Climate risk disclosure, compliance, and regulatory drivers: A textual tone analysis

Abstract

[eng] The way in which companies disclose and manage climate-related financial risks is a matter of increasing interest and concern for market stakeholders, particularly institutional investors. This article presents a textual analysis of the tone of climate risk disclosures by ASX200 companies from 2015 to 2019. It explores the most common tones of language used, how they differ across economic sectors, how disclosure tone is influenced by corporate governance and other company characteristics, and whether approaches are changing over time. Disclosure tone can influence the judgments and decision-making of market stakeholders. Textual analysis presents an analytical tool to help market stakeholders explore and assess a company’s perceptions and managerial judgment about climate-related risks, feeding into their broader analysis about a company’s preparedness to manage these risks and seize opportunities. It also offers insights for regulators as they develop guidance to scaffold existing legal obligations and oversee compliance in this area.