14:15 pm – 15:25 pm Breakout – Academic Paper Panel – Carbon Liquidity and Climate Related Financial Disclosure (Session 12) Paper A: Carbon Liquidity M. Nerlinger, Ryan Riordan, Queen’s University, Canada Paper B: Where is the Dollar Sign? Mandy Cheng, University of New South Wales, Australia Anna Young-Ferris, University of Sydney, Australia
Session Chair: Mohamad Al Guindy, Sprott School of Business, Carleton University
Paper A: Carbon Liquidity
Nerlinger, M. and Riordan, R.
Abstract: We study the impact of disclosing greenhouse gas emissions (CO2) on the liquidity of firms’ equity. We find that firms that emit more carbon are less liquid. However, firms that disclose emissions have lower bid-ask spreads than firms that do not. This is partially because when firms first disclose their emissions their bid-ask spreads decrease by roughly 13%. These results hold for high information asymmetry firms, for high and low carbon intensity firms, and for early and late disclosing firms. These results should encourage regulators and firms to move quickly towards more, more robust, and more granular environmental disclosures.
Paper B: Where is the dollar sign? The effect of disclosure venue and the quantification of climate-related financial impact on professional investors’ judgments
Cheng, M. M., Young-Ferris, A., and Zhou, S.
Abstract: There is a growing recognition by investors that climate risk has potential to significantly impact company financial performance, which has led to a demand for climate-related financial disclosure (CFD). Against this background, the Task Force on Climate-related Financial Disclosure (TCFD) was established to develop recommendations for more effective CFD that could promote better understanding of the financial implications associated with climate change and better inform investment decisions. Of specific interest to professional investors and one of the key goals of the TCFD is better disclosure of climate-related financial impact, that is, how climate-related risks and opportunities are likely to impact a company’s future financial position. In this experiment we examine professional investors’ reactions to two disclosure choices that a company can currently make regarding their voluntary CFD, namely, the disclosure venue (i.e., regulatory financial filing or sustainability report) and the quantification of climate-related financial impact (i.e., presence or absence of financial impact in dollar terms). Consistent with our predictions, we find that investors perceive CFD to be of higher quality when it is included in a company’s regulatory financial filing than in a stand-alone sustainability report. This finding supports the TCFD’s advocacy of providing CFD in regulatory financial filings. We also find that the quantification of climate-related financial impact has a further, positive impact on investors’ quality perception when the CFD is in a sustainability report, but has the opposite, unfavorable effect when the CFD is part of regulatory financial filings; we provide an additional psychology-based explanation for this effect.