Center for Advancing Accounting

The Effect of Climate-Related Disclosure Nature and Investors’ Environmental Affinity on Perception of Risk

• In Event: Dialogue Session - Disclosures

Session Submission Type: Workshop

Abstract

The SEC recently proposed a mandatory disclosure on climate-related risks and metrics. Unlike financial disclosures, information related to climate issues may carry a different value for investors with an affinity for environmental causes vs. those without. Mandating a specific disclosure offers a signal of its importance, potentially impacting whether low-environmental-affinity investors consider it and/or whether high-environmental-affinity investors consider it to be a genuine reflection of company values. In this study, I investigate whether the climate-related disclosure nature (voluntary vs. mandatory) and investors’ environmental affinity (low vs. high) jointly influence their perception of risk. Drawn on signaling theory, I predict that a mandatory climate-related disclosure, relative to a voluntary one, will lead to an increase in investors’ perception of risk. I further predict that a mandatory climate-related disclosure, relative to a voluntary one, will lead to a greater increase in investors’ perception of risk when investors have high rather than low environmental affinity. I plan to conduct a pre-test two weeks prior to the main experiment to identify individuals’ level of environmental affinity and then conduct a 2 X 2 between-subjects experiment to test my predictions. This study enhances our understanding of the heated topic around sustainability and sheds light on how moving to mandatory climate-related disclosures impacts individuals who are most likely to be impacted in practice.

Track

• Workshop Proposals