Carbon disclosure and company performance : a portfolio performance approach

Adam, Shalima (2012-03)

Thesis (MBA)--Stellenbosch University, 2012.


The objective of this research study was to investigate whether socially responsible companies that disclose their carbon emission, referred to in this research report as ‘carbon disclosure leaders’, outperform their non-disclosing counterparts, referred to in this research report as ‘carbon disclosure laggards’. This research study attempted to substantiate the relationship between companies’ carbon disclosure practices and companies’ share price performance. An empirical analysis was conducted with a focus on South African-listed Johannesburg Stock Exchange (JSE) top-100 companies. A portfolio approach was utilised to establish if any significant relationship exists between company carbon disclosure and company share price performance. Portfolios were constructed based on companies that participated in the Carbon Disclosure Project (CDP) and were thus categorised into JSE industry sectors. It was assumed that by using industry-specific sectors, the macro-economic conditions would generally affect all companies in that specific sector in a similar way, thus enabling comparative analysis. The results from this study subsequently found, having done various analyses in terms of share price growth and carbon disclosure, that no significant correlation exists in terms of the CDP. This would, however, be correct in terms of the analysed data, which is limited at times, but cannot be necessarily inferred as a broader statement. Intuitively, it can be said that carbon disclosure and greater ratings in terms of the CDP would imply that companies are more positive in dealing with their carbon footprint, which would be more positive for their long-term existence and sustainability. Equally, it could also yield various cost savings that will translate into higher earnings and earnings per share that drive share price growth. In becoming more active in reducing the carbon footprint, companies would also reduce their risk profile since they would be better aligned to potential restrictive carbon emission legislation and improve their public profile, which could again boost profitability. Further arguments can be made to suggest that disclosure of a company’s carbon initiatives and footprint would benefit the company’s value and share price performance. Thus, having observed the outcomes of the analyses conducted in this report, the more appropriate question would be if other factors exist that could have affected the outcomes as observed and whether these factors could have overshadowed the proof that there is a positive correlation between share price growth and carbon disclosure.

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