Climate Change and Firm Valuation: Evidence from a Quasi-Natural Experiment

Abstract

In this paper, I estimate the effect of mandatory greenhouse gas (GHG) emissions disclosure on corporate value. Using the introduction of mandatory GHG emissions reporting for firms listed on the Main Market of the London Stock Exchange as a source of exogenous variation, I find that firms most heavily affected by the regulation experience significantly positive valuation effects. Increases in value are strongest for large firms and for firms from carbon intensive industries (e.g., oil and gas). Valuation increases are driven by capital market effects such as higher liquidity and lower bid -- ask spreads for the most affected firms.

Keywords: Mandatory disclosure regulation, greenhouse gas emissions, climate change, valuation, difference-in-differences, value

JEL Classification: D22, G18, G28, G38, K22, K32, L51, M48, Q52, Q54