Does Carbon Reporting Really Reflect Companies’ Climate Change Action Strategies?

Abstract

The quality of information disclosed in companies’ carbon reports can differ significantly. The differences can be due to the level of detail reported in the information, to the type or nature of content provided, as well as to the “how” it is revealed. Carbon reports can be characterized by a simply and soft narrative, without providing quantitative details or being more specific in terms of quantitative and historical data. In this chapter, we integrate the natural resource-based view and quality signaling theory to study the relationship between corporate strategy and the quantitative information disclosed in carbon reporting. In particular, we posit that it is crucial to analyze the role of environmental innovations and sustainable development strategies as proxies of corporate strategy to understand why there are companies that provide quantitative data in their carbon reporting and others that limit their disclosure to more soft information. We defend firms that tend to report quantitative carbon information when they invest in increasing resources in environmental innovation designed to tackle climate change problems. Similarly, broader investments in sustainable development strategies lead to quantitative data disclosure in cases where these investments are large focused on the dimension of environmental integrity compared to economic prosperity and social equity dimensions. In these last two dimensions of sustainable development, we suggest that companies prioritize other types of information that emphasize their positive contribution to society, withdrawing hard carbon data in their reports. As a primary tool, we use content analysis to proxy corporate strategy and the quality of carbon reporting. The quality of carbon reporting is computed in a standardized way by checking whether companies report quantitative carbon data in their reports. The automobile companies reporting between the years 2005 and 2013 and filed patents and projects undertaken between 2000 and 2010 were analyzed. Our results confirm that companies investing a high proportion of resources in clean technologies and projects related to environmental integrity disclose quantitative carbon data in their reporting. We also find that there is some incompatibility between the provided quantitative carbon data and investments in projects linked to economic prosperity. Finally, the empirical evidence does not support that companies do not report quantitative carbon information when they invest a high proportion of resources in projects related to social equity.