Do Climate-risk Disclosures Matter for Accounting Behaviour? Evidence on Conservatism from Swedish IFRS Firms

Abstract

Climate-risk disclosures in financial statements have become increasingly prevalent in recent years, reflecting growing regulatory and stakeholder pressure. However, the extent to which such risks are incorporated into firms’ accounting judgments remains unclear. This study examines whether climate-risk disclosures in financial statements are associated with accounting conservatism among Swedish firms listed on Nasdaq Stockholm over the period 2023-2024. Two hypotheses are developed to examine whether the presence of climate-risk disclosures and the quality of such disclosures are positively associated with accounting conservatism using two accrual-based measures. The results provide no support for a positive association between the presence of climate-risk disclosures, however, a significant and positive association was found between disclosure quality and accounting conservatism. These findings are interpreted through stakeholder and signalling theory, suggesting that the presence of climate-risk disclosures reflects stakeholder pressure and may be predominantly narrative or symbolic. In contrast, higher-quality disclosures are more likely to indicate that climate-related risks are incorporated into firms’ accounting judgments. Overall, the study contributes to the scarce literature on climate-risk disclosure in financial statements and its connection to reporting practices by providing early evidence on how recent regulatory developments influence financial reporting behaviour in a Swedish context. These findings further highlight the importance of disclosure quality and its role in helping stakeholders determine a firm's ability to acknowledge risk and uncertainty in its reporting practices.