Impact of Climate Policy Uncertainty on Analyst Forecast Dispersion and Climate Risk Voluntary Disclosure by Carbon-Intensive Firms

Abstract

Climate policy uncertainty represents a unique risk to carbon-intensive firms. Using a sample of carbon-intensive firms, we investigate the impacts of both macro-level climate policy uncertainty and micro-level climate risk voluntary disclosure via quarterly earnings conference calls on financial analyst forecasts. Our findings show an increase in analyst forecast disagreement, as measured by the dispersions of analysts’ one-year-ahead forecasts and long-term growth rate forecasts, during periods of high climate policy uncertainty. Moreover, our tests reveal that managers of these firms respond to climate policy uncertainty by increasing conference call disclosure related to firm-specific climate risk exposure. Such increased voluntary disclosure serves to mitigate the effect of climate policy uncertainty on analyst forecast disagreement. Our test results remain robust after controlling for general economic policy uncertainty and market condition. Our study sheds light on the importance of climate risk-related conference call disclosure and the benefits it can provide in times of high climate policy uncertainty, particularly in reducing forecast disagreement among financial analysts.

Keywords: carbon-intensive firms, climate policy uncertainty, climate risk-related voluntary disclosure, earnings conference call, voluntary disclosure, analysts' forecast dispersion