Value Relevance of Climate Change Risks: A Canadian Study

Abstract

The objective of this study is to examine whether shareholders value the climate change risk 
disclosures firms communicate in their annual reports. The risks associated with climate 
change voluntarily disclosed by companies were identified based on the annual reports of 210 
firms included in the S&P/TSX Composite Index. The value relevance of this information was 
then examined with a regression model founded on Ohlson’s model (1995). The results of the 
analyses tend to show that, with the exception of market risks, very few of the disclosed risks 
appear to be relevant to shareholders. This may possibly be explained by the very generic             
information content of these disclosures. These results enable us to conclude that Canadian 
companies’ voluntary disclosures on climate change in their current state contain very little 
informational content and appear to be more symbolic in nature. The study’s findings raise 
doubts and questions about the informational contributions of these disclosures in their current 
format. Since they focus on the impact that climate change may have on the company                      
(i.e., financial materiality), there is reason to question their informational contributions in                      
relation to the information that shareholders can obtain from the media, government institu
tions or other sources of external information.