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Bridge over ocean
17 January 2025 Financial Analysts Journal

Show & Tell: An Analysis of Corporate Climate Messaging and Its Financial Impacts

  1. Joseph E. Aldy
  2. Patrick Bolton
  3. Zachery M. Halem
  4. Marcin T. Kacperczyk

With rising investor scrutiny of climate-related risks, many companies have responded with more disclosures, reduction commitments, and communications. Analysis finds financial effects associated with some policies.

Read the Complete Article in the Financial Analyst Journal CFA Institute Member Content

Abstract

As climate-induced physical and transition risks to corporations are becoming more and more material, investors are increasingly scrutinizing a patchwork of voluntary climate-related public communications, namely emission disclosures, emission reduction commitments, and soft information from earnings calls and other corporate announcements.

We observe, for large-cap US firms, a rise in the usage of all forms of climate communication from 2010 to 2020. Public communication is commonly used by firms in emission-intensive sectors, such as industrials, materials, and utilities. We provide evidence that increased transparency from disclosure, especially of scope 1 and scope 2 emissions, can offset a significant portion of the P/E discount associated with carbon emissions, especially for firms in the energy and industrial sectors. A similar offsetting effect is observed for positive climate-related sentiment during earnings calls Q&A, but not for the management update section of earnings calls. In contrast, decarbonization commitments have a subsequent statistically insignificant impact on valuation.