CLIMATE CHANGE RISK DISCLOSURE AND ACCOUNTING CHOICE: EVIDENCE FROM U.S. OIL AND GAS COMPANIES

Abstract

Focusing on U.S. oil and gas companies following the SEC’s investigation of ExxonMobil’s climate risk issues, this study investigates the impact of climate change risk (CCR) disclosure on corporate accounting choices. After examining U.S. oil and gas firms’ 10-K filings, carbon disclosure project (CDP) reports, and multi-source corporate sustainability reports, we find a positive association between CCR disclosure and the full cost (FC) accounting choice, designating that oil and gas firms with greater CCR disclosures are more likely to adopt the FC method to record oil and gas exploration activities. Our study responds to the SEC’s2010 and 2022 Climate Change Disclosure Guidance and encourages more oil and gas companies to disclose CCR and its impact on financial reporting to facilitate transparent transitions towards a low-carbon economy.