Carbon Risk and Accounting Conservatism: Evidence from Canadian High-Emission Industries
Abstract
Purpose – This study explores whether carbon risk is linked with accounting conservatism in Canadian listed firms operating in high-emission industries. The main concern is whether firms facing greater carbon exposure responds with more cautious financial reporting when climate-related risks can materially affect their finances.
Design/methodology/approach – A quantitative panel approach was applied to non-financial Canadian firms recorded by Refinitiv from 2016 to 2025. The sample cover four high-emission sectors: Energy, Materials, Transportation, and Utilities. Accounting conservatism are measured through the Khan and Watts model, while carbon risk is represented by carbon emission intensity.
Findings - The evidence indicate a positive link between carbon risk and accounting conservatism. However, the strength of this link change when different model specifications are applied, meaning the statistical support are not equally strong in every specification.
Implication – These findings suggests that carbon risk may be reflected in can enters the financial reporting behaviour, especially in industries with process, particularly when firms operate under high carbon exposure. The findings are relevant this issue matter for investors, regulators, and standard setters because they indicate that climate-related risks risk may influence not only affects more than sustainability disclosures but reporting. It may also shape the way firms recognize and reports financial reporting practices information.
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