Walking the Climate Change Talk: Evidence from the Paris Agreement

Abstract

We examine whether investors perceive firms’ voluntary climate disclosures as credible signals of climate preparedness and whether their perceptions are justified. Using the Paris Agreement as an exogenous shock to regulatory climate risk, we find that carbon-intensive firms with more extensive pre-Agreement climate discussions experience a less negative market reaction, suggesting that investors view such disclosures as informative rather than mere greenwashing. The effect is primarily driven by discussions of climate-related opportunities, such as investments in renewable energy, and is stronger for firms located in states with more stringent environmental regulations. We further find that this effect persists even when the disclosures include risk statements or convey a negative tone, underscoring the value investors place on transparency. Importantly, we show that carbon-intensive firms with extensive pre-Agreement discussions of climate opportunities tend to “walk the talk”: they invest more in green technologies and align more closely with the Agreement’s emissions targets in subsequent years. These findings suggest that, for firms most exposed to regulatory scrutiny, voluntary climate disclosures can serve as credible signals of climate-change preparedness and regulatory adaptability, rather than merely as defensive tactics to legitimize carbon-intensive operations.

Keywords: Climate change, climate-related disclosure, greenhouse gas emissions, Paris Agreement, greenwashing

JEL Classification: G12, G14, Q54