an overall climate
strategy that requires considerable ?nancial, personnel and technological resources.
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Thus, we hypothesize that ?rms in developing countries are more likely to be
constrained by scarce ?nancial resources that hinder them from making – and
disclosing – carbon-reduction activities, although they are under pressure to do so.
To test this proposition, we used a sample of more than 2,000 large ?rms from
15 countries. These ?rms have volunteered to publish 2009 CDP company reports. We
use pro?tability, leverage and economic growth as proxies for the degree of resource
availability. We expect that pro?table ?rms are likely to have more resources to invest
in a GHG reporting system, whereas higher-leverage ?rms have more debt burden;
growth ?rms, in contrast, tend to give priority to economic expansion and therefore may
be reluctant to commit their limited ?nancial resources to voluntary carbon disclosure.
The empirical evidence shows that developing countries are falling behind in
carbon disclosure relative to developed countries. Further, the regression tests results
show that ?rms’ disclosure propensity is correlated in the right direction with resource
availability proxies: pro?tability, leverage and growth. This relationship is more
pronounced in developing nations, suggesting that the lack of transparency of ?rms in
developing countries likely arises from a lack of ?nancial resources. Our interpretation
is robust when we control for motivation factors such as social, economic and legal
pressures, which have been identi?ed in previous research (Luo et al., 2012). The
?ndings indicate that stakeholder theory and resource-constraint theory offer different
but complementary explanations for a voluntary carbon-disclosure choice. The
practical implication is that a “green” decision may represent a long-term investment in
a GHG-restrictive economy.
This study contributes to current trends in environmental research in a number of
ways. First, we examine the corporate carbon-disclosure propensity through a
resource-constraint framework that has been largely ignored in prior literature.
Second, although the social and environmental reporting practices of organisations
operating in developed countries have previously been explored in great detail
(see Deegan, 2002, for an overview of some of the research), few studies have explored
the differences in climate-change behaviour between developing and developed
countries (Islam, 2010; Islam and Deegan, 2008). In addition, developing countries play
an increasingly important role in the transition to a low-carbon economy, and our
study should enhance the awareness of resource restriction in these nations, thus
encouraging the transfer of more resources and/or technology to these developing
countries. Fourth, although a previous study showed that some shareholders of large
?rms appear to be less interested in carbon information (Luo et al., 2012), we show that
a particular group of institutional investors – the CDP signatories – are important
users and drive the voluntary disclosure of carbon information, thus enhancing the
validity of stakeholder theory and the ?ndings of Cotter and Najah (2012). Fifth, prior
studies have often used socially oriented reports (e.g. sustainability reports) to obtain
GHG information, which are typically incomplete and dif?cult to compare between
different reporting entities (Luo et al., 2012). In contrast, our data were all obtained
from a single source-CDP reports. As long as the ?rms have voluntarily chosen to
participate in CDP, they must follow a certain set of speci?c disclosure rules, which
signi?cantly improves the consistency and comparability of carbon information.
Finally, our sample size is relatively large compared to the data sets used in prior
studies, which allows us to conduct a more systematic and comprehensive evaluation,
substantially increasing the power of our analysis.
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The remainder of this paper is organized as follows. Section 2 is a literature review.
Section 3 develops the hypotheses and Section 4 describes our research design. Section 5
reports the empirical results and Section 6 further discusses the impact of institutional
investors on voluntary CDP disclosure. The concluding comments are in Section 7.
2. Literature review
2.1 Social and environmental disclosure in developing countries
As developing countries seek to enhance economic performance and expand their
economic activities, environmental conservation is often given low priority (Hassanien,
2011; Islam and Deegan, 2008). As a result, there are serious environmental issues in
some developing countries. For example, Belal (2008) pointed out the following
problems in one such developing country, Bangladesh: urban air pollution, arsenic
contamination of ground water, loss of wetlands, aggravation of ?oods and dying
rivers, indiscriminate use of chemical fertilisers and pesticides resulting in chemical
runoff into water bodies, inappropriate disposal of household waste, discharge of
industrial toxic and other harmful wastes, and deforestation.
Most prior studies have concluded that corporate reporting of social and
environmental impact in developing countries is in an early stage, and is generally
inadequate in terms of the level and quality of the disclosed information relative to the
developed world. For example, Liu and Anbumozhi (2009) found that the disclosure
level of corporate environmental information appeared to be marginal in the current
Chinese context, with 40 per cent of sampled companies making no disclosure.
Disclosure appears to be signi?cantly associated with a government’s environmental
concerns and pressure they place on companies, whereas the roles of other stakeholders
such as shareholders and creditors tend to be minor. These results are consistent with a
recent survey conducted by the Chinese Association of Listed Companies and Securities
Daily (2012), which showed that among 2,338 A-share companies listed on the Shanghai
Stock Exchange in 2012, the majority (75 per cent) did not release a CSR report[4], even
though more than 40 per cent of these were mandatory.
Other studies have documented similar evidence (Hossain et al., 2006; Imam, 2000).
Speci?cally, Azim et al. (2009) analysed annual reports published in 2007 and found
that only 15.45 per cent of listed companies in Bangladesh made CSR disclosures.
Moreover, three-fourths of all disclosures were generalized qualitative statements
without any attempt at attestation, and the mean length of disclosures was less than
half a page. Kuasirikun and Sherer (2004) pursued a critical perspective sensitive to the
context of Thailand, and concluded that:
[. . .] the disclosures of the sample companies remain inadequate for effective monitoring of
the environmental dimension of corporate activity. Companies are not giving suf?ciently
detailed information about the impacts of business activity and about the actions taken to
prevent or counter possible negative effects on the environment. Furthermore, the
information given is often unaudited. [. . .] At the current level of corporate environmental
disclosure, it is very dif?cult for investors or the public to get suf?cient knowledge of exactly
how the company’s activities may impact on [sic] the environment and the community at
large (p. 645).
Comparable results have also been found in Malaysia (Elijido-Ten, 2004) and Lebanon
( Jamali and Mirshak, 2007). Note that the gap in CSR disclosure exists in newly
industrialised economies as well. Perry and Sheng (1999) compared Western
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experience with environmental disclosure with that in Singapore. The surveys
revealed a low commitment to environmental disclosure amongst Singaporean
organisations, which is symptomatic of the gap between the corporate environmental
responsibilities accepted in Western countries and that in this newly industrialised
economy.
On the other hand, there are also encouraging signs of improvement. For example,
the recent Chinese survey mentioned above (Chinese Association of Listed Companies
and Securities Daily, 2012) showed that, although only 25 per cent of ?rms in the
sample released separate CSR reports in 2012, the number of reports increased by
11.49 per cent relative to 2011. Moreover, there were six companies that released a
separate, stand-alone environmental report in addition to a CSR report (which did not
occur in a previous survey), suggesting an increased awareness of environmental
issues by the general public and stakeholders. Other developing countries have also
gradually begun to adopt CSR reporting initiatives. Brazil, for instance, has developed
a national system of “social balance sheets” (SBS) for large publicly traded ?rms. The
SBS report is voluntary for the disclosure of direct and indirect social and
environmental impacts of a company’s operations (O’Rourke, 2004). The Indonesian
Environmental Agency (BAPEDEL) decided in 1995 to create a simple pollution
disclosure system called PROPER. The idea of PROPER was to “create incentives for
compliance through honour and shame” by publicly rating the environmental
performance of factories. PROPER assigned a colour-coded rating – black, red, blue,
green, and gold (in order from worst to best) – to factories based on their compliance
with environmental standards. This program motivated managers and resulted in
signi?cant reductions in pollution, as the ratings served as an environmental audit of
the factory (Afsah and Ratunanda, 1999). Similar programs supporting public
reporting of environmental information have been or are currently being developed in
the Philippines, China, Mexico, India, Colombia, Bangladesh, Mexico, Czech Republic,
and Thailand (O’Rourke, 2004).
Quite a few studies have examined the factors associated with disclosure of social or
environmental information in developing countries. Belal and Momin (2009) found that
the CSR agenda in emerging economies is largely driven by external forces, namely,
pressures from parent companies, the international market and international agencies.
Apart from governmental in?uence, these studies also reported that disclosure
tendency and behaviour in developing countries are related to industry membership
and ?rm size (Gao et al., 2005), which is consistent with the evidence obtained in a
Western context. Newson and Deegan (2002) explored the social disclosure policies
of large Australian, Singaporean, and South Korean multinational corporations and
reported a minimal association between global expectations and social disclosure
policies; they also found that country of origin and industry of operation appeared
to signi?cantly in?uence disclosure practices. These results suggest that CSR
disclosure in developing countries could be affected by international in?uences via the
operation of multinational enterprises in developing countries. Dobers and Halme
(2009) argued that the capacities of organisations and their managers to understand
and address pressing CSR issues vary in different cultural contexts. Weak institutional
environments, such as those commonly associated with developing countries, often
harbour illicit ?nancial out?ow from poor countries to rich ones. This strips developing
nations of critical resources and contributes to failed states.
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The results of these studies seem to be largely consistent with legitimacy theory and
stakeholder theory (Belal and Owen, 2007; Islam, 2010; Islam and Deegan, 2008). In
particular, De Villiers and Van Staden (2006) conducted a content analysis of more than
140 corporate annual reports over a nine-year period to identify trends in environmental
disclosure bySouthAfricancompanies over time. Their ?ndings appearedtobe consistent
with legitimacy theory. In particular, they concluded that legitimising objectives may
also be served by changing the type (general/speci?c) or reducing the volume of
environmental disclosures when a ?rm confronts a legitimacy crisis. This ?nding is
contrary to the evidence in developed countries, namely, that the level of disclosure
increases when a ?rm faces threatened legitimacy.
Some authors have argued that the disclosure of social and environmental
information depends on a trade-off between bene?ts and costs (Cormier et al., 2005).
From the bene?t perspective, CSR reporting might be bene?cial to a developing
country because the CSR achievements of local ?rms may attract investments and
export opportunities, and also the use of CSR reporting of multinational corporations
may support local economic development efforts (O’Rourke, 2004). From the cost
perspective, ?rms (both in developed and developing nations) face costs of both
gathering and disseminating information, and potential costs from public responses to
their reporting. Costs also appear to increase as reporting gets more detailed and
comprehensive. In addition, to make the information easily understood or used by
stakeholders, third-party intermediary organisations are also required to invest
resources, time and technical capacities to translate complex raw information obtained
from social or environmental reports into simple-to-understand indicators. Thus, these
costs create signi?cant incentives for ?rms either to avoid reporting altogether, or to
produce CSR reports that are simply for public-relations purposes (O’Rourke, 2004).
In addition, there are weaknesses and problems with current systems of
social/environmental reporting, and important barriers to expanding public
disclosure systems in developing nations. For example, as these countries often do
not have a developed capital market, the market does not appear to provide suf?cient
incentives for companies to report on their social and environmental impacts. Another
dif?culty is how to measure environmental performance for organisations in general
and for companies in particular[5]. Finally, ?rms in developing countries seldom
release separate environmental reports (even if the ?rm has serious environmental
problems) but rather cover such issues in its social report or in annual reports, and thus
it is dif?cult to assess the effect of its operations on the environment.
In sum, authors (Dobers and Halme, 2009) have made an urgent call for concerted
efforts by the international community to develop structures and institutions that
contribute to environmental protection and disclosure in developing nations. Thus, our
study contributes to the ?eld by providing quanti?ed evidence of the gap in disclosure
of carbon information between developed and developing countries. To the best of our
knowledge, this is the ?rst published evidence of such a gap and thus our ?ndings
should enhance understanding of the new challenges related to climate change that
developing countries are facing.
2.2 Carbon disclosure
Carbon accounting is now regarded as a signi?cant stream of research that has attracted
a growing international community of scholars (Bebbington and Larrinaga-Gonza´lez, 2008;
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Kolk and Pinkse, 2008). Prior studies typically focused on the economic consequences of
carbon emissions (Chapple et al., 2012; Grif?n et al., 2012; Matsumura et al., 2011) or
managerial incentives to the voluntary disclosure of GHGinformation (Prado-Lorenzo et al.,
2009; Stanny, 2010; Stanny and Ely, 2008). In particular, some studies investigated
country-level factors and found that rati?cation of the Kyoto Protocol (Freedman and
Jaggi, 2005), environmental regulatory stringency, environmental responsiveness of the
private sectors, the market structure (Peters and Romi, 2009) as well as shareholder
resolutions (Reid and Toffel, 2009) are determinants of corporate GHG disclosure. In
addition, Luo et al. (2012) examined the social, economic, market and legal/institutional
in?uence in a global context and concluded that the attitudes of the general public and
government appear to be the decisive determinants, whereas the ?nancial market may not
be a driving force for carbon disclosure. Most of these carbon studies have focussed on
developed economies.
Overall, we have observed a number of limitations in the prior literature, so our
paper differs from these studies along several important dimensions. First, a majority
of studies that examined the disclosure of social and environmental information were
carried out within a sole developing country or region, for example, Bangladesh
(Azim et al., 2009; Belal, 2000, 2001, 2008; Hossain et al., 2006; Imam, 1999, 2000; Islam
and Deegan, 2008) or China (Gao et al., 2005; Gao, 2009; Liu and Anbumozhi, 2009;
Lynn, 1992). Few studies have explored the differences in the propensity of carbon
disclosure between developing countries and developed countries (Elijido-Ten et al.,
2010; Islam, 2010; Islam and Deegan, 2008). Our study ?lls the gap. Second,
Clarkson et al. (2011b) suggest ?rms without suf?cient resources cannot pursue
proactive environmental strategies. However, few researchers have attempted
to evaluate the effects of ?nancial restrictions on voluntary disclosure decisions in
an international setting. To our knowledge, this paper is the ?rst to systematically
use a resource-constraint perspective to analyse the disclosure decision of ?rms in
developing countries. Third, Luo et al. (2012) did not control for carbon
emissions/performance, which potentially could be related to disclosure, whereas we
included this variable in the empirical model. Fourth, the samples analysed in previous
environmental studies have tended to be small, or to be restricted in some polluting
industries, which could lead to inappropriate inferences. In contrast, this study
employed a large sample covering 15 countries and ten sectors, which substantially
increases its statistical power. Finally, while prior studies (Luo et al., 2012) mainly
focused on the external driving forces, the current research simultaneously considered
both external and internal conditions that impacted the disclosure propensity. In sum,
we conducted a broader investigation so as to provide additional insight beyond that
offered by the existing literature (Collier, 2008; Friedman and Miles, 2002; Jensen, 2001;
O’Dwyer, 2005; O’Sullivan and O’Dwyer, 2009; Roberts, 1992). Figure 1 shows the
framework of the factors that may, both individually and interactively, play a role in
corporate carbon-disclosure decisions.
3. Hypothesis development
Carbon disclosure: motivation versus constraint
Prior studies have submitted that ?rms would voluntarily disclose environmental/carbon
information to legitimise themselves to help ensure their continuing operation/existence
in the society, to meet the demands of various stakeholders (Collier, 2008; Friedman and
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Miles, 2002; Jensen, 2001; O’Dwyer, 2005; O’Sullivan and O’Dwyer, 2009; Roberts, 1992) or
to signal their true carbon reduction commitment to outsiders to differentiate themselves
fromothers (Clarksonet al., 2008; Clarkson et al., 2011a). Luo et al. (2012) analyseda broader
set of variables, in an international setting, that incentivise management to disclose carbon
information. Their evidence suggests that ?rms face increasing pressures from outside
stakeholders to make public disclosures.
However, the existing literature has largely overlooked the other side of the picture.
We argue that managers do not only face external pressures but also internal
restrictions when deciding whether or not to disclose information about their carbon
mitigation efforts. These restrictions can arise from a variety of cultural or institutional
factors such as industrial traditions, management philosophy, organisational structure
and existing expertise. In the absence of compulsory legal requirements, the disclosing
decision is the result of a cost and bene?t analysis. From a resource-constraint theory
perspective, even emission mitigation is a desirable action, and there is still a question
of whether there are suf?cient funds to implement and disclose it[6] (Bansal, 2005). In
our study, we focus on ?nancial resources, which play a number of roles in shaping
corporate strategy and allowing optimum behaviours to arise and persist (Brammer
and Pavelin, 2006).
A ?rm’s carbon reporting is just a part of its overall carbon-mitigation activities,
which involve a substantial investment and a long-term commitment. Carbon
reporting often requires the creation of an emissions inventory and the establishment
of a carbon management system. These activities are not budget neutral and inevitably
require the input of resources[7]. Also note that once a ?rm initiates public carbon
disclosure, the expectation is that the ?rm will continue to do so (Graham et al., 2005;
Stanny and Ely, 2008). The cessation of disclosure may be viewed by the market as a
signal of the ?rm’s unawareness of climate change issues or inability to manage carbon
risks, which may ultimately establish a negative reputation with its stakeholders
(Verrecchia, 2001). Therefore, the lack ?nancial resources does not permit ?rms to
adapt successfully to internal and external pressures for change (Bourgeois, 1981)
Figure 1.
The framework of factors
that affect corporate
carbon disclosure
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and to implement innovative decision-making (Bansal, 2005; Hart, 1995). Ullmann
(1985) posited that a ?rm’s ?nancial position determines the relative weight of a social
demand and the attention it receives from top decision makers and the capability to
undertake costly programs related to stakeholder demands. Husted (2005, p. 363)
concluded that “economic development is the main driver of social and institutional
capacity for environmental sustainability”.
We apply the resource-constraint theory and argue that ?rms in developing
countries are less likely to voluntarily disclose carbon information in the absence of
legally binding international targets[8]. First, there is general consensus that funding
shortages are endemic in many developing countries, and advanced industrialised
societies could provide more resources, economic security and technology for social
and environmental initiatives (Baughn and McIntosh, 2007; Welford, 2005). As a result,
there are various international agreements through which developed nations provide
funding for developing countries for carbon mitigation programs. For example, under
the Copenhagen Accord (December 2009 Copenhagen Climate Change Summit),
developed countries committed to delivering “prompt start” funding (US$30 billion) to
assist developing countries in deploying clean energy technologies, reducing
forest-related emissions and adapting to the impacts of global warming[9]. The UN
Durban Climate Change Conference in 2011 con?rmed this commitment to create a
green climate fund to help developing nations to confront climate change, including
expanding clean energy, avoiding deforestation and adapting to shifting conditions in
sea levels, ?ood patterns and drought. In addition, it called for the establishment of a
Technology Center and Network to help developing countries access and embrace the
latest in low-carbon technologies[10]. Second, prior studies conducted in a developing
nation setting have provided empirical evidence that funding shortages negatively
affect environmental/carbon disclosure, as ?rms may have inadequate systems to
record, measure and report their GHG emissions. For example, Liu and Anbumozhi
(2009) found that companies located in the Northeast, Middle and Western provinces of
China, where economic development is relatively lower, are less likely to disclose
emissions-related data. Third, the effects of funding shortages are exacerbated by
excessive investments to achieve ?nancial goals, as ?rms’ management in developing
countries may give priority to economic growth over carbon-pollution prevention
(Waldman et al., 2006) and awareness of corporate social responsibility. In addition,
environmental protection in developing countries appears to emerge rather slowly
(Baughn and McIntosh, 2007; Ramasamy and Ting, 2004). Therefore, we propose that
?nancial resources are among the most important and prevalent constraints on
voluntary carbon disclosures, particularly for ?rms in the less-developed world:
H1. All else being equal, ?rms in developing countries are less likely to
voluntarily disclose carbon information because of their lack of ?nancial
resources.
The study uses pro?tability, leverage and growth opportunities as proxies for the
availability of ?nancial resources. It can be argued that pro?table ?rms are more likely
to be able to afford the expenditures needed to conduct and report carbon actions.
Moreover, higher-leverage ?rms have heavier debt burdens, and thus fewer assets
available for proactive carbon-reporting system. Because carbon disclosure is optional
(particularly in the form of a CDP report), it is likely that resource restrictions prevail
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over stakeholder needs. Thus, we expect that ?rms with higher leverage would decline
disclosure requests. In ?rms with high growth opportunities, economic objectives
would be given higher priority than environmental considerations (Prado-Lorenzo et al.,
2009; Ullmann, 1985). Therefore, these ?rms would prioritise their actions to achieve
?nancial goals, with the result that fewer resources would be available for
carbon-reduction activities and disclosure. We expect that the resource restriction
would be more pronounced for ?rms in developing nations.
4. Research design
4.1 Empirical model
Our research setting encompassed 15 countries with widely different socio-political
and legal environments. Such a setting allowed us to assess how institutional
dynamics affect ?rms’ incentives and behaviour regarding carbon reporting. A logistic
model was used to examine the factors that determine public disclosure of carbon
information:
PrðDISCLOSURE ¼1Þ ¼b
0
þb
1
DevelopingCountry þb
2
ROAþb
3
LEVERAGE
þb
4
GROWTH þb
5
CarbonEmissionþb
6
SIZE
þb
7
LegalSystem þb
8
ETS þb
9
NEW þ
X
SectorDummy
The variables in the regression models are de?ned as follows.
Dependent variable.
Carbon disclosure (DISCLOSURE). DISCLOSURE is an indicator variable that is
equal to 1 if the ?rm disclosed carbon information to the public in the form of a 2009
CDP company report and 0 otherwise[11].
Our decision to use participation in the CDP (referred to as the “response status”) as a
proxy for carbon-disclosure propensity was based on the following reasons. First, CDP
response status has been widely used in many recent carbon studies (Kolk and Pinkse,
2008; Stanny and Ely, 2008). Second, the quality and quantity of CDP reporting have
increased signi?cantly in the last ten years (CDP Global 500 Report, 2010) and the vast
majority of prominent companies (e.g. Financial Times 500 (FT500) companies) are now
using the CDP as a mechanism for carbon communication (Kolk et al., 2008; Pinkse and
Kolk, 2009). Thus, participation in the CDP represents a commitment to communicate
the ?rm’s internal carbon performance to outside stakeholders. Third, the CDPdesigns a
universal questionnaire for all participants, which largely overcomes the obstacle of its
voluntary disclosure nature and allows all responses to be compared across companies
(Luo et al., 2012). This uniform data structure ensures that our research is based on
relatively consistent and reliable GHG information.
Independent variables.
Developing country (DevelopingCountry). DevelopingCountry is an indicator
variable that equals 1 if a company is operated in a developing country and 0
otherwise (Wikipedia, 2012).
Financial resource proxies.
Pro?tability (ROA). We argue that pro?table ?rms are less constrained by ?nancial
resources in making green decisions, whereas unpro?table or less pro?table ?rms
would have to struggle to achieve their ?nancial objectives and to enhance their
economic performance. As a result, these ?rms would have fewer resources that could
Propensity
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be used for the prevention of carbon pollution and for reporting that pollution
(Prado-Lorenzo et al., 2009). Therefore, we used return on assets (ROA) as the proxy,
which is expected to have a positive coef?cient (Bewley and Li, 2000; Cormier and
Magnan, 1999; Li and McConomy, 1999; Luo et al., 2012).
The level of leverage (LEVERAGE). We expect that the level of leverage is
negatively associated with disclosure, because a heavier liability for debt and interest
repayment would restrict a ?rm’s ability to undertake strategies for carbon reduction
and disclosure and high-leverage ?rms would be more sensitive to carbon-prevention
expenditures. Moreover, previous studies have suggested that ?rms with high leverage
may not be able to absorb the adverse ?nancial impact of disclosing proprietary
carbon information[12], because of the high ?nancial risk inherent in such
disclosures (Clarkson et al., 2008). The variable LEVERAGE was calculated as the
ratio of total debt divided by total assets (Clarkson et al., 2011c; Cormier and Magnan,
2007).
Growth opportunities (GROWTH). Firms with higher growth opportunities are
likely to be in an expansionary period, and therefore require more funding to ?nance
this expansion. Hence, these companies have fewer resources for carbon-reduction
activities and disclosure (Dhaliwal et al., 2011). We used a three-year revenue growth
rate as a proxy for growth opportunities; the rate was calculated as the current year’s
revenues divided by the revenues four years prior, minus one. We predicted that there
would be an inverse association between growth and disclosure propensity.
Control variables. To test our hypothesis, we controlled for motivation factors
because of the vast amount of evidence in the literature indicating that outside
stakeholders exercise pressure that incentivises ?rms to take mitigation actions and
report the results (Luo et al., 2012). Thus, we used a vector of variables as a proxy for
disclosure incentives.
Firm size (SIZE). Larger ?rms are under higher pressure from the public and their
stakeholders have a higher expectation about ?rms’ carbon management practices.
Therefore, large ?rms are more responsive to disclosure demands; a positive
relationship between ?rm size and disclosure was reported in previous study
(Freedman and Jaggi, 2005). We used the natural logarithm of total assets as a proxy
for ?rm size (Al-Tuwaijri et al., 2004; Brammer and Pavelin, 2006, 2008; Clarkson et al.,
2008; Cormier et al., 2005).
Carbon performance (CarbonEmission). It can be argued that ?rms with better
carbon performance (i.e. with low emissions) tend to disclose good news, as suggested
by signal theory. However, legitimacy theory posits that poor environmental/carbon
performers are more likely to disclose their carbon information, in an attempt to
legitimise their operations. Emissions also increase with carbon-risk exposure, which
refers to climate-change liabilities related to compliance and mitigation costs (such as
carbon price or tax) imposed by current or proposed legislation (Al-Tuwaijri et al.,
2004). As heavy emitters are likely to be the target of climate regulations (Patten,
2002a) and are subject to intense scrutiny from environmental pressure groups
(Brammer and Pavelin, 2006), they tend to disclose carbon information, both to ful?l
the information demands of stakeholders and to reduce potential compliance costs
(Clarkson et al., 2008, 2011a; Patten, 2002b).
Because carbon performance decreases with the amount of GHG emitted, we used
the natural logarithmof the total Scopes 1 and2 emissions[13] as a proxy. Carbonemissions
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data are available only for CDP-participating ?rms, so we followed the approach of
Grif?n et al. (2012) to estimate carbon emissions for non-disclosing ?rms. The model is:
CarbonEmission ¼ a
0
þa
1
lnðREVENUEÞ þa
2
lnðCapitalSpendingÞ
þa
3
LongtermDebt þa
4
MARGIN þ
X
SectorDummy
where CarbonEmission – the natural logarithmof the total Scopes 1 and 2 GHGemissions
in metric tons, ln(REVENUE) – the natural logarithm of the total revenue,
ln(CapitalSpending) – the natural logarithm of capital expenditures, LongtermDebt –
long-term debt to total assets and MARGIN – net income before extraordinary items and
preferred dividends divided by net sales; SectorDummy – 1 for each of the nine two-digit
GICS sectors and otherwise – 0.
Legal system (LegalSystem). Disclosures are signi?cantly in?uenced by a country’s
legal system (Ball et al., 2000; Freedman and Jaggi, 2005). In particular, La Porta et al.
(1998) showed that common-law countries generally have the strongest legal protection
of small investors and ?rms in these countries have a long tradition of transparent
?nancial-reporting systems. We adopted this argument and predicted that companies
in common-law countries would tend to disclose carbon information; we used a
variable, LegalSystem, to indicate whether or not a ?rm is a common-law country.
Emission trading scheme (ETS). ETS is a mechanism used by governments to
in?uence individuals as well as businesses to reduce emissions. By imposing ?nancial
costs (i.e. a carbon price), the scheme creates incentives for companies to invest in
lower-emitting technologies and report the impact of climate change (Blyth and House,
2007). Because the carbon costs have a direct ?nancial effect on ?rms’ operations and
cash ?ow, investors require this information to explicitly evaluate the value of the ?rm.
Therefore, our expectation was that ?rms from countries establishing an ETS would
be more likely to disclose emission information. ETS is an indicator variable that
equals 1 if the ?rm in a country with ETS, and 0 otherwise[14]; and the coef?cient of
the variable is expected to be positive.
Asset newness (NEW). The variable NEW, a proxy for the newness of assets, was
calculated as net properties, plants and equipment (PPE) divided by total PPE at the
end of ?scal year 2008. Firms with newer assets are likely to have adopted more
environmentally friendly technologies so that they might have superior environmental
performance and will have more incentives to disseminate the “good news”
(Clarkson et al., 2008, 2011a; Stanny and Ely, 2008). Thus, we expect that the coef?cient
of NEW is positive.
Financial data were collected from Datastream and winsorised at the 0.01 level (with
the exception of indicator variables) to reduce the impact of extreme observations. The
results reported later were based on winsorised ?nancial data.
4.2 Sample selection
We selected companies that were included in the 2009 CDP country reports (English
version), which are available on the CDP web site. We chose only 2009 CDP reports
because this was the most recent report when we started the project and these ?rms had
relatively well-developed responses to the questionnaire[15]. The initial sample consisted
of 2,737 companies from 15 countries[16]. We deleted 26 observations that had duplicate
reports or were from companies that had been delisted from the stock exchange[17].
Propensity
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In addition, 666 companies without complete ?nancial data in the DataStream
were eliminated. The ?nal sample includes 2,045 ?rms that meet all of these selection
criteria (Table I).
5. Empirical results
5.1 Carbon disclosure by country and sector
Panel A of Table II shows carbon disclosure by country. The USA, Japan and the
UK had the most observations, accounting for 20.49, 19.90 and 11.78 per cent of
the sample, respectively. Canada (53.52 per cent), the USA (52.74 per cent) and the UK
(52.7 per cent) had the highest percentage of disclosure ?rms, followed by The
Netherlands (52.38 per cent); China and Russia had the lowest percentages (8.97 and
12.20 per cent, respectively). Overall, only 41.12 per cent of ?rms had publicly disclosed
carbon related data in the CDP, which is not satisfactory, given that these ?rms
represent the largest companies in each country. In untabulated results, we found
that 20 per cent of ?rms in developing countries made public disclosures of their green
activities, compared to 45.1 per cent in developed countries. Using both a two-tailed
t-test and the Wilcoxon rank-sum test, the difference between the two groups is
statistically signi?cant at the 0.01 level. This initial result is consistent with our
hypothesis. Panel B of Table II shows carbon disclosure by GICS sector. Companies
from the utilities sector (which is carbon-intensive) exhibited the highest
tendency (62 per cent) to disclose, followed by ?rms in telecommunication services
(54.90 per cent) and information technology (46.73 per cent).
5.2 Descriptive statistics and correlation coef?cients
Table III reports the descriptive statistics of dependent and independent variables.
We found that 16 per cent of our sample ?rms are from developing countries; the mean
ROA is approximately 5.6 per cent and the mean LEVERAGE is 24.9 per cent of
total assets. The average growth opportunity (GROWTH) of the sample ?rms is
148.3 per cent (i.e. three-year sales growth). The meanvalue of CarbonEmissionis 12.277,
which is equivalent to an average total annual GHG emission (Scopes 1 and 2) of
214,700.6 tonnes in our sample. In addition, 57.7 per cent of ?rms in the sample are
in common-lawcountries; 31.3 per cent of companies have participated in an established
ETS. The average natural logarithm of total assets is 8.344, implying average total
assets in dollar terms of $4.204 billion. This suggests that our sample consists of
relatively larger ?rms. The mean (and median) asset newness, measured as the ratio of
net PPE to gross PPE, is comparable with that reported by Clarkson et al. (2008).
Initial sample Observations
Firms retrieved from CDP country reports (15 countries) 2,737
Less
Firms with duplicate CDP reports 21
Companies with “SA” or “delisted in 2009” response status 5
Missing ?nancial data 666
Final sample 2,045
Note: CDP – carbon disclosure project
Table I.
Sample selection process
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Table IV reports both parametric and non-parametric correlation coef?cients for
all variables. Consistent with our expectation, both the Pearson and Spearman correlation
coef?cients for DISCLOSURE and DevelopingCountry are negative and signi?cant,
which indicates that ?rms in developing countries have a lower propensity to voluntarily
disclose carbon information. Meanwhile, consistent with the resource-constraint theory,
both parametric and non-parametric correlation coef?cients for DISCLOSURE and
LEVERAGE(GROWTH) are signi?cantlynegative. Inaddition, the correlationcoef?cient
for DISCLOSURE and CarbonEmission is positive and signi?cant at the p , 0.01 level.
Overall, cross-correlations between variables do not suggest multicollinearity problems.
5.3 Multivariate regression
The results of the four logit models are presented in Table V. We ?rst used Model (1)
to examine whether there is a signi?cant difference in terms of carbon disclosure
Panel A: carbon disclosure by country
Carbon disclosure
Total DISCLOSURE ¼ 0 DISCLOSURE ¼ 1
Country n Percentage n Percentage n Percentage
Australia 68 62.39 41 37.61 109 5.33
Canada 66 46.48 76 53.52 142 6.94
China 71 91.03 7 8.97 78 3.81
Germany 76 49.03 79 50.97 155 7.58
India 120 83.92 23 16.08 143 6.99
Ireland 18 78.26 5 21.74 23 1.12
Japan 248 60.93 159 39.07 407 19.90
South Korea 65 84.42 12 15.58 77 3.77
The Netherlands 20 47.62 22 52.38 42 2.05
New Zealand 27 72.97 10 27.03 37 1.81
Russia 36 87.80 5 12.20 41 2.00
South Africa 35 53.03 31 46.97 66 3.23
Switzerland 42 64.62 23 35.38 65 3.18
USA 198 47.26 221 52.74 419 20.49
UK 114 47.30 127 52.70 241 11.78
Total 1,204 58.88 841 41.12 2,045 100.00
Panel B: carbon disclosure by GICS sector
Carbon disclosure
No Yes Total
GICS code GICS sector n Percentage n Percentage n Percentage
10 Energy 91 60.67 59 39.33 150 7.33
15 Materials 149 53.41 130 46.59 279 13.64
20 Industrials 265 60.09 176 39.91 441 21.56
25 Consumer
discretionary
246 70.09 105 29.91 351 17.16
30 Consumer staples 101 55.19 82 44.81 183 8.95
35 Health care 89 60.14 59 39.86 148 7.24
40 Financials 96 67.13 47 32.87 143 6.99
45 Information
technology
106 53.27 93 46.73 199 9.73
50 Telecommunication
services
23 45.10 28 54.90 51 2.49
55 Utilities 38 38.00 62 62.00 100 4.89
Total 1,204 58.88 841 41.12 2,045 100.00
Notes: DISCLOSURE ¼ 1 if a ?rm answered the CDP 2009 questionnaire and allowed the responses to be publicly
available, otherwise, DISCLOSURE ¼ 0; n – the number of observations; GICS – Global Industry Classi?cation
Standard
Table II.
Carbon disclosure by
country and sector
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decisions between developed and developing countries. Then, Models (2)-(4) were
estimated to determine whether the difference in disclosure tendency is associated with
resource constraint proxies. We found that there is a signi?cantly negative relationship
between DevelopingCountry and DISCLOSURE (Model 1), supporting our hypothesis
that ?rms in developing countries are less likely to disclose. The result is robust when
we control for motivation proxies, such as ?rm size, ETS and legal system.
In addition, ?rms with higher leverage are less likely to disclose (the coef?cient of
LEVERAGE ¼ 20.650, p-value , 0.10), enhancing the validity of the ?ndings of
Cormier et al. (2005) and Cormier and Magnan (2003), who showed that ?rms with poor
?nancial conditions are less likely to disclose and bear the consequences of revealing
proprietary carbon information. The evidence is consistent with the notion that
internal restrictions hinder green actions and disclosure. Also, we found a signi?cant
inverse relationship between GROWTH and DISCLOSURE (b ¼ 20.088, p , 0.01),
suggesting that ?rms with more growth opportunities are less likely to disclose carbon
information. However, the coef?cient of ROA is positive, as predicted, but not
signi?cant (b ¼ 1.056, p . 0.10).
Further, to investigate whether the signi?cantly low percentage of disclosure ?rms
in developing countries are constrained by their ?nancial resources, we include the
interaction variable DevelopingCountry and the resource proxy variables
ROA, LEVERAGE and GROWTH (Models (2)-(4)). In Models (3) and (4), the
coef?cients for DevelopingCountry
*
LEVERAGE (b ¼ 22.396, p , 0.05) and
Variable n Mean SD P25 Median P75
DISCLOSURE 2,045 0.411 0.492 0 0 1
DevelopingCountry 2,045 0.16 0.367 0 0 0
ROA 2,045 0.056 0.09 0.022 0.052 0.094
LEVERAGE 2,045 0.249 0.181 0.097 0.242 0.367
GROWTH 2,045 1.483 3.684 0.229 0.551 1.255
CarbonEmission 2,045 12.277 2.369 10.691 12.206 13.884
SIZE 2,045 8.344 1.468 7.346 8.279 9.336
LegalSystem 2,045 0.577 0.494 0 1 1
ETS 2,045 0.313 0.464 0 0 1
NEW 2,045 0.564 0.18 0.424 0.549 0.684
Notes: n – number of observations; P25 and P75 ¼ 25th and 75th percentiles of the variables,
respectively; ?nancial variable here are winsorised at the 0.01 level and in millions of US dollar;
DISCLOSURE is a dependent variable that equals 1 if the ?rm answered the questionnaire and
made the response publicly available and 0 otherwise; DevelopingCountry is a dummy variable that
equals 1 if a country is a developing country and 0 otherwise; ROA represents net income before
extraordinary items/preferred dividends divided by the total assets at the end of ?scal year 2008;
LEVERAGE is calculated as the total debt (measured as short-term debt, the current portion of long-
term debt and long-term debt) divided by the total assets at the end of ?scal year 2008; GROWTH is
measured as the current year’s revenues divided by revenues four years ago and then minus one;
CarbonEmission is measured as the natural logarithm of total Scopes 1 and 2 GHG emissions; SIZE is
the natural logarithm of total assets at the end of ?scal year 2008; LegalSystem is an indicator variable
that equals 1 if the ?rm is within a common-law country and 0 otherwise; ETS is an indicator variable
that equals 1 if the ?rm is within a country that has an established emission trading scheme and
0 otherwise; NEW is measured as net PPE divided by total PPE at the end of ?scal year 2008
Source: La Porta et al. (1998)
Table III.
Descriptive statistics
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Table IV.
Correlation coef?cients
( p-values)
Propensity
for carbon
disclosure
21
D
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0
1
6
(
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T
)
(1)
(2) (3)
(4)
Independent variables Dependent variable: DISCLOSURE
DevelopingCountry (2) 20.702
* * *
21.016
* * *
20.171 20.172
(0.179) (0.249) (0.274) (0.251)
DevelopingCountry
*
ROA (þ) 3.452
*
(1.799)
DevelopingCountry
*
LEVERAGE (2)
22.396
* *
(0.985)
DevelopingCountry
*
GROWTH
(2)
20.326
* * *
(0.121)
ROA (þ) 1.056 0.625 0.909 1.155
*
(0.660) (0.694) (0.660) (0.661)
LEVERAGE (2) 20.650
*
20.616
*
20.390 20.565
*
(0.334) (0.335) (0.350) (0.336)
GROWTH (2) 20.088
* * *
20.087
* * *
20.083
* * *
20.056
* *
(0.028) (0.028) (0.028) (0.027)
CarbonEmission (^) 0.097
*
0.093
*
0.096
*
0.096
*
(0.052) (0.052) (0.052) (0.052)
SIZE (þ) 0.594
* * *
0.599
* * *
0.592
* * *
0.606
* * *
(0.069) (0.070) (0.069) (0.070)
LegalSystem (þ) 0.890
* * *
0.877
* * *
0.867
* * *
0.869
* * *
(0.113) (0.113) (0.113) (0.114)
ETS (þ) 0.616
* * *
0.613
* * *
0.610
* * *
0.620
* * *
(0.124) (0.124) (0.124) (0.124)
NEW (þ) 21.259
* * *
21.248
* * *
21.237
* * *
21.257
* * *
(0.352) (0.353) (0.352) (0.352)
Constant 26.705
* * *
26.672
* * *
26.722
* * *
26.859
* * *
(0.571) (0.572) (0.572) (0.575)
Sector effect Control Control Control Control
Observations 2,045 2,045 2,045 2,045
Likelihood 21,117 21,116 21,114 21,112
Pseudo R
2
0.193 0.195 0.196 0.197
Notes: Signi?cant at:
*
0.1,
* *
0.05 and
* * *
0.01 levels, respectively (two-tailed); SE are in parentheses;
?nancial variables are in millions of US dollar and winsorised at the 0.01 level; the expected signs for
the independent variables are presented in brackets in the ?rst column; DISCLOSURE is a dependent
variable that equals 1 if the ?rm answered the questionnaire and made the response publicly available,
and 0 otherwise; DevelopingCountry is a dummy variable that equals 1 if a country is a developing
country and 0 otherwise; ROA is net income before extraordinary items/preferred dividends divided
by the total assets at the end of ?scal year 2008; LEVERAGE is calculated as the total debt (measured
as short-term debt, the current portion of long-term debt and long-term debt) divided by the total
assets at the end of ?scal year 2008; GROWTH is measured as current year’s revenues divided by
revenues four years ago and then minus one; CarbonEmission is measured as the natural logarithm of
total Scopes 1 and 2 GHG emissions; SIZE is the natural logarithm of total assets at the end of ?scal
year 2008; LegalSystem is an indicator variable that equals 1 if a ?rm is located within a common law
country and 0 otherwise; ETS is an indicator variable that equals 1 if the ?rm is within a country that
has an established emission trading scheme and 0 otherwise; NEW is measured as net PPE divided by
total PPE at the end of ?scal year 2008
Source: La Porta et al. (1998)
Table V.
Regression results
ARJ
26,1
22
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N
D
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1
:
1
6
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
DevelopingCountry
*
GROWTH (b ¼ 20.326, p , 0.01) are signi?cantly negative,
whereas in Model (2), the coef?cient for DevelopingCountry
*
ROA is positive
(b ¼ 3.452), although less signi?cant ( p , 0.10). The asymmetrical signi?cance
between ROA and LEVERAGE (GROWTH) indicates that ?nancial resources are more
likelyto be a constraining factor thana driving factor. These results suggest that ?nancial
resources plays a more important role in disclosure decisions for ?rms in developing
countries and thus these ?rms are more likely to be constrained by scarce green funding.
In other words, non-disclosing ?rms are more likely to reside in a developing country
and these ?rms have higher debt, more growth opportunities and are less pro?table.
Again, our inferences hold when we simultaneously consider and include incentive and
restrictive factors in the empirical models.
As for control variables, CarbonEmission is positively correlated with DISCLOSURE
( p , 0.1), suggesting that heavy emitters are under pressure to be more transparent.
The estimated coef?cients for SIZE in all models are signi?cantly positive, suggesting
that large ?rms tend to disclose due to higher expectations and demands from their
stakeholders. In addition, LegalSystem and ETS are signi?cantly and positively
associated with a ?rm’s propensity to disclose, consistent with Luo et al. (2012).
However, the coef?cient of the variable NEW(asset newness) is unexpectedly negative,
although this is consistent with Clarkson et al. (2008) and Stanny and Ely (2008).
Taken together, the ?ndings enhance our understanding of carbon-disclosure
behaviour and the results are generally consistent with our hypothesis that ?rms in
developing countries are less likely to disclose carbon information; this propensity is
signi?cantly associated with ?nancial resource-constraint proxies.
5.4 Sensitivity tests
Alternative proxy for dependent variable. In our original sample, we de?ned a company
that answered the CDP questionnaire and made their response publicly available as a
disclosing company. However, some studies have de?ned companies that answer the
questionnaire as disclosing companies, even when their responses are not released to
the public (Peters and Romi, 2009; Stanny, 2010; Stanny and Ely, 2008). Hence, we also
adopted this de?nition and re-conducted our evaluation, and found that the regression
results were qualitatively the same as those shown in Table V, with the coef?cient for
ROA signi?cant at the 0.05 level.
Deleting ?nancial ?rms. Because ?nancial ?rms are different than other types of
businesses due to their special accounting and regulatory requirements, the inclusion of
these ?rms might signi?cantly affect the regression results. Therefore, we deleted
?nancial ?rms from our data (Cormier and Magnan, 2007; Cormier et al., 2005). The
regression results were qualitatively the same as those in Table V, except that the ROA
in Model (1) became signi?cant at the 0.05 level, whereas LEVERAGE was not
signi?cant.
Adding an extra control variable – ?nancial activities. Prior research predicts that
?rms reliant on external ?nancing are more likely to undertake a higher level of
disclosure (Clarkson et al., 2008; Francis and Khurana, 2005; Frankel et al., 1995; Lang
and Lundholm, 1993). Thus, we also controlled for the impact of ?nancial activities.
The proxy variable for ?nancial activities was calculated as net sales (minus purchase)
of common stock and preferred shares and scaled by the size of total assets at the end
of the ?scal year 2008. The regression result (not tabulated) shows that the coef?cient
Propensity
for carbon
disclosure
23
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
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T
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A
t
2
1
:
1
6
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
for ?nancial activities is not statistically signi?cant and the coef?cient and the level of
signi?cance for the other variables are essentially the same as shown in Table V.
6. The impact of institutional investors on CDP disclosure
Luo et al. (2012) showed that the shareholders of some large ?rms play a less
important role in carbon-disclosure decisions than other stakeholders, such as the
government. However, the CDP is sponsored by large institutional investors, namely
CDP signatories that have explicitly demonstrated their interest in carbon information.
Stakeholder theory posits that a ?rm’s carbon disclosure is a response to stakeholder
demands andthat managers will give prioritytomore salient stakeholders (Mitchell et al.,
1997)[18]. It follows that if the CDP signatories are shareholders in a ?rm, they would be
considered the most direct and in?uential stakeholders by management. Thus,
we hypothesise that ?rms with more shares owned by CDP signatories would be more
likely to disclose information about their carbon activities because, all else being equal,
these investors have a powerful in?uence on ?rm disclosure decisions.
Because signatories’ ownership data are available only in the Canadian CDP report,
we use Canadian ?rms to test this prediction (CDP Canada 200 Report, 2009, pp. 67-74).
We constructed two variables: INSTITUTION1, which was measured as the
percentage of the market value of the ?rm shares owned by 45 Canadian signatories in
2009, and INSTITUTION2, which is the percentage of the market value of shares
owned by all 475 signatories in 2009.
The results are summarised in Table VI. On average, in non-disclosing ?rms
(DISCLOSURE ¼ 0), 8.3 per cent (17.3 per cent) of the market value of shares is owned by
45Canadiansignatories (all 475signatories), whereas 10.5 per cent (20.4per cent) is owned
by 45 Canadian signatories (all 475 signatories) for disclosing ?rms (DISCLOSURE ¼ 1).
Using t-tests, the results are signi?cant and suggest that Canadian ?rms are
in?uenced not only by Canadian signatories but also by non-Canadian signatories.
Overall, this ?nding complements the results of Luo et al. (2012) andenhances the validity
of Kolket al.’s (2008) interpretationthat the CDPhas successfullyusedthe strategic power
of these investors to mobilise the world’s largest ?rms to disclose carbon information.
Disclosure status Variables n Mean Median SD P25 P75
DISCLOSURE ¼ 0 INSTITUTION1 93 0.083 0.072 0.076 0.029 0.113
INSTITUTION2 93 0.173 0.173 0.091 0.129 0.24
DISCLOSURE ¼ 1 INSTITUTION1 89 0.105
* *
0.093
* * *
0.066 0.065 0.139
INSTITUTION2 89 0.204
* *
0.198
* *
0.079 0.148 0.267
Total INSTITUTION1 182 0.094 0.085 0.072 0.039 0.123
INSTITUTION2 182 0.188 0.182 0.087 0.134 0.257
Notes: Signi?cant at:
*
0.10,
* *
0.05 and
* * *
0.01 levels, respectively (two-tailed); t-test (Wilcoxon
rank-sum test) is used to test mean (median) difference between non-disclosing ?rms
(DISCLOSURE ¼ 0) and disclosing ?rms (DISCLOSURE ¼ 1); DISCLOSURE ¼ 1 if a ?rm
answered the CDP 2009 questionnaire and allowed the response to be publicly available and
otherwise, DISCLOSURE ¼ 0; P25 and P75 ¼ 25th and 75th percentile of the variables, respectively;
n is the number of observations; INSTITUTION1 is the percentage of market capitalisation owned by
45 Canadian signatories to the CDP 2009 and INSTITUTION2 is the percentage of market
capitalisation owned by all 475 signatories to the CDP 2009
Table VI.
Descriptive statistics of
institutional in?uence
on voluntary carbon
disclosure
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7. Conclusion
This study has determined that ?rms in developing nations are relatively inactive
compared to developed countries in terms of their propensity to disclose information
about their carbon-mitigation activities. Our explanation for the systematic difference
betweendevelopinganddevelopednations is underpinnedbyresource-constraint theory.
This approach is intuitively appealing because it posits the in?uence of economic factors
in the context of social and environmental disclosure. In addition, our ?ndings suggest
that although resource restriction negatively affects disclosure, strategic stakeholders
exercise considerable in?uence that increases the disclosure propensity.
Our study has some limitations. First, our sample ?rms tend to be large, so caution
should be exercised when generalising the results to small- or medium-sized ?rms.
Second, we have considered only very large developing countries, such as China, India
and Russia, but not small countries that have no or very small capital markets. Third,
although our study suggests that ?nancial resources play an important role, we do not
argue that shortage of funds is the only reason for the lack of transparency.
There are a number of practical implications of the project. First, at the ?rm level,
the literature (Porter and van der Linde, 1995) provides evidence that good regulation
can stimulate innovation, which suggests that carbon regulation would be an
important impetus in the transition to a carbon-constrained economy. Our evidence
shows that institutional factors such as the legal system and ETS play a pivotal role in
motivating ?rms to invest in carbon-ef?cient products and renewable energy and to
ensure the availability of minimum essential carbon information to stakeholders. It
appears that both regulatory control and ?nancial incentives are needed to encourage
genuine carbon-mitigation activities and improve openness by corporations. Second, at
the national/international level, as emerging economies play an increasingly important
role, it will be necessary for developed nations to help ?rms in developing countries
catch up with their global peers in carbon reduction and disclosure.
Notes
1. Direct physical impacts of climate change on a company’s assets and processes include
damage to production facilities or the availability of raw materials due to storms, ?oods,
droughts, sea-level rise and extreme weather, as well as an increased risk to human health
(e.g. the potential spreading of tropical diseases) (Busch and Hoffmann, 2007). The visibility
of these direct effects has increased steadily, e.g. the global economic losses due to natural
catastrophes have increased seven-fold in the last 40 years (Munich Re, 2005).
2. Mandatory reporting rules include the USA Environmental Protection Agency’s Mandatory
Reporting Rules and the Australian National Greenhouse and Energy Reporting rules (CDP
Draft Framework, 2010).
3. The CDP is a London-based non-governmental organization. It is committed to helping
companies throughout the world to measure, manage, disclose and ultimately reduce GHG
emissions. Annually, the CDP sends its questionnaire to the largest companies (based on
their capitalisation of the national market) on behalf of 534 institutional investors with
US$64 trillion in assets (CDP Global 500 Report, 2010). After ten years of development, the
CDP holds the largest database of primary corporate climate-change information in the
world including identi?ed carbon risks and opportunities, the amount of GHG emissions,
carbon accounting, performance, governance and public communication.
4. CSR reports in the survey included CSR, sustainability, environmental and corporate citizen
reports with the exception of CSR information contained in annual reports.
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5. These include problems with measuring CSR performance (indicators of environmental
performance include compliance with environmental laws, rates of non-compliance, ?nes,
legal proceedings, etc.); emissions of toxic chemicals to air, water, and land; emissions of
greenhouse gases; the ?ow of materials including energy, raw materials, water, land, etc.;
product life-cycle assessment; environmental management systems (e.g. ISO 14000);
disclosure of environmental risks to local community members; timeliness and usefulness of
CSR information; incentives to disclose; and costs incurred by information producers and
users, etc. (O’Rourke, 2004).
6. Resources are input factors controlled and used by ?rms to develop and implement their
strategies (Wiley, 1997, pp. 700-701). Grant (1991) classi?ed resources as tangible, intangible
and personnel-based. Tangible resources include ?nancial reserves and physical resources
and intangible resources refer to reputation, technology and human resources;
personnel-based resources include organization culture, skills and the expertise of
employees and their commitment and loyalty.
7. In our review of the reports in our sample, we found anecdotal evidence regarding estimated
disclosing costs that may corroborate the resource-constraint view. For example, Leighton
Holdings Ltd claimed that the estimated annual cost of a new information system and
disclosure compliance is $1 million, which is equivalent to the salaries of at least six full-time
staff (Leighton Holdings CDP Report, 2010). Similarly, Lend Lease Corporation Ltd noted
that ?nancial costs, including the recruitment of resources to collect, manage and report on
energy and emissions data, are equivalent to approximately ?ve full-time employee salaries
at AUD$150K per employee, or $750K (Lend Lease CDP Report, 2010).
8. To provide impetus to cut GHG emissions and stabilise climate change, the Kyoto Protocol
places binding emission reduction targets on developed countries, but not on developing
countries.
9. See UNFCCC, Copenhagen Accord 2009: “3 [. . .] We agree that developed countries shall
provide adequate, predictable and sustainable ?nancial resources, technology and
capacity-building to support the implementation of adaptation action in developing
countries.” “8 [. . .] The collective commitment by developed countries is to provide new and
additional resources, including forestry and investments through international institutions,
approaching USD 30 billion for the period 2010-2012 with balanced allocation between
adaptation and mitigation [. . .]. In the context of meaningful mitigation actions and
transparency on implementation, developed countries commit to a goal of mobilizing jointly
USD 100 billion dollars a year by 2020 to address the needs of developing countries” (http://
unfccc.int/resource/docs/2009/cop15/eng/11a01.pdf).
10. See United Nations Framework Convention on Climate Change (UNFCCC, 15 March 2012):
Report of the Conference of the Parties on its 17th session, held in Durban from 28 November
to 11 December 2011 (http://unfccc.int/resource/docs/2011/cop17/eng/09a01.pdf). The
conference recognises “that developing country Parties are already contributing and will
continue to contribute to a global mitigation effort in accordance with the principles and
provisions of the Convention, and could enhance their mitigation actions, depending on
provision of ?nance, technology and capacity-building support by developed country
Parties”. The conference also reaf?rms that “in accordance with Article 4, paragraph 3, of the
Convention, developed country Parties shall provide enhanced ?nancial, technology and
capacity building support for the preparation and implementation of nationally appropriate
mitigation actions of developing country Parties” (http://unfccc.int/resource/docs/2011/
cop17/eng/09a01.pdf).
11. We treat a company as non-disclosing if it declined to participate in CDP disclosure program,
or did not respond to the invitation, or answered the questionnaire but chose not to make it
public (Luo et al., 2012).
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12. Climate-change-related capital expenditures and operating costs, estimates of carbon risks
and opportunities, budgeted clean-technology investments, carbon-management strategies
and carbon liabilities or commitments are examples of carbon reporting that are of a
proprietary nature (Cormier and Magnan, 2003, p. 47; Li et al., 1997, p. 441).
13. Scope 1 emissions are direct emissions, whichoccur onsite or fromsources that a companyowns
and controls. Scope 2 emissions are indirect emissions that result from the generation of the
electricity, heat or steama companypurchases. Please note that some of prior studies use carbon
emissions relative to a peer group as a measure (King and Lenox, 2001) and argue that relative
emissions measures the ?rm’s ability to manage and reduce its carbon emissions by comparing
the degree to which a ?rm’s facilities are more or less polluting than their peer groups, so we use
a relative emissions variable as an alternative measure, which is calculated as the natural
logarithm of the total Scopes 1 and 2 GHG emissions (CarbonEmission) minus the mean of it
within the same country and two-digit GICS sector. The regression results (not tabulated) were
qualitativelythe same as those in Table Vwithmore signi?cant coef?cient for CarbonEmission.
14. The status of emissions trading schemes for various countries was retrieved from: www.
climatechange.gov.au/government/international/global-action-facts-and-?ction/ets-by-
country.aspx (accessed 1 December 2010).
15. This represents the seventh year since the ?rst CDP inventory, published in 2003; however,
the CDP only targeted FT500 in 2003.
16. The 15 countries are Australia, Canada, China, Germany, India, Ireland, Japan, South Korea,
The Netherlands, New Zealand, Russia, South Africa, Switzerland, the UK and the USA
(CDP Australia 200 & New Zealand 50 Report, 2009; CDP Canada 200 Report, 2009;
CDP China 100 Report, 2009; CDP Germany 200 Report, 2009; CDP India 200 Report, 2009;
CDP Ireland 50 Report, 2009; CDP Japan 500 Report, 2009; CDP Korea 100 Report, 2009; CDP
The Netherlands 50 Report, 2009; CDP South Africa 100 Report, 2009; CDP Switzerland
100 Report, 2009; CDP UK 350 Report, 2009; CDP US500 Report, 2009).
17. That is, of the 2,737 companies, 21 were deleted due to reporting in more than one CDP
country report. For example, the Australia and New Zealand Banking Group is listed in both
the Australia CDP report and the New Zealand CDP report; Tesco is reported in both the UK
CDP report and the Ireland CDP report, etc. Also, four companies were listed with an “SA
(see another)” response status in the Canada report, which may lead to duplicate
observations, and one company was listed with a “delisted in 2009” response status in the
Switzerland report, are thus was excluded from our sample. Note that the study identi?es a
company’s nationality as per the DataStream database.
18. One reason that the CDP has gained a large public basis and a growing number of responses
during these years is that it successfully uses institutional investors to urge ?rms to disclose
extensive information about their climate-change activities (Kolk et al., 2008). According to
the reports published by the CDP, in the period from 2003 to 2009, the number of investors
participating in the CDP increased from 35 in 2003 (with $4.5 trillion in assets) to 224 in 2006
($31.5 trillion in assets), to 475 in 2009 ($55 trillion in assets). Through 2009, more than 1,800
companies globally had reported their climate-change strategies and GHG through CDP
requests (CDP Global 500 Report, 2009).
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Corresponding author
Qingliang Tang can be contacted at: [email protected]
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