Proactive Accounting Disclosure about Climate Change and Credit Ratings Firms: The Modifying Role of Accounting Earnings Quality

This paper investigates the role of proactive accounting disclosure on climate change and its influence on the quality of accounting earnings and corporate credit ratings. Rising environmental costs due to climate change require companies to embed environmental strategies into their operations and disclose related information timely and transparently. The study emphasizes shifting from annual to interim financial reporting to provide more predictive and relevant information for investors, creditors, and other stakeholders. It also examines how earnings management—through accrualbased and real activities—impacts reported profits and, consequently, credit ratings. Managers often manipulate earnings to maintain or improve credit ratings, which affect borrowing costs, investor confidence, and market value. The global credit rating market is primarily dominated by Moody’s, Standard & Poor’s, and Fitch, agencies that place significant weight on accounting disclosure quality. Moreover, proactive and voluntary climate change disclosures enhance corporate transparency and legitimacy, helping firms communicate risks, demonstrate environmental responsibility, and gain competitive advantages. Improved disclosure quality increase’s earnings reliability, ultimately benefiting credit ratings. The paper concludes that proactive financial and environmental reporting is essential for companies to effectively manage climate-related risks, meet stakeholder information needs, and sustain favourable credit ratings. These practices help firms increase market value, reduce financing costs, and strengthen resilience in a competitive and environmentally conscious business environment.