Climate change risks: an examination of corporate risk responses, disclosures and disclosure implications

Climate change is one of the greatest challenges faced by Australian companies as it poses regulatory, physical and market risks that represent significant problems for companies and their stakeholders. Specifically, these risks can transform into large-scale financial problems exposing companies to billions of losses. Acknowledging the looming financial consequences of climate change risks, this thesis examines issues related to climate change through three studies set in the Australian context. The first study uses a survey to explore the extent of climate change risk responses by companies and whether the extent of climate change responses is influenced by the top risk managers’ climate change belief, strategic management factors (i.e. company strategy and company structure) and stakeholder factors (i.e. stakeholder pressure and external stakeholder interaction). Its findings can be used by regulators to identify companies that are failing to provide adequate climate change risk responses and take necessary actions to ensure these shortcomings are addressed by companies. Using content analysis, the second study explores current climate change risk and risk response disclosures by companies, and whether the extent of these disclosures is impacted by corporate financial factors (i.e. profitability, gearing and ownership concentration) and corporate governance factors (i.e. proportion of non-executive directors, proportion of female directors and the presence of an environmental committee). Its findings provide important recommendations for companies to improve disclosure practices, which will create value for both the companies and their stakeholders, since inadequate disclosures can cause legal consequences for the former and uninformed decisions can cause unfavourable financial consequences for the latter. The third study uses a survey experiment to explore how investors react to different levels of climate change risk and risk response disclosures by companies. Its findings inform companies about investors’ expectations regarding the extent of climate change risk disclosures when making investment decisions.