BỘ GIÁO DỰC VÀ ĐÀO TẠO ĐẠI HỌC KINH TỂ THÀNH PHỐ HÒ CHÍ MINH BẢO CẢO TÔNG KÊT ĐỀ TÀI NGHIÊN CỨU KHOA HỌC THAM GIA XÉT GIẢI THƯỞNG ‘’NHÀ NGHIÊN cú u TRẺ UEH” NĂM 2024 THE IMPACT OF CLIMATE CHANGE DISCLOSURE ON THE FINANCIAL PERFORMANCE OF BUSINESSES Thuộc nhóm chuyên ngành: 1 TP. Hồ Chí Minh, tháng 2/2024 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. Keywords: Information disclosure, climate change, financial performance of enterprises. TABLE OF CONTENTS LIST OF TABLES.
5 LIST OF ACRONYMS.1 Reason for research.4 Research objective and Scope of research. Scope of the research. THEORETICAL BASIS OF THE RELATIONSHIP BETWEEN CLIMATE CHANGE INFORMATION DISCLOSURE LEVEL AND FINANCIAL PERFORMANCE OF BUSINESSES - OVERVIEW OF PREVIOUS EMPIRICAL RESEARCH AND HYPOTHESES DEVELOPMENT .1 Theoretical basis for the level of climate change information disclosure on corporate financial performance.1 Climate change report.2 Link between Climate Change Reporting (CCD) and Financial Performance (CFP). Overview of related empirical studies.1 Research related to the level of climate change information disclosure has a positive impact on corporate financial performance.2 Research related to the level of climate change information disclosure has a negative impact on business financial performance.3 Research shows that businesses ranked in CLEAN200 will achieve better financial performance.
23 CHAPTER 3: RESEARCH METHODOLOGY AND DATA. Test model selection. Verify model defects. Research results for the dependent variable ROA.
Research results for the dependent variable ROS. Research results for the dependent variable SALES. CONCLUSION AND RECOMMENDATIONS.2 Contribution of the research.3 Limitations and development directions. 68 5 LIST OF TABLES Tabic 1.
Climatc-rclatcd risks and opportunities. Summary of previous related studies. Table assessing the level of disclosure of climate changeinformation. Digitized table of climate change information disclosure level.
Summary of variables in the study. Descriptive statistical analysis of variables. Variance magnification factor analysis. Test model selection.
FEM, FEM and Pooled OLS regression results. White test and Wooldridge test. Endogeneity test results of Durbin - Wu - Hausman test. GMM estimation results on Return on total assets (ROA).
GMM estimation results on Return on sales (ROS). GLS estimation results on Sales growth (SALES). 56 6 LIST OF ACRONYMS Acronyms Meaning CCD Climate Change Disclosure CDP Carbon Disclosure Project CFP Corporate Financial Performance CSR Corporate Social Responsibility ESG Environmental, Social, and Governance FEM Fixed Effects Model GLS Generalized Least Squares GMM Generalized Method of Moments OLS Ordinary Least Squares REM Random Effects Model ROA Return On Assets ROE Return On Equity ROS Return On Sales TCFD Climate-related Financial Disclosures VIF Variance Inflation Factor 7 CHAPTER 1.1 Reason for research Awareness of the fact that "Resources are limited" necessitates two parallel actions to maximize resource exploitation: utilization and regeneration. However, currently climate change phenomena such as increased CO2 concentrations have led to an increasing greenhouse effect along with extreme weather changes and rising sea levels have caused significant changes mentioned in the business environment.
In the most recent report of the Intergovernmental Panel on Climate Change (IPCC, 2023), it has been shown that changes in climate and the greenhouse effect both impact human activities and production. Researchers are concerned that the current focus on heavy industry will increase global temperatures as the need to absorb oil and gas also increases (Ramanathan and Feng, 2008; Parry, 2009). The biggest impact of climate change on the economy is a decline in production and increased costs. Facing erratic weather events (storms, floods, droughts, etc.) has led to huge losses in a number of industries, especially the farming and production industries.
Businesses arc facing reduced productivity, accelerated wear and tear on materials and equipment, and high recovery costs. In addition, businesses must also take measures to compensate for emissions by paying environmental taxes. Strict environmental regulations go hand in hand with promoting businesses to develop more sustainably in limiting the use of polluting energy sources. This creates increased pressure on businesses to change their operating methods, switching from using polluting energy sources to renewable and environmentally friendly energy sources.
This means investing in clean technology and increasing energy productivity, thereby ensuring compliance with environmental regulations and reducing emissions. Climate change, although not directly reflected in financial reports, requires businesses to engage in adaptive measures in order to achieve sustainable development. These measures involve changes in technology and operational mechanisms to minimize environmental impacts on business activities, specifically the negative effects of environmental pollution on assets, Sales, and costs (Stechemesser et al. Business adaptation is also demonstrated through the disclosure of climate-related information in sustainable development reporting - SR (Wittneben & Kiyar, 2009).
Social 8 Responsibility Reporting (SRR) is a norm for reporting an organization's impacts and contributions in economic, social, and environmental aspects towards sustainable development goals (GRI, 2018). The Global Reporting Initiative (GRI) standards encourage organizations to disclose information regarding emissions and environmental impacts. Currently, reporting on greenhouse gas emissions and carbon is a relatively new environmental reporting area (Bebbington and Larrinaga-Gonzalez 2008/2010 as cited in Gray et al., 2014), and it requires the involvement of accounting as it is the field responsible for measuring, regulating, and establishing measures of an enterprise's environmental performance (Ilinitch Ct al. Investors need to be more stringent when considering climate risk reporting in addition to traditional reporting (Ilhan, et al.
Currently, a non-govcrnmcntal organization called CDP has been successful in enhancing and encouraging investors to urge businesses to disclose their activities or report on climate change (Kolk and colleagues, 2008). Therefore, this practice has become a research concern: whether businesses are willing to incur additional costs to satisfy investors by disclosing such information. Some authors argue that incorporating climate change considerations into business practices can lead to economic advantages and competitive edge as frontrunners (Wittneben & Kiyar, 2009; Lash & Wellington, 2007). The state of disclosure of environmental indicators in general and the Climate Change index in particular by businesses is currently largely changing in a negative direction.
Although some businesses and organizations today have focused on and improved the disclosure of information on the environment and climate change, there are still many businesses that have not fulfilled this responsibility. Some reasons for this situation include lack of awareness of the importance of disclosure, difficulties in data collection and analysis, or perhaps because they are concerned about the impact of disclosure, negative impact on corporate or business image, or due to insufficient focus on social and environmental responsibility. According to the results of previous studies on the status of climate change index disclosure affecting the financial activities of businesses, as reported in the article by Matsumura, Prakash and c. Vera-Munoz (2014), Mahmudah, Yustina, Dewi and Sutopo (2013), Gazani Izmar Muhammad, Y.
Anni Aryani (2021) shows that environmental indicators provide important information about 9 the impact of business activities on the environment and the community. At the same time, Climate Change index information is also an important factor in assessing and managing the impact of businesses on global climate change. However, evaluating and comparing these indicators between businesses is relatively complicated due to the lack of common standards and unified measurement mechanisms. With the objective of advancing the understanding of how climate change indices affect the financial performance of businesses, numerous economic measures have been employed to examine the impact of Climate Change Disclosure (CCD) on Corporate Financial Performance (CFP).
These measures include specific metrics such as return on assets (ROA), return on sales (ROS), and sales growth. However, existing studies have yielded diverse empirical evidence and utilized different methodologies. For instance, Broadstock et al. (2018) and Lewandowski (2015) discovered a non-linear relationship between the disclosure index (CCD) and financial performance, while Matsumura, Prakash, and c.
Vera-Munoz (2014) demonstrated a positive association between CCD and CFP. Similarly, Zhao-Yong Sun, Shu-Ning Wang, and Dongdong Li (2022) revealed a positive impact of CCD on CFP. Furthermore, the impact of climate change on sales Sales of businesses (Stechemesser et al., 2015) remains an underexplored area. Enhanced transparency through greater disclosure of greenhouse gas emissions has the potential to generate higher Sales, as it improves overall transparency (Daromes & Monica, 2020).
Consequently, improving climate change initiatives not only ensures the long-term viability of businesses in the face of climate- related risks but also enhances their appeal to customers through increased corporate value. Given the lack of consensus in existing studies regarding the impact of CCD on CFP, the authors of this study aim to address this gap by examining ,rThe Impact of Climate Change Disclosure on the Financial Performance of Businesses". Through this research, wc seek to reevaluate previous findings and provide empirical evidence that fills existing research gaps.2 Research objectives The aim of this study is to investigate the impact of Climate Change Disclosure (CCD), which represents the level of information disclosure regarding climate change, on the financial performance of businesses in countries worldwide, such as the United States, Australia, Canada, Japan, and China. This will be achieved by analyzing and evaluating how mandatory CCD disclosure can influence key financial indicators of businesses, including return on total assets, Sales, Sales growth, and firm size.
Additionally, the study will examine and analyze the financial factors that businesses need to consider when deciding to disclose CCD, in order to provide policy recommendations and appropriate support measures for governments and businesses. Furthermore, the research will explore the specific characteristics of countries in the bordering market group to propose policy implications for Vietnam. The study aims to propose suitable policies, regulations, and mechanisms for the government, balancing the interests of the environment and businesses in implementing CCD disclosure. This will create favorable conditions for sustainable development and enhance financial efficiency for businesses.3 Research questions To address the research objectives outlined above, the research team will sequentially address the following research questions: i.
How does the level of climate change information disclosure impact the financial performance of businesses? ii. In the field of climate change, the recent attention given to the CLEAN200 ranking has been significant. Do the businesses include in this ranking exhibit better financial performance? 1.4 Research objective and Scope of research 1.1 Research objective The subject of the research project is to analyze the impact of mandatory disclosure of climate change indices on the financial performance of businesses in 11 various industries, including manufacturing, services, and finance, in countries worldwide. The variables used in this article include Dependent variables: Return on Assets (ROA), Return on Sales (ROS), and Sales Growth (SALES); Independent variables: Climate Change Disclosure (CCD); Control variables: Financial Leverage (LEV), Firm Size (SIZE), Firm Age (FA), CLEAN200 Ranking (CLEAN200), and Market Group (MARKET).
Scope of the research The research scope will focus on factors related to the disclosure of CCD indices and their impact on the financial performance of businesses.