Show and Tell: An Analysis of Corporate Climate Messaging and its Financial Impacts

37 Pages Posted: 22 Apr 2023

See all articles by Joseph E. Aldy

Joseph E. Aldy

Harvard Kennedy School; National Bureau of Economic Research; Resources for the Future; Harvard University - Harvard Kennedy School (HKS)

Patrick Bolton

Imperial College London; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Zachery Halem

Lazard; MIT Laboratory for Financial Engineering

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR)

Peter R. Orszag

Lazard Asset Management

Date Written: April 13, 2023

Abstract

As climate-induced physical and transition risks to corporations are becoming more and more material, investors are increasingly scrutinizing a patchwork of voluntary climate-related communications–namely public disclosures, emission reduction commitments, and soft information from earnings calls and other public announcements. We observe, for large-cap U.S. firms, a rise in the usage of all forms of climate communication from 2010-2020. We also find evidence that a majority of firms are not decarbonizing on a sufficient trajectory to meet committed emission reduction targets. In regard to financial effects, we show that increased transparency from disclosure can offset a significant portion of the price-to-earnings discount associated with carbon emissions, especially for firms in the energy and industrial sectors. A similar effect is observed for positive climate-related sentiment during the Q&A , but not the management update section of earnings calls. Commitments are shown to have a statistically insignificant impact on valuation.

Keywords: climate change, carbon emissions, disclosure, science based and CDP targets, earnings calls, financial cost of carbon

JEL Classification: G12, G14, Q51, Q54

Suggested Citation

Aldy, Joseph E. and Bolton, Patrick and Halem, Zachery and Kacperczyk, Marcin T. and Orszag, Peter R., Show and Tell: An Analysis of Corporate Climate Messaging and its Financial Impacts (April 13, 2023). Available at SSRN: https://ssrn.com/abstract=4418347 or http://dx.doi.org/10.2139/ssrn.4418347

Joseph E. Aldy

Harvard Kennedy School

79 JFK Street
Cambridge, MA 02138
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617-496-7213 (Phone)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/joseph-aldy

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future

79 JFK Street
Cambridge, MA 02138
United States
617-496-7213 (Phone)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/joseph-aldy

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Patrick Bolton

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Zachery Halem (Contact Author)

Lazard ( email )

30 Rockefeller Center
New York, NY 10112
United States

MIT Laboratory for Financial Engineering ( email )

100 Main Street
E62-611
Cambridge, MA 02142

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Peter R. Orszag

Lazard Asset Management ( email )

30 Rockefeller Plaza
New York, NY 10112
United States

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