Andrea M. Romi

The Cost of Carbon: Capital Market Effects of the Proposed Emission Trading Scheme (ETS)

This study is based on a longitudinal analysis of corporate responses to the Carbon Disclosure’s Project’s (CDP) annual survey. In particular, it concentrates on responses to survey questions on direct (Scope 1) and indirect (Scope 2 and Scope 3) greenhouse gas (GHG) emissions. The study examines the following trends within these responses: numerical data, external verification of emissions and references to carbon accounting protocols. The analysis is from 2003 to 2010. Results indicate increases in numerical data over the study period, particularly within responses to Scope 1 and Scope 2 emissions questions. However, there remains a consistent level of unanswered Scope 1 and Scope 2 emissions questions, and a high level of unanswered Scope 3 questions. External verification of these emissions appears to have remained nearly constant, in contrast, references to the WBSCD/WRI GHG Protocol increased over the period of the study. Although these particular trends have not been examined in prior research, I found that this article had some shortcomings. In relation to the conceptual framework, it could have been more coherent and clear. The key concepts, reporting transparency, convergence and standardisation, were not sufficiently explained, particularly in relation to the investigation of the study. Further, the relationship between the concepts was not clear. In this sense, there seemed to be no overarching framework connecting the concepts. Perhaps if a more coherent evaluative/conceptual framework underpinned the content analysis, this would have strengthened the contribution of the article. I think that this conceptual ambiguity detracted from the content analysis. The analysis consisted of frequency counts of answered, unanswered questions and numbers/words in answers. I am not sure that this level of analysis was sufficiently rich to assess concepts such as convergence, transparency and quality, much less to make claims about these issues. Similarly, it is hard to see how increases in numbers and words give rise to transparency or standardisation, which seems to be an argument made in the article. Given the assertion in the study that the CDP drives reporting convergence, perhaps institutional theory (e.g. isomorphic forces) may be employed to explain developments in disclosure overtime, in particular the process and type of convergence induced by a global institution like the CDP. This convergence, in whatever form it takes, may have unintended negative consequences for transparency of companies’ climate change activities and information quality. An argument along these lines may have added to the value of this study.

Creating Legitimacy for Sustainability Assurance Practices: Evidence from Sustainability Restatements

Abstract This study examines sustainability reporting assurance (SRA) provider use of sustainability restatements as a means to create legitimacy in the developing SRA market. In comparison to financial data, mistakes in sustainability reporting are more likely to be made and less likely to be discovered prior to reporting. A lack of clear reporting standards and ambiguous SRA guidelines create a setting where providers can use restatements in an attempt to demonstrate both a problem in sustainability reporting and assurance as the solution to that issue. Based on a sample of US firms from 2010 to 2014, we find that SRA is associated with an increased likelihood of sustainability restatements, that the association is stronger for error restatements than for restatements due to methodological updates, and that SRA is significantly associated with the disclosure of quantitatively non-material restatements. We also document differences in these relations across provider type, with only consultant assurance significantly associated with methodological restatements and restatements of a non-material amount. Our findings support differences between sustainability report restatements and financial restatements, and provide evidence in support of our argument that assurance providers may be using restatements in an attempt to expand market share in a new professional space.

The Influence of Corporate Social Responsibility on Investment Efficiency and Innovation

We examine two important channels through which corporate social responsibility (CSR) affects firm value: investment efficiency and innovation. We find that firms with higher CSR performance invest more efficiently: these firms are less prone to invest in negative NPV projects (overinvestment) and less prone to forego positive NPV projects (underinvestment). We also find that firms with higher CSR performance generate more patents and patent citations. Mediation analysis indicates that firms with higher CSR performance are more profitable and valuable, consequences partially attributable to efficient investments and innovation. These results, robust to alternate model specifications, lend support to enlightened stakeholder theory (Jensen 2001).