University of Toronto
The Effect of Mandatory Carbon Reporting on Greenwashing
October 17, 2022 – 05:15 – 06:30 PM (CEST)
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We study whether mandatory carbon reporting reduces the selective disclosure of favorable versus unfavorable environmental information. Our setting is a regulation mandating firms to report carbon emissions, or mandatory carbon reporting (MCR). Measuring selective disclosure as the difference between how much a firm discloses and how much of the disclosure is indicative of the firm’s true environmental impact, we find that MCR leads to a decline in selective carbon disclosure, consistent with MCR requiring firms to disclose relevant carbon information that they did not report when disclosure was voluntary. We also find that MCR curtails firms’ selective reporting of other, non-carbon environmental information disclosed voluntarily. Further analyses reveal that worse carbon performers had higher levels of selective carbon disclosure prior to MCR, and their revealed poor performance impels them to decrease selective non-carbon disclosure more after MCR. Firms that reduce selective carbon disclosure also reduce their carbon emissions, suggesting that the removal of selective disclosure opportunities under mandated reporting induces firms to make real changes to improve environmental performance. Our study is important to policy makers contemplating mandatory reporting as a means to mitigate greenwashing and address climate change.
Jody Grewal is an Assistant Professor of Accounting in the Department of Management and the Institute for Management & Innovation at the University of Toronto Mississauga, with a cross appointment to the Accounting Area at the Rotman School of Management. Jody examines the capital market effects and real effects (i.e., changes in behavior through investment and use of resources) of financial and sustainability information disclosed voluntarily and under mandatory reporting regimes. Jody’s research is published leading journals such as Management Science. Media outlets including the Wall Street Journal and Bloomberg have covered her work. Jody has a Doctorate from Harvard Business School, a Master of Accounting and Bachelor of Accounting and Financial Management from the University of Waterloo, and is a Chartered Professional Accountant in Ontario.
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