The Essay On Carbon Emissions Reporting's Importance For Firms.

Despite attracting considerable attentiion by accounting scholars, Carbon Emissions Reporting has so far failed to provide stakeholders with any meaningful information and has negligible impact on investors assessments of firms performance.

Consequences of Carbon Emissions

Carbon emission is defined as the release or the discharge of the carbon into the environment that creates pollution in the atmosphere and thus affects the human health intensely (Hooijer et al. 2014). In other words, it can be said that the carbon emissions generally donate to the change in the climatic condition that can have severe penalties for both the environment and the lifestyle of the human beings. As per the Environmental Protection Agency, it has been came to know that the carbon emissions can take place in various forms, like in the form of the gas called carbon dioxide that usually makes up over 80 % of the entire greenhouse gases (Jiang, Ye and Ma 2014). Moreover, the burning of the fossil fuels also discharge various types of greenhouse gases and along with it emits carbon dioxide. All these have been found to increase the average temperature globally by trapping the solar energy in the atmosphere (Liu et al. 2015). The other consequences of the emissions of carbon in the atmosphere for the human beings include – shrinking of supply of water, increase in the numbers of incidents regarding severe weather condition, changes in the supply of food and also other geographical changes. Therefore, it can be said that study, analysis and preparing a report on the emissions of carbon is an important factor for every firm.

It can be said that the human activities are the main aspects that spontaneously affect the climate of the Earth through the emission of various gases that constitute to form greenhouse gases. Thus, in order to combat the drastic climatic change the people should adopt the strategy of preparing Carbon Emission reporting by every business based on the affects of their activities (Barrett et al. 2013). For example, the larger manufacturing plants as well as the large power stations are required to reporting regarding their emissions of carbon to appropriate entities of the government. Moreover, it has been found that in the United Kingdom, Defra that is the “Department for Environment, Food and Rural Affairs” has portrayed the changes in the climate due to the business activities as the “greatest challenge regarding environment that the world faces at present days” (Doda et al. 2016). Thus, this particular depart “Defra” has now arranged for a legal requirement for the entire listed corporations of the country U.K. for reporting their emissions of greenhouses gases on a yearly basis.  

Human Activities and Carbon Emissions

Moreover, it can be said that preparation of the carbon emission reporting is an important factor as this report helps to understand the total quantity of greenhouse gases or carbons emitted by a firm in each year (Heede 2014). Thus, it helps the government as well as the environmental department to understand measure and control the rate of carbon emissions done by a particular business. The corporate social responsibility is a mandatory factor for every business as welfare of the environment, biodiversity; human beings and society are considered as crucial aspects, without which a business cannot run (Bonin 2013). In general, the operation of every business affects the environment adversely, thus, it is a matter of compulsion for every firm to show responsibility towards the society and the environment (Boukherroub et al. 2017). Thus, every business should present their responsibility towards the environment by reducing their rate of carbon emission each year. The rate of carbon emission, its increase or decrease can be measured, controlled and the trend of the carbon emission of a particular corporation can e better understood through the system of carbon emission reporting. As a result, in present days, the Carbon emission reporting is considered as an important factor for every corporation for the welfare of the human beings, society and the environment.    

Based on detailed study and analysis, it can be said that there are various relevant theories on Carbon emissions based on which the reporting is done (Trotman and Trotman 2013). The modeling of structural equation analysis represents that the emissions of the corporate carbon and its impact in the country U.K. on the financial performance of the corporations can be better understood through both the mechanisms that are – indirect and direct. In case of direct impact, it has been identified that the carbon emission of corporate is negatively related to the financial performance of the corporation (Havranek et al. 2015). Therefore, this implies that the particular market responds to the performance of the emission of carbon of the corporations. On the other hand, for the indirect influence, it has been noted that the emissions of the carbon of the corporations are positively associated with the level of disclosures of the corporate carbon (Melville and Whisnant 2014). Moreover, it has been found that the corporations having more rates of carbon emissions generally make increased extensive disclosures. Furthermore, this represents that there is an important and positive relationship among the financial performance of the corporations and the disclosure of the corporate carbon (Jones 2015). Therefore, the reporting of the carbon emissions make a strong and good relationship between the company and its stakeholders, as this report helps the stakeholders to understand the financial condition of the firm. In addition, this better understanding helps the investors to make decision regarding investing in the shares of the firm (Subramanian et al. 2015). As a result, the high level of disclosure of corporate carbon appears to arbitrate the potential adverse effects of the high emissions rate of carbon of the corporation. Thus, in other words, it can be said that both the indirect and direct mechanisms are aligned with the forecast of the economic disclosures and socio-political disclosures theories (Freeman et al. 2014). Based on this, it can be said that the market usually respond to the environmental performance of the corporation and the businesses having poor performance (environmental) intend to unveil more data for managing and controlling the legitimacy threat, which is afterward developed by the help of the poor performance (Heath et al. 2014). Moreover, it also aimed to deduce the asymmetry of the information and related data. Therefore, it can be said that both the economic disclosure theories and the socio-political theories play a vital role being the relevant theories on Carbon emissions.              

UK Requirements for Reporting

The carbon emissions reporting have a high level of affectivity in informing stakeholders regarding the environmental performance of a firm (Caulton et al. 2014). The reason behind this is that the rate of emission of the carbon by a corporation helps the investors as well as the stakeholders of the firm to understand the responsibility of the particular firm towards the welfare of the society and the environment. The corporations that do not take steps for the betterment or the welfare of the society are considered as those particular organizations that have poor or weak environmental performance (Petzold et al. 2013). Based on this poor environmental performance, the investors generally take decision not to invest in these firms, thus the stock prices of these organizations fall that lead to weak financial condition (Ogle et al. 2014). Therefore, preparing the carbon emission reporting is considered as an important factor for every firm, as this report helps the investors as well as the stakeholders to understand the past, present and the future intention of the firm regarding reduction of the rate of carbon emissions. In addition to these, it can be said that the trend of the rate of carbon emission also helps the investors to understand the environmental performance of the firm (Colin Haslam et al. 2017). Therefore, the preparation of the carbon emission reporting is considered as the mirror to the company’s environmental performance (Saka and Oshika 2014). However, it has been found that in certain times, the investors failed to make correct decision regarding investing in the company shares or stocks, as the carbon emission reporting misguides them.   

Depending on the critical discussion regarding the effect of carbon emissions reporting on making decision of the potential investors regarding investment in the shares of a firm, it can be said that the present mechanisms are not upgraded (Deegan 2013). Moreover it has been found that most of the researchers and the environmentalists argued that the present approaches or the mechanisms or the relevant theories by implementing which the carbon emission reporting are prepared usually generate malleable, irreconcilable and inconsistent narratives and numbers. Thus, Turner and Collins (2013) stated that an alternative mechanism for framing the disclosure of carbon emission should be prepared and this should be informed by the assistance of the business models of the reporting entities (Hopwood 2017). As the present framing process of the disclosure of the carbon emission of the corporations is irreconcilable, inconsistent and malleable, the environmentalists advised the corporations that the entities (reporting) should unveil its relationship between the carbon and the material stakeholders. Depending on this alternative, Ravindranath et al. (2014) stated that this might raise the visibility of the carbon that generates the relationships with the stakeholders and also pass up some of the complexities and arbitrariness that are related to the framing process of the disclosure of the corporate carbon (Bustamante et al. 2016). The reason behind this is that in the particular alternative, judgments should be made regarding the operational control as well as the responsibility of the firm.    

Measurement and Control of Carbon Emissions

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