title: Corporate carbon reporting and disclosures: a quality rating framework
Creators: name: Xu, Fangchao
Publisher: name: Edinburgh Napier University
publisherIdentifier: https://ror.org/03zjvnn91
publisherIdentifierScheme: ROR
Year: 2024

description: Carbon's significance in the economy and its impact on humanity are widely acknowledged. Stakeholder pressures have compelled businesses and industries to disclose their carbon performance data and meet regulatory obligations. Consequently, research on carbon reporting and disclosures has garnered substantial attention in the literature. These disclosures are increasingly recognised as a vital tool to pressure companies into reducing greenhouse gas emissions, thereby contributing to climate mitigation goals. However, despite the growing number of reporting entities, stakeholders argue that the information provided on carbon performance, risks, and impacts lacks quality and transparency. The existing carbon reporting landscape is marked by deficiencies in credibility, reliability, transparency, and comprehensiveness, further compounded by the absence of a consistent global framework. A pivotal challenge in this domain pertains to the assessment of reporting quality, for which specific rating mechanisms are currently lacking.
This study endeavours to bridge this gap by proposing a comprehensive quality rating framework that can be adopted by rating organisations to assess the quality of corporate carbon reporting and disclosures. Specifically, this framework aims to evaluate the communication of greenhouse gas emissions data and information to shareholders and stakeholders by companies. The study unfolds through four key research objectives: 1) A comprehensive literature review to understand the current state of carbon reporting and disclosures; 2) Development of a quality rating framework, encompassing guiding principles, quality characteristics, and a rating methodology; 3) Application of the Analytic Hierarchy Process (AHP) to assign weightings of importance to the primary themes of corporate carbon reporting and disclosures; and 4) Provision of practical and policy recommendations for evaluating the quality of a company's carbon reporting and disclosures.
This study employs a mixed-methods research approach that combines interpretivism and pragmatism. The research methodology encompasses qualitative methods such as critical literature review and expert interviews, as well as quantitative methods involving individual questionnaires employing pair-wise comparisons. The AHP methodology is leveraged to determine the relative importance of five core reporting themes.
The proposed quality rating framework includes guiding principles like trustworthiness, materiality, and transparency. Quality characteristics encompass objectivity, accuracy, currency, coverage, adequacy, and usefulness. Trustworthiness is evaluated through credibility, dependability, confirmability, and stability. The framework assesses three key dimensions of corporate carbon reporting and disclosures: reporting quality principles, reporting contents, and reporting process. The content dimension comprises carbon governance, carbon strategy and targets, carbon performance assessment, carbon scopes and assets, and carbon risk management. The reporting process dimension includes stakeholder engagement and external verification and assurance. Using the AHP, the study assigns weightings of importance to these five reporting themes, with the order of importance determined as carbon emission scopes and carbon assets, carbon governance, carbon strategy and targets, carbon performance assessment, and carbon risk management.
This study offers significant contributions to the literature. Firstly, it responds to the global call for improved climate-related financial and non-financial reporting by developing a practical quality rating framework for evaluating carbon reporting and disclosures. Secondly, it blends qualitative and quantitative approaches, applying the AHP to gauge the importance of reporting themes based on expert and stakeholder opinions. Thirdly, it contributes to the literature by specifically identifying the main themes to be assessed of carbon reporting and disclosures through integrating the literature and expert interviews and refining the themes into easily manageable five themes. In addition, the study critically reviews existing carbon reporting standards and principles, identifying key quality characteristics that could inform the development of corporate carbon reporting standards.