Climate Information Disclosure and Company Financial Performance: Role of The TCFD Framework in China

Abstract

Motivated by stakeholders’ demand for heightened transparency on corporate responsibility to mitigate climate impacts from operations, this study investigates whether Chinese companies utilizing the Task Force on Climate-related Financial Disclosures (TCFD) framework can improve their financial performance through climate information disclosure. It examines how several aspects of climate information disclosure influence corporate financial performance. The study also examines whether signalling or legitimacy incentives within companies influence the relationship. Content analysis was conducted on reports from 2018 to 2021 for 14 Chinese companies that used the TCFD framework and 35 extractive companies as an alternative sample. The findings did not establish a statistically significant relationship between climate information disclosure under the TCFD framework and corporate financial performance. However, climate risk management disclosure is an important determinant of company performance in the extractive industry sample. This result demonstrates that the consequences of corporate disclosure are multifaceted, and that meeting stakeholders’ legitimacy demands may not result directly in financial benefits. This study is among the first attempts to assess the relationship between climate information disclosure and financial performance. It offers insights into the potential limitations and complexities of linking climate disclosures to corporate financial performance for policymakers and business managers.

Keywords: Financial performance; climate information disclosure; TCFD framework; extractive companies; machine learning.