The Value Relevance of Climate-Related Financial Disclosures: An Empirical Investigation of TCFD-Aligned Reporting and Firm Valuation in Pakistan

Abstract

This study empirically investigates the connection of climate related financial disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework and firm value in the Pakistani context. A panel data comprises of 620 firm-year observations of the firms included in the KSE-100 index from the Pakistan Stock Exchange (PSX) in the time frame 2019–2024, a subset of which is used to build a Climate Compliance Index (CCI) using content analysis of corporate sustainability reports, annual reports, and ESG disclosures required by the SECP based on the four TCFD pillars: governance, strategy, risk management, and metrics and targets. We use panel fixed-effects regression models with robust standard errors to show that, controlling for industry, year, and firm (size, leverage, and profitability) fixed effects, TCFD-aligned disclosure quality is (negatively) associated with firm value measured by Tobin’s Q at a statistically significant level. This negative relationship is stronger for companies in high climate-risk sectors (Oil & Gas, Cement, Power Generation and Chemicals) and for companies with higher carbon intensity. We also observe that the negative association is weakened for firms that have a higher disclosure credibility as measured by third-party assurance. We find our results to be fairly stable over alternative model specifications, such as the generalized least squares estimation and the lagged independent variables to account for the potential reverse causality. The findings build upon the body of literature on the economic impacts of climate disclosure in emerging markets and provide empirical evidence from Pakistan, which is one of the most climate-sensitive countries in the world and has been ranked 179th out of 180 countries on the Environmental Performance Index 2024. The study has significant consequences for the Securities and Exchange Commission of Pakistan (SECP) and for corporate managers and investors who have had to deal with the changing requirements of mandatory ESG reporting, which will be fully mandatory for listed companies by 2029.

JEL Classification: G12, G14, G32, M41, Q54

References

Asbe, C., Abhyankar, A., Zade, N., & Jadhav, D. (2025). Nexus between climate risk, firm performance and firm value: An Indian Perspective. International Journal of Global Business and Competitiveness, 20(2), 132-142.

Bose, S., Lim, E. K., Minnick, K., & Shams, S. (2024). Do foreign institutional investors influence corporate climate change disclosure quality? International evidence. Corporate Governance: An International Review, 32(2), 322-347.

Christensen, H. B., Serafeim, G., & Sikochi, A. (2025). The economic consequences of climate disclosure regulation. Journal of Accounting Research, 63(2), 451-498. https://doi.org/10.1111/1475-679X.12589

Clarkson, P. M., Fang, X., Li, Y., & Richardson, G. (2013). The relevance of environmental disclosures: Are such disclosures incrementally informative? Journal of Accounting and Public Policy, 32(5), 410-431. https://doi.org/10.1016/j.jaccpubpol.2013.06.008

Demers, E., & Hendrikse, J. (2025). TCFD reporting: Early evidence on the market (ir-)relevance of global climate-related disclosures. Sustainable Finance Alliance Working Paper.

Diamond, D. W., & Verrecchia, R. E. (1991). Disclosure, liquidity, and the cost of capital. The Journal of Finance, 46(4), 1325-1359. https://doi.org/10.1111/j.1540-6261.1991.tb04620.x

Financial Stability Board. (2024). Task Force on Climate-related Financial Disclosures: 2024 Status Report. https://www.fsb-tcfd.org/

Flammer, C., Toffel, M. W., & Viswanathan, K. (2021). Shareholder activism and firms' voluntary disclosure of climate change risks. Strategic Management Journal, 42(10), 1850-1879. https://doi.org/10.1002/smj.3313

Hahn, R., & Kühnen, M. (2013). Determinants of sustainability reporting: A review of results, trends, theory, and opportunities in an expanding field of research. Journal of Cleaner Production, 59, 5-21. https://doi.org/10.1016/j.jclepro.2013.07.005

Hampton, D., & Li, V. (2022). Corporate Disclosure of Climate Change Risk–A Pilot Study. Journal of Accounting, Ethics and Public Policy, 23(4), 725-744.

Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1-3), 405-440. https://doi.org/10.1016/S0165-4101(01)00018-0

Maji, S. G., & Kalita, N. (2022). Climate change financial disclosure and firm performance: empirical evidence from Indian energy sector based on TCFD recommendations. Society and Business Review, 17(4), 594-612.

Matsumura, E. M., Prakash, R., & Vera-Muñoz, S. C. (2014). Firm-value effects of carbon emissions and carbon disclosures. The Accounting Review, 89(2), 695-724. https://doi.org/10.2308/accr-50629

Mondal, A., & Bauri, S. (2025). Climate-related financial disclosures and firm value: Evidence from India. SN Business & Economics, 5(5), Article 108. https://doi.org/10.1007/s43546-025-00816-9

Ott, C. (2024). Capital market effects of climate-related disclosure. Research Handbook on Sustainability Reporting, 250-269.

Pakistan Stock Exchange. (2024). PSX Primer on Environmental, Social and Governance (ESG) Reporting Guidance for Companies. https://www.psx.com.pk/ 

Securities and Exchange Commission of Pakistan. (2025). IFRS S1 and S2 Adoption Framework. https://www.secp.gov.pk/ 

Securities and Exchange Commission of Pakistan. (2025). Revised ESG Disclosure Guidelines for Listed Companies. https://www.secp.gov.pk/ 

Serafeim, G. (2020). Public sentiment and the price of corporate sustainability. Financial Analysts Journal, 76(2), 26-46. https://doi.org/10.1080/0015198X.2020.1733393

Task Force on Climate-related Financial Disclosures. (2017). Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures. Financial Stability Board.

Wang, B., Mirza, N., Umar, M., & Shan, S. (2025). Firm valuation under climate uncertainty: The role of climate risk exposure and disclosure practices. International Review of Financial Analysis, 104724.

Yale Center for Environmental Law & Policy. (2024). Environmental Performance Index 2024. Yale University.