Are Climate Scenario Analysis Disclosures Valued by Investors?

32 Pages Posted: 16 Nov 2024

See all articles by Tongqing (Tony) Ding

Tongqing (Tony) Ding

University of Melbourne

Jonathan Jona

University of New Mexico - Robert O. Anderson Schools of Management

Brad Potter

University of Melbourne - Faculty of Business and Economics

Naomi S. Soderstrom

University of Melbourne

Abstract

Scenario analysis is a well-established management tool for developing and executing organizational strategy. While stress testing (a form of scenario analysis) has been used for policy-making and benchmarking in the banking sector, climate-related scenario analysis is a more recent development. Emergent accounting standards require firms to perform and report on climate scenario analyses. This paper examines whether information about firms’ climate scenarios is valued by financial markets. Relying on voluntary disclosures from US publicly traded firms in the CDP database from 2018 to 2022, we find that firms conducting scenario analyses have higher market valuations, with less positive results for firms that incorporate insights from qualitative (not quantitative) scenarios into their strategy. The findings highlight the importance of using scenario analysis to inform strategy and the need for clearer guidance on disclosure practices.

Keywords: Climate Risk, Scenario Analysis, Valuations, CDP, ESG, Disclosure

Suggested Citation

Ding, Tongqing (Tony) and Jona, Jonathan and Potter, Bradley Nathan and Soderstrom, Naomi S., Are Climate Scenario Analysis Disclosures Valued by Investors?. Available at SSRN: https://ssrn.com/abstract=5023235 or http://dx.doi.org/10.2139/ssrn.5023235

Tongqing (Tony) Ding

University of Melbourne

Jonathan Jona

University of New Mexico - Robert O. Anderson Schools of Management ( email )

Albuquerque, NM 87131
United States

Bradley Nathan Potter

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

Naomi S. Soderstrom (Contact Author)

University of Melbourne ( email )

Victoria
Melbourne, 3010
Australia

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