Abstract
In 2004, Canada’s Greenhouse Gas (GHG) Reporting Program made carbon emissions disclosure mandatory for Canadian facilities emitting 100 kilotonnes or more. Three industrial sectors are responsible for most of Canada’s GHG emissions: oil and gas, transportation and electricity. This study sheds light on the role of industrial sector polluting levels and the influence of firms’ environment or sustainable development committee on the market valuation of their reported carbon emissions. We used a modified version of Ohlson’s model to examine the value relevance of carbon emissions disclosure for the program’s entire reporting period, running from 2004 to 2017, the last available year. Our results show a negative association between GHG emissions and firm value. Investors use the total level of GHG emissions to assess future environmental liabilities, and industrial sector polluting level moderates the negative association between these emissions and firm value. For every additional tonne of GHG emissions, low-polluting firms saw their market value drop by $548 and high-GHG emitting firms by $35. Our results provide evidence of a more prominent negative relationship between GHG emissions and firm value for firms operating in low-GHG emitting industrial sectors, indicating higher penalties from stock market participants for these firms. Our findings suggest that stock market participants draw on distinct institutional logics: the dominant economic logic, favoured by investors interested in high-GHG emitting firms, versus an alternative social and environmental logic, used by those interested in low-GHG emitting firms. Moreover, companies with an environment or sustainable development committee have, on average, higher levels of GHG emissions than companies with no similar committee. The market value of companies with such committee decreases by $518 for every additional tonne of GHG emissions. Companies with no such committee record no effect of GHG emissions on their market values.
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Appendices
Appendix 1: Sample firms for the hypothesis tests (GICS numbers presented for each company)
Company | GIC number | Company | GIC number | Company | GIC number |
|---|---|---|---|---|---|
1. Advantage Oil and Gas | 101020 | 21. Detour Gold | 151040 | 41. Peyto E&D | 101020 |
2. Agnico-Eagle Mines | 151040 | 22. Dominion Diamond | 151040 | 42. Resolute Forest Products | 151050 |
3. Agrium | 151010 | 23. Domtar | 151050 | 43. Rio Tinto | 151040 |
4. Air Liquide | 151010 | 24. Dow Chemical | 151010 | 44. Rogers Sugar | 302020 |
5. AltaGas | 551020 | 25. Emera | 551010 | 45. Suncor Energy | 101020 |
6. ARC Resources | 101020 | 26. Enbridge Gas Distrib | 551020 | 46. Teck Metals | 151040 |
7. Atco Group | 551030 | 27. EnCana | 101020 | 47. Tembec | 151050 |
8. Bellatrix Exploration | 101020 | 28. Exxon Mobil | 101020 | 48. Terra | 151010 |
9. Birchcliff Energy | 101020 | 29. Fortis | 551010 | 49. TransAlta | 551050 |
10. Brampton Brick | 151020 | 30. Fortress Paper | 551050 | 50. TransCanada | 101020 |
11. Cabot Canada | 151010 | 31. Husky Oil Operation | 101020 | 51. Union Gas | 101020 |
12. Canadian Malartic GP | 151040 | 32. Imperial Oil | 101020 | 52. West Fraser Timber | 151050 |
13. Canadian Natural Resources | 101020 | 33. Inter Pipeline | 101020 | 53. Whitby | 551050 |
14. Canfor | 151050 | 34. Keyera | 101020 | ||
15. Capital Power Generation | 551050 | 35. Methanex | 151010 | ||
16. Cardinal Power | 551050 | 36. Mosaic Potash | 151010 | ||
17. Cascades | 151030 | 37. Nexen | 101020 | ||
18. Catalyst Paper | 151050 | 38. Northland Power | 551050 | ||
19. Cenovus Energy | 101020 | 39. Pengrowth Energy | 101020 | ||
20. Connacher Oil & Gas | 101020 | 40. Penn West Petroleum | 101020 |
Appendix 2: Summary of variables used in the valuation model
List of variables | Measurement of variables |
|---|---|
Dependent and independent variables | |
\({MVE}_{i,t} (\) market value of equity) | Number of shares outstanding multiplied by the month-end price at the period end date |
\({BVE}_{i,t}\)(book value of equity) | Difference between total assets and total liabilities |
\({NI}_{i,t}\)(net income) | All revenues and gains minus expenses and losses |
\({EMIS}_{i,t-1}\)(GHG emissions) | Total number of GHG emissions (in tonnes) of Canadian public firms |
Control and other variables | |
\({IND}_{i,t}\)(industry) | A dummy variable denoted 1 for high-GHG emitters and 0 otherwise |
\({SUSTC}_{it}\) | A dummy variable coded 1 if the company has an environment or sustainable development committee and 0 otherwise |
\({YR17}_{it}\) | A dummy variable equal to 1 for the year 2017 and 0 otherwise |
\({YR16}_{it}\) | A dummy variable equal to 1 for the year 2016 and 0 otherwise |
\({YR15}_{it}\) | A dummy variable equal to 1 for the year 2015 and 0 otherwise |
\({YR14}_{it}\) | A dummy variable 1 for the year 2014 and 0 otherwise |
\({YR13}_{it}\) | A dummy variable equal to 1 for the year 2013 and 0 otherwise |
\({YR12}_{it}\) | A dummy variable equal to 1 for the year 2012 and 0 otherwise |
\({YR11}_{it}\) | A dummy variable equal to 1 for the year 2011 and 0 otherwise |
\({YR10}_{it}\) | A dummy variable equal to 1 for the year 2010 and 0 otherwise |
\({YR09}_{it}\) | A dummy variable equal to 1 for the year 2009 and 0 otherwise |
\({YR08}_{it}\) | A dummy variable equal to 1 for the year 2008 and 0 otherwise |
\({YR07}_{it}\) | A dummy variable equal to 1 for the year 2007 and 0 otherwise |
\({YR06}_{it}\) | A dummy variable equal to 1 for the year 2006 and 0 otherwise |
\({YR05}_{it}\) | A dummy variable equal to 1 for the year 2005 and 0 otherwise |
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Radu, C., Maram, S. The value relevance of reported carbon emissions. J Manag Gov 25, 347–377 (2021). https://doi.org/10.1007/s10997-020-09547-5
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DOI: https://doi.org/10.1007/s10997-020-09547-5