Political environment and voluntary disclosure in the U.S.: Evidence from the Carbon Disclosure Project

• DOI: http://doi.org/10.1002/pa.1637
• Published date: 01 November 2018
• Date: 01 November 2018

ACADEMIC PAPER

Political environment and voluntary disclosure in the U.S.:

Evidence from the Carbon Disclosure Project

Scott Hoover

1

|Stephan Fafatas

2

1

Department of Business Administration,

Washington and Lee University, Lexington,

Virginia, USA

2

Department of Accounting, Washington and

Lee University, Lexington, Virginia, USA

Correspondence

Stephan Fafatas, Washington and Lee

University, Lexington, VA, USA.

Email: sfafatas@wlu.edu

We investigate whether the political leaning of the state where a given firm is headquartered is

related to that firm's decision to voluntarily disclose climate change information. We study S&P

500 firms that were surveyed by the Carbon Disclosure Project (CDP) and find that firms

headquartered in more Democratic states are more likely to disclose carbon emissions informa-

tion to the CDP. Furthermore, firms in more Democratic states are more likely to permit public

disclosure of their survey responses and tend to receive higher disclosure scores. We consider

two political variables, one based on political power and one based on public political preference.

Our results are consistent with political power driving the firm's willingness to voluntarily disclose

information about climate change. These results suggest that the relation between the political

environment and disclosure is more closely linked to concerns over regulatory threats as opposed

to acquiescence to social norms.

1|INTRODUCTION

The interaction between political forces and business decisions is

clearly an important one, with U.S. firms spending over $3 billion

annually on lobbying efforts.

1

We explore the extent of other ties

between politics and corporate behavior by considering whether

state political leanings in the United States are related to a firm's

decision to voluntarily disclose climate change information, specifi-

cally information related to carbon emissions. Is it the case that firms

headquartered in Democratic‐leaning states (relative to those in

Republican‐leaning states) are more likely to voluntarily disclose

emissions information?

Our analysis is based on the perception that Democrats believe

there should be more legislative focus on environmental issues. This

perception is evident in media stories and political campaigns. For

example, one focus of the 2012 Democratic platform was the need

for more regulation concerning carbon emissions.

Democrats pledge to continue showing international

leadership on climate change, working toward an

agreement to set emission limits in unison with other

emerging powers. Democrats will continue pursuing

efforts to combat climate change at home as well,

because reducing our emissions domestically—through

regulation and market solutions—is necessary to

continue being an international leader on this issue.

2

In contrast, the 2012 Republican platform reflected a tempered

approach, arguing that care for the environment is best handled

privately.

Experience has shown that, in caring for the land and

water, private ownership has been our best guarantee of

conscientious stewardship, while the worst instances of

environmental degradation have occurred under

governmental control.

3

This contrast is heightened by the fact that there is no clear political

preference for the nation as a whole. Statewide political preference

has been quite fluid over time according to Gallup polls, with a plurality

of citizens of 42 states having expressed an affiliation with the Demo-

cratic Party in 2008.

4

That number had slipped to 26 by 2011 as Pres-

ident Obama's popularity fell. This is also evident among the 10 most

populous states, with only California, New York, and Illinois considered

solidly Democratic and only Texas considered solidly Republican.

President Obama's Clean Power Plan, introduced in August 2015,

illustrates the different viewpoints. The plan is aimed at coal‐burning

1

The Center for Responsive Politics tracks and reports lobbying expenditures

through its website: https://www.opensecrets.org/lobby/. Expenditures have

exceeded $3 million in every year beginning in 2008, with an estimated $3.22

billion spent in 2015.

2

Obtained from the Democratic Party website at https://www.democrats.org/

party‐platform (most recently accessed on May 10, 2016).

3

Obtained from the Republican Party website at https://www.gop.com/platform

(most recently accessed on May 10, 2016).

4

Gallup poll results obtained from http://www.gallup.com/poll/114016/state‐

states‐political‐party‐affiliation.aspx (most recently accessed on May 3, 2016).

Received: 18 May 2016 Revised: 12 October 2016 Accepted: 30 October 2016

DOI: 10.1002/pa.1637

J Public Affairs. 2018;18:e1637.

https://doi.org/10.1002/pa.1637

© 2016 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/pa 1of12