The Effect of Corporate Governance on Voluntary Risk Disclosures: Evidence from Greenhouse Gas Emission Reporting

This study extends prior literature examining the relationship between corporate governance and voluntary disclosures. Specifically, we investigate whether corporate governance characteristics are related to risk disclosures of the firm, in the form of greenhouse gas (GHG) emissions. GHG disclosures represent proprietary risk information about the firm's operations and future profitability and result in negative impacts to firm value. Using a sample of firms participating in the Carbon Disclosure Project (CDP) from 2002 through 2006, we find that the presence of an environmental committee and a Chief Sustainability Officer (CSO) are positively related to the probability of risk disclosure and disclosure quality. Further analysis of specific committee and executive characteristics reveals that the probability of disclosure is associated with committee size, number of committee meetings, expertise of committee members and CSO, and overlap between the environmental committee and audit committee. Only expertise of the environmental committee members and the CSO are associated with GHG disclosure quality, while larger committees tend to be associated with lower disclosure quality. Our results suggest that firms should also consider the impact of corporate governance mechanisms in responding to the call of regulators and stakeholders for greater transparency of corporate risks.