Task force on climate-related financial disclosures, carbon performance, market performance, and tax avoidance: A systematic literature review and empirical studies

Abstract

This is a three-paper thesis that focuses on one of the climate reporting reforms introduced by the Task Force on Climate-related Financial Disclosures (TCFD). The first paper conducts a systematic literature review (SLR) of TCFD studies. The second paper is an empirical paper that examines the links among TCFD compliance, carbon offset, carbon performance, and market performance in the banking industry. The third paper focuses on the effect of TCFD compliance and process- and outcome-based carbon performance on tax avoidance in non-financial firms. In examining all of the above, this thesis demonstrates how country characteristics (e.g., national governance index, and climate regulatory framework) affect the observed relationships. The first study provides a comprehensive systematic literature review (SLR) on the TCFD to synthesise and extend current understanding of existing theoretical perspectives and empirical evidence in a wide range of financial/non-financial corporate outcomes. Reviewing 163 articles published from 2016 to 2022, this study reports several important findings. Despite the disproportionate level of empirical evidence on the TCFD, this review observed that the existing literature predominantly focuses on the extent of the implementation of the TCFD climate reporting framework and some firm characteristics driving its adoption. However, it falls short of discussing the effect that TCFD reporting has on firms’ ethical and financial performance (e.g., market performance, tax avoidance, carbon reduction initiatives, and actual carbon performance), especially studies that use a sample of global/financial firms. In the light of the results from the first study, the second paper investigates the influence of TCFD compliance on process- and outcome-based carbon performance, as well as market performance in the banking sector. As the first study of its kind in this field, the moderating roles of carbon offset strategy on TCFD–PCRI and TCFD–ACP were also analysed. Drawing on a global sample of the banking sector and theoretical insights from neo-institutional theory (NIT), the results revealed that firms disclosing more TCFD-aligned information witness an improvement in process- and outcome-oriented carbon performance, as well as market performance, aligned with the efficiency view of the NIT. However, there is no moderating effect of carbon offset found in the TCFD–CP nexus, despite the direct positive effect of carbon offset on outcome-oriented carbon performance. Following similar analysis, the third paper examines the impact of TCFD and carbon performance on tax Avoidance. Using a worldwide sample of all non-financial firms, the findings suggest that firms with greater TCFD compliance and more extensive PCRI tend to exhibit a lower likelihood of tax avoidance, indicating a substantive reflection of their ethical business operations. On the other hand, firms emitting more carbon will be likely to avoid more taxes, suggesting an alignment of firms’ commitment to contribute to the sustainability issues and to the society at large. The findings have important implications for academics, standard setters, regulators, managers, and other relevant policymakers. Keywords: Task force on climate-related financial disclosures (TCFD), systematic literature review, carbon reduction initiatives, actual carbon performance/greenhouse gas emissions (GHG), market performance, tax avoidance, neo-institutional theory, banking/non-financial firms, and country-level factors

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Identifiers

ORCID for Yunice Karina Tumewang: orcid.org/0000-0001-7537-3985

ORCID for Collins Ntim: orcid.org/0000-0002-1042-4056

ORCID for Faizul Haque: orcid.org/0000-0003-1556-3466

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