Ummara Fatima

Purpose
This study aims to examine whether and how the presence of co-opted directors (directors appointed after the incumbent CEO) influences corporate climate risk disclosure.

Design/methodology/approach
This study comprehensively analyses 2,975 firm-year observations of US-listed companies, using ordinary least squares with industry and year-fixed effects. To confirm the reliability of the study results, the authors used several techniques, including propensity score matching, to address potential issues with functional form misspecification, analysed a subset of companies where co-option persisted over two consecutive years to mitigate concerns regarding reverse causality and difference-in-differences estimation, using the cheif executive officer’s (CEO’s) sudden death as an exogenous shock to board co-option to mitigate endogeneity concerns.

Findings
The findings indicate that the presence of a large number of co-opted directors negatively influences corporate climate risk disclosure. Mediation analysis suggests that managerial risk-taking partially mediates this negative association. Moderation analyses show that the negative impact of co-opted directors on climate risk disclosure is more pronounced in firms with greater linguistic obfuscation, limited external monitoring and in environmentally sensitive industries. Moreover, co-opted directors intentionally withhold or obscure the disclosure of transition climate risks more than physical climate risks.

Practical implications
This research has important implications for policymakers, regulators and corporate governance practitioners in designing board structures by highlighting the adverse impact of co-opted directors in contexts with lax regulatory enforcement and managerial discretion. The authors caution against relying on such directors for providing climate-related risk disclosures, especially in companies with poor external monitors and based in environmental sensitivities, as their placement can significantly undermine transparency and accountability.

Originality/value
This study adds to the existing body of knowledge by highlighting the previously unexplored phenomenon of intentional obscurity in disclosing climate risks by co-opted directors. This research provides novel insights into the interplay between board composition, managerial risk-taking behaviour and climate risk disclosure. The findings of this study have significant implications for policymakers, regulators and corporate governance experts, and may prompt a re-evaluation of strategies for improving climate risk disclosure practices.