An Analysis of Carbon Reduction Pledges of the U.S. Oil and Gas Companies

Management Science, Forthcoming

SMU Cox School of Business Research Paper No. 22-26

23 Pages Posted: 23 Dec 2022 Last revised: 16 Mar 2023

See all articles by Hemang Desai

Hemang Desai

Southern Methodist University (SMU) - Accounting Department

Pauline Lam

New York University (NYU) - Leonard N. Stern School of Business

Bin Li

Vanderbilt University - Owen Graduate School of Management

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Date Written: January 12, 2023

Abstract

We study carbon reduction pledges of publicly traded U.S. oil exploration and production (E&P) companies. Of the 69 firms in the sample, 18 have committed to net-zero carbon targets, 14 have announced significant emissions cuts, while the remaining 37 firms have not announced any formal commitment to reduce emissions. We find that a firm’s energy production and ownership by BlackRock is positively associated with its decision to announce a net-zero pledge or significant emission cuts. E&P firms are likely to announce such commitments after Engine No.1 proposed its slate of directors for Exxon’s Board. The stock market reacts more negatively to net-zero pledges relative to emission-reduction pledges, on average. However, the market reaction is related to the quality and credibility of these pledges. In particular, we find that the negative market reaction to net-zero pledges is mainly driven by firms with post-2030 target years relative to firms that commit to achieving net zero by 2030. We also find that the market reacts more negatively to net-zero pledges when the firm does not show the strength of its commitment via the presence of a board-level committee to monitor the company’s progress towards its emission goals or when the top management’s pay is not linked to specific emission reduction goals.

Keywords: Net-zero pledges, Carbon emissions, E&P firms, Engine No.1, Determinants, Stock reaction

Suggested Citation

Desai, Hemang and Lam, Pauline and Li, Bin and Rajgopal, Shivaram, An Analysis of Carbon Reduction Pledges of the U.S. Oil and Gas Companies (January 12, 2023). Management Science, Forthcoming, SMU Cox School of Business Research Paper No. 22-26, Available at SSRN: https://ssrn.com/abstract=4300455 or http://dx.doi.org/10.2139/ssrn.4300455

Hemang Desai

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-768-3185 (Phone)
214-768-4099 (Fax)

Pauline Lam

New York University (NYU) - Leonard N. Stern School of Business

Bin Li (Contact Author)

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

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