The Information Content of Managers’ Climate Risk Disclosure: Evidence from Conference Calls

Abstract

We explore the determinants of voluntary disclosures about climate risks made by managers during earnings conference calls, and examine whether these disclosures provide decision-useful information to investors. Using a sample of more than 70,000 conference-call transcripts from 2005-2020 with over 6,000 disclosures related to climate risk events, we find that disclosure is more common for smaller firms with higher but more volatile performance. We also show that firms often bundle climate risk disclosures with bad news about earnings in conference calls that are longer and have a more negative tone. Controlling for earnings news and firm fixed effects, we find a negative stock price reaction to climate risk disclosures in conference calls, but we also find that these disclosures are positively associated with abnormal trading volume, suggesting investors have different beliefs about how to incorporate them. Finally, we find that the negative stock price reaction to bad news about earnings is less pronounced when managers provide climate risk disclosures. Overall, our results provide evidence on when managers make climate risk disclosures in conference calls and how

investors react, and are consistent with regulators’ proposals for more specific guidance on the form and content of such disclosures.

Keywords: climate change, risk disclosure, ESG, sustainability disclosure, market reactions, greenwashing

JEL Classification: G11, G14, Q54