Responding to the EU Emissions Trading Scheme and Climate Change Act: A Longitudinal Analysis of Corporate GHG Disclosure Strategy

This study is motivated by the introduction of mandatory greenhouse gas (GHG) reporting by UK Government under the Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013. The act requires listed companies to report their GHG emission information in their annual reports. Before the enactment of this regulation, there are several GHG reporting guidance that aim to improve the reporting of GHG emissions by UK companies, such as the GHG Carbon Disclosure Project, Global Reporting Initiatives, World Business Council for Sustainable Development and World Resources Institute (2004). This raises the question of why further governmental intervention is initiated in GHG reporting despite the existence of institutionalized reporting guidance. In this paper, we investigate the extent to which GHG-sensitive companies in FTSE 100 disclose GHG emission information in their annual and standalone reports during the 2004–2012 period, and how they respond to the enactment of legally binding GHG reduction schemes such as the EU Emission Trading Scheme (EU ETS) and Climate Change Act (CCA). Consistent with institutional legitimacy theory and strategic legitimacy theory, we find that the disclosures have been increasing over time, both in number of companies making disclosures and in the amount of information being reported, which indicates the movement towards normativity. We also find that the disclosures reach their peak after the enactment of EU ETS and CCA, and that companies with GHG trading accounts are more responsive to these schemes than those without the accounts. Nevertheless, the quality of the disclosure remains low, which may justify further government intervention of mandating GHG reporting.