What happens when a firm wants to have the positive image that comes from being seen as transparent about its environmental performance, but its environmental performance is unfavourable? Research suggests that such companies issue confusing reports that are difficult for readers to understand (long sentences, technical terms, multi-syllabic jargon). It seems they want the benefit of appearing to be transparent, while avoiding the reputational costs that come from poor actual performance. In contrast, from a SET perspective, it is important to provide clear and transparent communication about environmental and social performance. Moreover, SET firms may invite third parties to help prepare such reports.
Fabrizio, K. R., & Kim, E. H. (2019). Reluctant Disclosure and Transparency: Evidence from Environmental Disclosures. Organization Science, 30(6), 1207-1231.
It’s been another remarkable week of news about climate change and business responding. Headlines tell us about record-breaking fires in Australia and announce that the past decade has been the hottest on record, with a director from NASA saying; “If you think you’ve heard this story before, you haven’t seen anything yet.”
Meanwhile Blackrock, the world’s largest asset manager ($7 trillion), announces that it is changing its focus to climate change. Founder and CEO Laurence Fink believes we are "on the edge of a fundamental reshaping of finance" because of a warming planet. And, based on a survey of 750 key decision makers prior to the World Economic Forum, environmental issues are at the top of the list of concerns for those heading to Davos. The need for an interest in SET management is growing weekly.
Sources: Borenstein, S. (2020 Jan 16). Past decade the hottest on record. Winnipeg Free Press; Pylas, P. (2020 Jan 16). Environmental issues top list of worries for those heading to Davos. Winnipeg Free Press. Associated Press (2020 Jan 14). BlackRock, world’s largest asset management, changing its focus to climate change. https://www.cbc.ca/news/business/blackrock-investment-climate-change-1.5426465?cmp=rss