Cheap Talk in Corporate Climate Commitments: The Role of Active Institutional Ownership, Signaling, Materiality, and Sentiment

59 Pages Posted: 5 Jan 2022

See all articles by Julia Bingler

Julia Bingler

Council on Economic Policies

Mathias Kraus

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Markus Leippold

University of Zurich; Swiss Finance Institute

Nicolas Webersinke

Friedrich-Alexander-Universität Erlangen-Nürnberg

Multiple version iconThere are 2 versions of this paper

Date Written: January 3, 2022

Abstract

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

Suggested Citation

Bingler, Julia and Kraus, Mathias and Leippold, Markus and Webersinke, Nicolas, Cheap Talk in Corporate Climate Commitments: The Role of Active Institutional Ownership, Signaling, Materiality, and Sentiment (January 3, 2022). Swiss Finance Institute Research Paper No. 22-01, Available at SSRN: https://ssrn.com/abstract=4000708 or http://dx.doi.org/10.2139/ssrn.4000708

Julia Bingler

Council on Economic Policies ( email )

Zurich
Switzerland

Mathias Kraus

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

Schloßplatz 4
Erlangen, DE Bavaria 91054
Germany

Markus Leippold (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Nicolas Webersinke

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Lange Gasse 20,
Nürnberg, 90403
Germany

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