Cheap Talk and Cherry-Picking: What ClimateBert has to say on Corporate Climate Risk Disclosures

23 Pages Posted: 3 Mar 2021

See all articles by Julia Anna Bingler

Julia Anna Bingler

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Mathias Kraus

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Markus Leippold

University of Zurich - Department of Banking and Finance; University of Zurich - Faculty of Economics, Business Administration and Information Technology

Date Written: March 2, 2021

Abstract

Disclosure of climate-related financial risks greatly helps investors assess companies' preparedness for climate change. Voluntary disclosures such as those based on the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD) are being hailed as an effective measure for better climate risk management. We ask whether this expectation is justified. We do so with the help of a deep neural language model, which we christen ClimateBert. We train ClimateBert on thousands of sentences related to climate-risk disclosures aligned with the TCFD recommendations. In analyzing the disclosures of TCFD-supporting firms, ClimateBert comes to the sobering conclusion that the firms' TCFD support is mostly cheap talk and that firms cherry-pick to report primarily non-material climate risk information. From our analysis, we conclude that the only way out of this dilemma is to turn voluntary reporting into regulatory disclosures.

Keywords: Climate-risk disclosure, voluntary reporting, TCFD recommendations,\\ natural language processing

JEL Classification: G2, G38, C8, M48

Suggested Citation

Bingler, Julia Anna and Kraus, Mathias and Leippold, Markus, Cheap Talk and Cherry-Picking: What ClimateBert has to say on Corporate Climate Risk Disclosures (March 2, 2021). Available at SSRN: https://ssrn.com/abstract=3796152 or http://dx.doi.org/10.2139/ssrn.3796152

Julia Anna Bingler (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Mathias Kraus

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, DE Bavaria 91054
Germany

Markus Leippold

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

University of Zurich - Faculty of Economics, Business Administration and Information Technology ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

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