Abstract
Increasingly drastic governmental efforts in reducing environmental footprints in face of rising abnormal climate events have urged firms to redirect their strategy to withstand climate-induced policy uncertainty. Despite the incomplete regulatory framework for environment, social, and governance (ESG) reporting, many US firms have voluntarily incorporated ESG content into their public reports. Motivated by this sprouting ESG disclosure pattern of US firms, this study examines whether US firms adjust their ESG disclosure practices in face of changing climate policy. By employing fixed-effect estimations using firm-level and country-level data from various sources, we show that US firms disclose more ESG information following periods of heightened climate policy uncertainty (CPU), consistent with our prediction that firms employ ESG reporting to shelter themselves from CPU risks. Further analyses reveal that firms with more attentive audit committees, more severe financial constraints and earnings management problems, greater emissions and renewable energy consumption, and better comprehension of climate risks experience a stronger positive effect of CPU. Uncertain events and states’ ESG heterogeneity also strengthen the effect. Our results suggest investors analyze firms’ ESG reporting with care during heightened CPU periods and advise policymakers to accelerate their mandate of corporate ESG disclosure.
Similar content being viewed by others
Data availability
Data sharing is not applicable to this article as no new data were created or analyzed in this study.
Notes
The data of global temperature are obtained from the US’s National Centers for Environmental Information. Website:https://www.ncei.noaa.gov/access/monitoring/climate-at-a-glance/global/time-series
Nine heaviest emitting industries consist of Oil, Gas and Consumable Fuels; Electric Utilities; Gas Utilities; Independent Power Producers & Energy Traders; Multi-Utilities; Chemicals; Construction Materials; Metals and Mining; and Paper and Forest Products.
References
Ahsan, T., & Qureshi, M. A. (2021). The nexus between policy uncertainty, sustainability disclosure and firm performance. Applied Economics, 53(4), 441–453. https://doi.org/10.1080/00036846.2020.1808178
Alessi, L., Ossola, E., & Panzica, R. (2021). What greenium matters in the stock market? The role of greenhouse gas emissions and environmental disclosures. Journal of Financial Stability, 54, 100869. https://doi.org/10.1016/j.jfs.2021.100869
Al-Tuwaijri, S. A., Christensen, T. E., & Hughes, K. E., II. (2004). The relations among environmental disclosure, environmental performance, and economic performance: A simultaneous equations approach. Accounting, Organizations and Society, 29(5–6), 447–471. https://doi.org/10.1016/S0361-3682(03)00032-1
Andrikopoulos, A., & Kriklani, N. (2013). Environmental disclosure and financial characteristics of the firm: The case of Denmark. Corporate Social Responsibility and Environmental Management, 20(1), 55–64. https://doi.org/10.1002/csr.1281
Arif, M. (2020). Non-financial information disclosures and firm risk (Doctoral Thesis, Lincoln University). Lincoln University Research Repository. Available at https://researcharchive.lincoln.ac.nz/handle/10182/13964
Ascioglu, A., Hegde, S. P., & McDermott, J. B. (2008). Information asymmetry and investment–cash flow sensitivity. Journal of Banking and Finance, 32(6), 1036–1048. https://doi.org/10.1016/j.jbankfin.2007.09.018
Attig, N., Brockman, P., & Trabelsi, S. (2020). Greenwashing during uncertain times. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3786452
Azimli, A. (2022). The impact of climate policy uncertainty on firm value: Does corporate social responsibility engagement matter? Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4186267
Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024
Baltagi, B. H. (2005). Econometric analysis of panel data (4th ed.). Wiley.
Bartram, S. M., Hou, K., & Kim, S. (2022). Real effects of climate policy: Financial constraints and spillovers. Journal of Financial Economics, 143(2), 668–696. https://doi.org/10.1016/j.jfineco.2021.06.015
Batruch, C. (2017). Climate change and sustainability in the energy sector. The Journal of World Energy Law and Business, 10(5), 444–463. https://doi.org/10.1093/jwelb/jwx024
Bouri, E., Iqbal, N., & Klein, T. (2022). Climate policy uncertainty and the price dynamics of green and brown energy stocks. Finance Research Letters, Forthcoming. https://doi.org/10.1016/j.frl.2022.102740
Carbon Disclosure Project (2012). Carbon reductions generate positive ROI. Retrieved from https://www.yumpu.com/en/document/read/8691735/carbon-reductions-generate-positive-roi-carbon-disclosure-project
Chen, C. J., & Jaggi, B. (2000). Association between independent non-executive directors, family control and financial disclosures in Hong Kong. Journal of Accounting and Public Policy, 19(4–5), 285–310. https://doi.org/10.1016/S0278-4254(00)00015-6
Chen, M. A., Greene, D. T., & Owers, J. E. (2015). The costs and benefits of clawback provisions in CEO compensation. Review of Corporate Finance Studies, 4(1), 108–154. https://doi.org/10.1093/rcfs/cfu012
Cho, C. H., & Patten, D. M. (2007). The role of environmental disclosures as tools of legitimacy: A research note. Accounting, Organizations and Society, 32(7–8), 639–647. https://doi.org/10.1016/j.aos.2006.09.009
Choi, D., Gao, Z., & Jiang, W. (2020). Attention to global warming. Review of Financial Studies, 33(3), 1112–1145. https://doi.org/10.1093/rfs/hhz086
Cohen, B., Blanco, H., Dubash, N. K., Dukkipati, S., Khosla, R., Scrieciu, S., Stewart, T., & Torres-Gunfaus, M. (2019). Multi-criteria decision analysis in policy-making for climate mitigation and development. Climate and Development, 11(3), 212–222. https://doi.org/10.1080/17565529.2018.1445612
Coles, J. L., Daniel, N. D., & Naveen, L. (2014). Co-opted boards. Review of Financial Studies, 27, 1751–1796. https://doi.org/10.1093/rfs/hhu011
Coley, J. S., & Hess, D. J. (2012). Green energy laws and Republican legislators in the United States. Energy Policy, 48, 576–583. https://doi.org/10.1016/j.enpol.2012.05.062
Cooper, S. A., Raman, K. K., & Yin, J. (2018). Halo effect or fallen angel effect? Firm value consequences of greenhouse gas emissions and reputation for corporate social responsibility. Journal of Accounting and Public Policy, 37(3), 226–240. https://doi.org/10.1016/j.jaccpubpol.2018.04.003
Dang, H. N., Hoang, K., Vu, T. V., & Nguyen, L. V. (2021). Do socially responsible firms always disclose high-quality earnings? Evidence from an emerging socialist economy. Asian Review of Accounting, 29(3), 291–306. https://doi.org/10.1108/ARA-11-2020-0174
Dechow, P. M., & Dichev, I. D. (2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 35–59. https://doi.org/10.2308/accr.2002.77.s-1.35
Dellaportas, S., Langton, J., & West, B. (2012). Governance and accountability in Australian charitable organisations: Perceptions from CFOs. International Journal of Accounting and Information Management, 20(3), 238–254. https://doi.org/10.1108/18347641211245128
Delmas, M. A., & Toffel, M. W. (2008). Organizational responses to environmental demands: Opening the black box. Strategic Management Journal, 29(10), 1027–1055. https://doi.org/10.1002/smj.701
Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. The Accounting Review, 86(1), 59–100. https://doi.org/10.2308/accr.00000005
Drempetic, S., Klein, C., & Zwergel, B. (2020). The influence of firm size on the ESG score: Corporate sustainability ratings under review. Journal of Business Ethics, 167(2), 333–360. https://doi.org/10.1007/s10551-019-04164-1
Du, S., Yu, K., Bhattacharya, C. B., & Sen, S. (2017). The business case for sustainability reporting: Evidence from stock market reactions. Journal of Public Policy and Marketing, 36(2), 313–330. https://doi.org/10.1509/jppm.16.112
Egginton, J. F., & McBrayer, G. A. (2019). Does it pay to be forthcoming? Evidence from CSR disclosure and equity market liquidity. Corporate Social Responsibility and Environmental Management, 26(2), 396–407. https://doi.org/10.1002/csr.1691
Engle, R. F., Giglio, S., Kelly, B., Lee, H., & Stroebel, J. (2020). Hedging climate change news. Review of Financial Studies, 33(3), 1184–1216. https://doi.org/10.1093/rfs/hhz072
Ewing, J. (2018). 10 monkeys and a beetle: Inside VW's campaign for 'clean diesel'. The New York Times. Retrieved from https://www.nytimes.com/2018/01/25/world/europe/volkswagen-diesel-emissions-monkeys.html
Fox, N. J., & Alldred, P. (2020). Re-assembling climate change policy: Materialism, posthumanism, and the policy assemblage. The British Journal of Sociology, 71(2), 269–283. https://doi.org/10.1111/1468-4446.12734
Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2005). The market pricing of accruals quality. Journal of Accounting and Economics, 39(2), 295–327. https://doi.org/10.1016/j.jacceco.2004.06.003
Freeman, R. E. (2010). Strategic management: A stakeholder approach. Cambridge University Press.
García-Sánchez, I. M., Hussain, N., Martínez-Ferrero, J., & Ruiz-Barbadillo, E. (2019). Impact of disclosure and assurance quality of corporate sustainability reports on access to finance. Corporate Social Responsibility and Environmental Management, 26(4), 832–848. https://doi.org/10.1002/csr.1724
Gavriilidis, K. (2021). Measuring climate policy uncertainty. Available at https://ssrn.com/abstract=3847388
Gilchrist, S., Sim, J. W., & Zakrajšek, E. (2014). Uncertainty, financial frictions, and investment dynamics. National Bureau of Economic Research Working paper 20038. Available at https://www.nber.org/papers/w20038
Di Giuli, A., & Kostovetsky, L. (2014). Are red or blue companies more likely to go green? Politics and corporate social responsibility. Journal of Financial Economics, 111, 158–180. https://doi.org/10.1016/j.jfineco.2013.10.002
Gulen, H., & Ion, M. (2016). Policy uncertainty and corporate investment. Review of Financial Studies, 29(3), 523–564. https://doi.org/10.1093/rfs/hhv050
Hoang, K. (2022). How does corporate R&D investment respond to climate policy uncertainty? Evidence from heavy emitter firms in the United States. Corporate Social Responsibility and Environmental Management, Forthcoming. https://doi.org/10.1002/csr.2246
Hoang, H. V., Nguyen, C., Hoang, K., & Gan, C. (2021). Are co-opted boards socially responsible? New Zealand Finance Colloquium 2022. Available at https://nzfc.ac.nz/papers/updated/20.pdf
Hoberg, G., & Maksimovic, V. (2015). Redefining financial constraints: A text-based analysis. The Review of Financial Studies, 28(5), 1312–1352. https://doi.org/10.1093/rfs/hhu089
Hoi, C. K., Wu, Q., & Zhang, H. (2013). Is corporate social responsibility (CSR) associated with tax avoidance? Evidence from irresponsible CSR activities. The Accounting Review, 88(6), 2025–2059. https://doi.org/10.2308/accr-50544
Hong, Y., & Andersen, M. L. (2011). The relationship between corporate social responsibility and earnings management: An exploratory study. Journal of Business Ethics, 104(4), 461–471. https://doi.org/10.1007/s10551-011-0921-y
Huang, Q., Li, Y., Lin, M., & McBrayer, G. A. (2022). Natural disasters, risk salience, and corporate ESG disclosure. Journal of Corporate Finance, 72, 102152. https://doi.org/10.1016/j.jcorpfin.2021.102152
Jackman, M., & Moore, W. (2021). Does it pay to be green? An exploratory analysis of wage differentials between green and non-green industries. Journal of Economics and Development, 23(3), 284–298. https://doi.org/10.1108/JED-08-2020-0099
Jain, A., Jain, P. K., & Rezaee, Z. (2016). Value-relevance of corporate social responsibility: Evidence from short selling. Journal of Management Accounting Research, 28(2), 29–52. https://doi.org/10.2308/jmar-51439
Jia, J., & Li, Z. (2020). Does external uncertainty matter in corporate sustainability performance? Journal of Corporate Finance, 65, 101743. https://doi.org/10.1016/j.jcorpfin.2020.101743
Jin, Y., Cheng, C., & Zeng, H. (2020). Is evil rewarded with evil? The market penalty effect of corporate environmentally irresponsible events. Business Strategy and the Environment, 29(3), 846–871. https://doi.org/10.1002/bse.2403
Jiraporn, P., Jiraporn, N., Boeprasert, A., & Chang, K. (2014). Does corporate social responsibility (CSR) improve credit ratings? Evidence from Geographic Identification. Financial Management, 43(3), 505–531. https://doi.org/10.1111/fima.12044
Jung, J., Herbohn, K., & Clarkson, P. (2018). Carbon risk, carbon risk awareness and the cost of debt financing. Journal of Business Ethics, 150(4), 1151–1171. https://doi.org/10.1007/s10551-016-3207-6
Khlif, H., & Samaha, K. (2014). Internal control quality, Egyptian standards on auditing and external audit delays: Evidence from the Egyptian stock exchange. International Journal of Auditing, 18(2), 139–154. https://doi.org/10.1111/ijau.12018
Kubick, T. R., Omer, T. C., & Wiebe, Z. (2020). The effect of voluntary clawback adoptions on corporate tax policy. The Accounting Review, 95(1), 259–285. https://doi.org/10.2308/accr-52484
Kump, B. (2021). When do threats mobilize managers for organizational change toward sustainability? An environmental belief model. Business Strategy and the Environment, 30(5), 2713–2726. https://doi.org/10.1002/bse.2773
Lagasio, V., & Cucari, N. (2019). Corporate governance and environmental social governance disclosure: A meta-analytical review. Corporate Social Responsibility and Environmental Management, 26(4), 701–711. https://doi.org/10.1002/csr.1716
Lin, B., & Zhu, J. (2019). Is the implementation of energy saving and emission reduction policy really effective in Chinese cities? A policy evaluation perspective. Journal of Cleaner Production, 220, 1111–1120. https://doi.org/10.1016/j.jclepro.2019.02.209
Malone, D., Fries, C., & Jones, T. (1993). An empirical investigation of the extent of corporate financial disclosure in the oil and gas industry. Journal of Accounting, Auditing and Finance, 8(3), 249–273. https://doi.org/10.1177/0148558X9300800306
Mansell, S. (2013). Shareholder theory and Kant’s ‘duty of beneficence.’ Journal of Business Ethics, 117(3), 583–599. https://doi.org/10.1007/s10551-012-1542-9
Martínez-Ferrero, J., Banerjee, S., & García-Sánchez, I. M. (2016a). Corporate social responsibility as a strategic shield against costs of earnings management practices. Journal of Business Ethics, 133(2), 305–324. https://doi.org/10.1007/s10551-014-2399-x
Martínez-Ferrero, J., Ruiz-Cano, D., & García-Sánchez, I. M. (2016b). The causal link between sustainable disclosure and information asymmetry: The moderating role of the stakeholder protection context. Corporate Social Responsibility and Environmental Management, 23(5), 319–332. https://doi.org/10.1002/csr.1379
Matsumura, E. M., Prakash, R., & Vera-Muñoz, S. C. (2017). To disclose or not to disclose climate-change risk in form 10-K: Does materiality lie in the eyes of the beholder? Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2986290
Mervelskemper, L., & Streit, D. (2017). Enhancing market valuation of ESG performance: Is integrated reporting keeping its promise? Business Strategy and the Environment, 26(4), 536–549. https://doi.org/10.1002/bse.1935
Mustard, D. B. (2003). Reexamining criminal behavior: The importance of omitted variable bias. Review of Economics and Statistics, 85(1), 205–211. https://doi.org/10.1162/rest.2003.85.1.205
Nguyen, J. H., & Phan, H. V. (2020). Carbon risk and corporate capital structure. Journal of Corporate Finance, 64, 101713. https://doi.org/10.1016/j.jcorpfin.2020.101713
de Oliveira, E. M., de Souza Cunha, F. A. F., Palazzi, R. B., Klotzle, M. C., & Maçaira, P. M. (2020). On the effects of uncertainty measures on sustainability indices: An empirical investigation in a nonlinear framework. International Review of Financial Analysis, 70, 101505. https://doi.org/10.1016/j.irfa.2020.101505
Ongsakul, V., Jiraporn, P., & Treepongkaruna, S. (2019). Does managerial ownership influence corporate social responsibility (CSR)? The role of economic policy uncertainty. Accounting and Finance, 61(1), 763–779. https://doi.org/10.1111/acfi.12592
Pástor, Ľ, & Veronesi, P. (2013). Political uncertainty and risk premia. Journal of Financial Economics, 110(3), 520–545. https://doi.org/10.1016/j.jfineco.2013.08.007
Pedron, A. P. B., Macagnan, C. B., Simon, D. S., & Vancin, D. F. (2021). Environmental disclosure effects on returns and market value. Environment, Development and Sustainability, 23(3), 4614–4633. https://doi.org/10.1007/s10668-020-00790-2
Popovich, N., Albeck-Ripka, L., & Pierre-Louis, K. (2021). The Trump administration rolled back more than 100 environmental rules. Here’s the full list. The New York Times. Available at https://www.nytimes.com/interactive/2020/climate/trump-environment-rollbacks-list.html
Prior, D., Surroca, J., & Tribó, J. A. (2008). Are socially responsible managers really ethical? Exploring the relationship between earnings management and corporate social responsibility. Corporate Governance: An International Review, 16(3), 160–177. https://doi.org/10.1111/j.1467-8683.2008.00678.x
Pucker, K. P. (2021). Overselling sustainability reporting. Available at https://hbr.org/2021/05/overselling-sustainability-reporting
Qian, W., Suryani, A. W., & Xing, K. (2020). Does carbon performance matter to market returns during climate policy changes? Evidence from Australia. Journal of Cleaner Production, 259, 121040. https://doi.org/10.1016/j.jclepro.2020.121040
Ren, X., Li, W., Duan, K., & Zhang, X. (2022a). Does climate policy uncertainty really affect corporate financialization? Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4079217
Ren, X., Zhang, X., Yan, C., & Gozgor, G. (2022b). Climate policy uncertainty and firm-level total factor productivity: Evidence from China. Energy Economics, 113, 106209. https://doi.org/10.1016/j.eneco.2022b.106209
Rezaee, Z., & Tuo, L. (2019). Are the quantity and quality of sustainability disclosures associated with the innate and discretionary earnings quality? Journal of Business Ethics, 155(3), 763–786. https://doi.org/10.1007/s10551-017-3546-y
Samaha, K., Khlif, H., & Hussainey, K. (2015). The impact of board and audit committee characteristics on voluntary disclosure: A meta-analysis. Journal of International Accounting, Auditing and Taxation, 24, 13–28. https://doi.org/10.1016/j.intaccaudtax.2014.11.001
Sautner, Z., van Lent, L., Vilkov, G., & Zhang, R. (2021). Firm-level climate change exposure. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3642508
Shahbaz, M., Karaman, A. S., Kilic, M., & Uyar, A. (2020). Board attributes, CSR engagement, and corporate performance: What is the nexus in the energy sector? Energy Policy, 143, 111582. https://doi.org/10.1016/j.enpol.2020.111582
Shang, Y., Han, D., Gozgor, G., Mahalik, M. K., & Sahoo, B. K. (2022). The impact of climate policy uncertainty on renewable and non-renewable energy demand in the United States. Renewable Energy, 197, 654–667. https://doi.org/10.1016/j.renene.2022.07.159
Sharma, S. (2000). Managerial interpretations and organizational context as predictors of corporate choice of environmental strategy. Academy of Management Journal, 43(4), 681–697. https://doi.org/10.5465/1556361
Siltaloppi, J., Rajala, R., & Hietala, H. (2021). Integrating CSR with business strategy: A tension management perspective. Journal of Business Ethics, 174(3), 507–527. https://doi.org/10.1007/s10551-020-04569-3
Syed, Q. R., Apergis, N., & Khoon, G. S. (2022). Does climate policy uncertainty plunge renewable energy consumption? New insights from novel fourier augmented ARDL approach. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4017179
U.S. Department of State (2021). The United States officially rejoins the Paris Agreement [Press release]. Retrieved from https://www.state.gov/the-united-states-officially-rejoins-the-paris-agreement/
Wang, Q., Xu, X., & Liang, K. (2021). The impact of environmental regulation on firm performance: Evidence from the Chinese cement industry. Journal of Environmental Management, 299, 113596. https://doi.org/10.1016/j.jenvman.2021.113596
Weber, O. (2013). Environmental, social and governance reporting in China. Business Strategy and the Environment, 23(5), 303–317. https://doi.org/10.1002/bse.1785
Wooldridge, J. M. (2012). Introductory econometrics: A modern approach (5th ed.). Cengage Learning.
Xu, Z. (2020). Economic policy uncertainty, cost of capital, and corporate innovation. Journal of Banking and Finance, 111, 105698. https://doi.org/10.1016/j.jbankfin.2019.105698
Ye, L. (2022). The effect of climate news risk on uncertainties. Technological Forecasting and Social Change, 178, 121586. https://doi.org/10.1016/j.techfore.2022.121586
Yuan, T., Wu, J. G., Qin, N., & Xu, J. (2022). Being nice to stakeholders: The effect of economic policy uncertainty on corporate social responsibility. Economic Modelling, 108, 105737. https://doi.org/10.1016/j.econmod.2021.105737
Zeng, Q., Ma, F., Lu, X., & Xu, W. (2022). Policy uncertainty and carbon neutrality: Evidence from China. Finance Research Letters, Forthcoming. https://doi.org/10.1016/j.frl.2022.102771
Zhang, D., & Vigne, S. A. (2021). The causal effect on firm performance of China’s financing–pollution emission reduction policy: Firm-level evidence. Journal of Environmental Management, 279, 111609. https://doi.org/10.1016/j.jenvman.2020.111609
Acknowledgements
This research is funded by National Economics University, Vietnam.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
The author has no relevant financial or non-financial interests to disclose.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Hoang, H.V. Environmental, social, and governance disclosure in response to climate policy uncertainty: Evidence from US firms. Environ Dev Sustain 26, 4293–4333 (2024). https://doi.org/10.1007/s10668-022-02884-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10668-022-02884-5