Climate-related corporate reporting and cost of equity capital

Abstract

Purpose

This study aims to examine the reaction of stakeholders (i.e. capital providers) to climate-related corporate reporting. Climate-related corporate reporting is captured by the level of voluntary carbon disclosure, while the recognition and appreciation of capital providers are captured through the cost of equity capital (COE).

Design/methodology/approach

This study uses a sample including the 350 largest companies by market capitalization on the London Stock Exchange, UK (FTSE350) from 2015 to 2019. The authors use fixed-effects regression models to examine the effect of climate-related corporate reporting on the COE.

Findings

This study finds that voluntary carbon disclosure proxied by carbon disclosure score is negatively associated with COE. This suggests that firms’ superior quality disclosure of carbon information could contribute to a lower COE. This implies that the market and stakeholders positively appreciate the involvement in climate-related reporting by businesses.

Originality/value

The finding provides insights to regulators, investors and other stakeholders in terms of the positive economic implication of actively engaging in reducing climate change impact through voluntary carbon disclosure. These findings also motivate corporates to be proactively involved in climate-related reporting by extending the quality of carbon information disclosure.

Citation

Nguyen, T.H., Yang, Y., Nguyen, T.H.T. and Nguyen, L.T.H. (2023), "Climate-related corporate reporting and cost of equity capital", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-02-2023-0078