Does environmental justice influence corporate climate risk disclosures? Evidence from the environmental court

Abstract The effect of environmental justice on business climate risk disclosure is investigated in this study. The creation of environmental courts is viewed as a quasi-natural experiment, and its impacts are evaluated using a multi-period difference-in-differences (DID) technique using panel data of Chinese listed businesses from 2012 to 2022. According to our research, the creation of environmental courts greatly improves corporate disclosure of climate risk. Following propensity score matching DID (PSM-DID) analysis, parallel trend tests, and placebo testing, these findings hold up well. The creation of environmental courts draws institutional investors, allowing them to play a governance and supervisory role that encourages climate risk disclosure, according to a more thorough examination of governance processes. However, this effect weakens when managerial ownership is high. From a reputational perspective, we find a complementary relationship between formal institutions, such as environmental courts, and informal regulations, such as corporate social reputation. In particular, environmental courts have a greater impact on encouraging climate risk disclosure for companies with a bad social reputation than for those with a good reputation. Finally, the heterogeneity analysis indicates that the establishment of environmental courts has a more pronounced impact on promoting climate risk disclosure in firms with lower accounting information quality, lower financing constraints, and a lower proportion of female executives. This analysis offers fresh perspectives on governance and reputational factors in addition to enhancing the body of knowledge on how formal environmental legislation affect company climate-related disclosures.