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An Analysis of Carbon-Reduction Pledges of U.S. Oil and Gas Companies

Author

Listed:
  • Hemang Desai

    (Cox School of Business, Southern Methodist University, Dallas, Texas 75275)

  • Pauline Lam

    (Stern School of Business, New York University, New York, New York 10012)

  • Bin Li

    (Bauer College of Business, University of Houston, Houston, Texas 77204)

  • Shiva Rajgopal

    (Columbia Business School, Columbia University, New York, New York 10027)

Abstract

We study carbon-reduction pledges of publicly traded U.S. oil exploration and production (E&P) companies. Of the 69 firms in the sample, 18 have committed to net-zero carbon targets, 14 have announced significant emissions cuts, whereas the remaining 37 firms have not announced any formal commitment to reduce emissions. We find that a firm’s energy production and ownership by BlackRock is positively associated with its decision to announce a net-zero pledge or significant emission cuts. E&P firms are likely to announce such commitments after Engine No. 1 proposed its slate of directors for Exxon’s board. The stock market reacts more negatively to net-zero pledges relative to emission-reduction pledges on average. However, the market reaction is related to the quality and credibility of these pledges. In particular, we find that the negative market reaction to net-zero pledges is mainly driven by firms with post-2030 target years relative to firms that commit to achieving net zero by 2030. We also find that the market reacts more negatively to net-zero pledges when the firm does not show the strength of its commitment via the presence of a board-level committee to monitor the company’s progress toward its emission goals or when the top management’s pay is not linked to specific emission reduction goals.

Suggested Citation

  • Hemang Desai & Pauline Lam & Bin Li & Shiva Rajgopal, 2023. "An Analysis of Carbon-Reduction Pledges of U.S. Oil and Gas Companies," Management Science, INFORMS, vol. 69(6), pages 3748-3758, June.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:6:p:3748-3758
    DOI: 10.1287/mnsc.2023.4765
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    References listed on IDEAS

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    1. Christopher Marquis & Michael W. Toffel & Yanhua Zhou, 2016. "Scrutiny, Norms, and Selective Disclosure: A Global Study of Greenwashing," Organization Science, INFORMS, vol. 27(2), pages 483-504, April.
    2. Szerena Szabo & Jane Webster, 2021. "Perceived Greenwashing: The Effects of Green Marketing on Environmental and Product Perceptions," Journal of Business Ethics, Springer, vol. 171(4), pages 719-739, July.
    3. Comello, Stephen & Reichelstein, Julia & Reichelstein, Stefan, 2021. "Corporate Carbon Reduction Pledges: An Effective Tool to Mitigate Climate Change?," Research Papers 3955, Stanford University, Graduate School of Business.
    4. Comello, Stephen & Reichelstein, Julia & Reichelstein, Stefan, 2021. "Corporate carbon reduction pledges: An effective tool to mitigate climate change?," ZEW Discussion Papers 21-052, ZEW - Leibniz Centre for European Economic Research.
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