The impact of climate change disclosure on the financial performance of businesses

Abstract

Nowadays, investors' concern about the environment and information on climate change is increasing day by day. Climate change brings risks that need to be minimized by all parties, including businesses, as it affects the financial performance of businesses. Therefore, the disclosure of climate change information is restricted because it is believed to have a negative impact on a business's financial performance. Until now, there have been numerous debates and controversies in research related to climate change information. According to the United Nations Framework Convention on Climate Change (UNFCCC, 2007), climate change has a detrimental impact on business activities, including financial operations, making it necessary and mandatory for businesses to disclose relevant information. Therefore, the authors conducted an empirical study to examine the impact of climate change information disclosure on a business's financial performance. The study utilized panel data from a sample of 156 global businesses over a 7-year period from 2016 to 2022. Our experimental evidence shows that the actions of businesses in disclosing climate change information have a negative impact on their financial performance. The implication of this research is to provide recommendations and appropriate proposals to encourage businesses to adopt transparent and accurate reporting plans regarding climate change information while ensuring the financial effectiveness of the business