Accounting for climate: exploring the materiality of financial reporting in shaping mitigation pathways

This paper examines the connection between financial reporting standards and climate-mitigation pathways mediated by capital investment decisions, studying how accounting rules can affect firms' greenhouse gas (GHG) emission intensity through their effect on real capital expenditure. The study analyzes a panel of 2,723 listed EU companies over the period 1989-2024 (45,965 firm-years), including 468 firms reporting GHG emissions between 2002 and 2024. We employ fixed-effects regressions to test the effect of investment on emissions, and we use System-GMM, matching, entropy balancing, and a Heckman selection model as robustness checks. Our results show that previous-year CAPEX is associated with a reduction in GHG intensity, while IFRS adoption reduces firms' investment sensitivity to opportunities. Conservative estimates indicate that IFRS firms experienced about 1.5% lower annual reductions in GHG intensity relative to DGAAP counterfactuals, implying a cumulative gap of roughly 7% (≈402 Mt CO₂e) over 2015-2023. Our study focuses on investments broadly defined, which have nonetheless been shown to contribute to emissions reduction. As soon as sufficiently granular data become available, future research will be able to focus specifically on green investments (e.g. aligned with the EU Taxonomy or other criteria). This study highlights the relevance of accounting rules for climate outcomes. Accounting standards affect not only investor information but also managers' real-economy decisions, with direct consequences for emissions. These effects have important implications for climate targets, competitiveness, and environmental justice. To our knowledge, this is the first firmlevel study to link accounting standards to climate-mitigation outcomes through the investment channel, thereby bridging accounting research with climate economics and macro-financial analysis.