Analysts’ Use of Information in TCFD Aligned Climate Change Disclosures in Their Forecasts

Abstract

We examine how financial analysts use the information contained in TCFD aligned climate change disclosures in their forecasts, using firm-level textual climate change disclosures. The results show that climate change disclosures are associated with reduced forecast error and dispersion. This association is more pronounced over shorter-term forecasting period and among TCFD supporting firms. Additionally, TCFD category-level disclosures under Governance, Strategy, and Risk Management specifically improve analyst earnings forecasts. Further analyses suggest that our main results remain robust after accounting for endogeneity and alternative forecast measures. Our results highlight the importance of understanding the role of climate change disclosures in capital markets.

Keywords: Climate change disclosures, TCFD recommendations, analyst forecasts

JEL Classification: M41, M48