Corporate carbon risk, voluntary disclosure and debt maturity

Abstract

Purpose This study aims to investigate the association between corporate carbon risk and debt maturity and the moderating role of voluntary disclosure, within the context of South Africa, an emerging player in the climate policy debate. Design/methodology/approach Based on the insights drawn from agency as well as information asymmetry theories, the authors develop models that link debt maturity with corporate carbon risk and voluntary disclosure and examine data obtained from companies listed on the Johannesburg Securities Exchange (JSE), for the period 2011-2015. Findings The findings document that, other things being equal, debt maturity is significantly higher, both statistically and economically, for companies with lower carbon intensity (risk). In addition, high-quality carbon disclosure accentuates the positive association between debt maturity and the inverse of carbon intensity. The results are robust to alternative measures of corporate carbon risk and issues of endogeneity. The findings are consistent with the view that lenders in South Africa use debt maturity as a non-price mechanism to address borrower risk and grant lower carbon risk companies that voluntarily provide higher quality carbon disclosures an even higher access to longer maturity debts; JSE-listed companies could use voluntary carbon disclosure to ease their access to debt with longer maturity. Practical implications The findings of this study have important implications to borrowers, pressure groups, policymakers and other stakeholders. Originality/value To the best of the authors’ knowledge, this study is the first to document evidence suggesting that lenders in South Africa use debt maturity as a non-price mechanism to address borrower risk.