The Impact of Climate Risk Disclosure as Risk Management Tool on Firm Financial Performance: The Role of Board Characteristics “Evidence from an Emerging Environmental Regime”

Purpose – Firms with high intensity of environmental investments have concern over the cost of meeting environmental regulations. This study aims to investigate how climate risk disclosure affects firm financial performance through examining the effect of disclosing about carbon emissions on firm`s ROA. In addition, this study extends prior literature by examining the role of board characteristics in promoting climate risk disclosure impact on firm financial performance.
Design/Methodology/Approach – This study uses the Carbon Disclosure Project (CDP) annual questionnaire to measure climate risk disclosure and uses ROA to measure firm financial performance. In addition, study`s model is developed by adding board characteristics to capture its effect on the relationship between climate risk disclosure and firm financial performance.
Findings - The empirical results demonstrate that: i) firm financial performance is positively associated with firm environmental performance. ii) no significant difference in ROA between firms disclose about climate risk than other firms. iii) the enhancement in financial performance of firms that disclose about climate risk is greater with more board size.
Research limitations/implications - The study is based solely on emerging environmental regime and does not consider mandatory disclosure about climate risk in developed regimes.  Future research will be useful to conduct comparative studies of climate risk disclosure between developed and emerging regimes and their impact on financial performance. In addition, this study considers whether firms disclose about climate risk and does not consider level of disclosure nor level of carbon emissions.  However, there is abundant room for further progress in determining levels of climate risk disclosure and carbon emissions. 
Practical implications – One of the significant implications of this study is to advance understanding of how climate risk disclosure affects disclosure quality and how this would be reflected on financial performance as an approach of risk management.
Originality/Value – There are several important areas where this study makes an original contribution to accounting literature. This study extends the scope of the literature on risk management by providing evidence that climate risk disclosure could be considered as a main determinant of risk management. In addition, firms with environmental performance maintain their financial performance overtime.