Cheap Talk in Corporate Climate Commitments: The Role of Active Institutional Ownership, Signaling, Materiality, and Sentiment
59 Pages Posted: 5 Jan 2022
Date Written: January 3, 2022
Corporate climate disclosures based on the TCFD recommendations are considered an important prerequisite to managing climate-related financial risks. At the same time, current disclosures are imprecise, inaccurate, and greenwashing-prone. Yet, existing research on this matter suffers from small samples or inaccuracies. Therefore, we introduce a scalable deep learning approach to enable comprehensive climate disclosure analyses of large samples by fine-tuning the ClimateBert model. Our model significantly outperforms previous approaches. We then extract the amount of cheap talk, defined as the share of precise versus imprecise climate commitments, of 14,584 annual reports of the MSCI World index firms from 2010 to 2020. Finally, we use this data to test various hypotheses on the drivers of cheap talk. We find that institutional ownership, targeted institutional investor engagement, materiality and downside risk disclosures are associated with less cheap talk. Signaling by publicly supporting the TCFD is associated with more cheap talk.
Keywords: Corporate climate disclosures, voluntary reporting, commitments, TCFD recommendations, textual analysis, natural language processing.
JEL Classification: G2, G38, C8, M48
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