Voluntary disclosure of scope 3 greenhouse gas emissions and earnings management: Evidence from UK companies

Abstract

Climate change information, especially greenhouse gas (GHG) emissions disclosures (Scopes 1, 2 and 3), has recently attracted considerable interest from investors, companies, regulators, and other stakeholders. This study examines the relationship between voluntary scope 3 GHG emissions disclosure and earnings management (EM), proxied by accruals-based earnings management (AEM) and real earnings management (REM). Based on a sample of 2,100 firm‐year observations for 420 non-financial UK-listed firms over the period 2016–2020, we find a negative but insignificant relationship between voluntary scope 3 GHG emissions disclosure and EM. Our results are robust to alternative sensitivity tests. Our findings imply that voluntary environmental disclosure (scope 3 GHG emissions) is not a determining factor for UK firms to engage in EM.

Keywords:

• voluntary disclosure
• scope 3 emissions disclosure
• voluntary environmental disclosure
• accrual-based earnings management
• real earnings management
• UK

Acknowledgments

The authors thank the editors and anonymous reviewers for their valuable comments.

Disclosure statement

No potential conflict of interest was reported by the authors.

Data availability statement

Data will be made available on reasonable request.

Notes

1. Scope 1 emissions are the emissions from sources under the company’s control, Scope 2 emissions are offsite emissions from purchased electricity, heat, or steam and Scope 3 emissions are offsite emissions from the company’s supply chain or products sold by the company (Luo & Tang, 2014; Peters, 2010).

2. Voluntary disclosure of GHG emissions information includes disclosure of GHG emissions information in corporate reports such as annual reports, sustainability reports, participation in voluntary disclosure programs, and press releases (Velayutham, 2014).