Carbon disclosure and financial performance: UK environmental policy

• Published in: Business strategy and the environment Vol. 29; no. 2; pp. 711 - 726
• Main Authors: Alsaifi, Khaled, Elnahass, Marwa, Salama, Aly
• Format: Journal Article
• Language: English
• Published: Chichester Wiley Periodicals Inc 01.02.2020
• Subjects: Accounting; Business competition; Carbon; carbon disclosure; carbon disclosure project (CDP); Climate change; Communication; Compliance; Decision making; Disclosure; Environmental accounting; Environmental policy; Financial performance; financial performance (FP); Performance indices; Regulators; resource‐based view (RBV); Stakeholders
• ISSN: 0964-4733; 1099-0836
• DOI: 10.1002/bse.2426

The outcome of carbon disclosure, the importance of which has grown remarkably in recent years to become a strategic decision‐making issue for organisations in today's competitive environment, is a subject of lively debate but remains under‐researched in the environmental accounting literature. This study is motivated by this research gap and the growing interest in assessing the financial consequences of corporate involvement in climate change beyond regulatory compliance, as evidenced by firms' voluntary participation in the Carbon Disclosure Project. Using the resource‐based view of the firm as a theoretical framework and linking it to carbon disclosure through Carbon Disclosure Project, we conceptualise and empirically investigate the impact of adopting proactive carbon management policies and communicating them to stakeholders, focusing on the financial performance of the top FTSE350 companies between 2007 and 2015. By developing a comprehensive financial performance index and controlling for several firm characteristics, we find strong evidence that voluntary carbon disclosure is positively associated with firm financial performance. The findings in this paper provide new insights and policy implications for managers, financial stakeholders, and regulators.