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

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 public communications, namely emission disclosures, emission reduction commitments, and soft information from earnings calls and other corporate announcements. We observe, for large-cap US firms, a rise in the usage of all forms of climate communication from 2010 to 2020. Public communication is commonly used by firms in emission-intensive sectors, such as industrials, materials, and utilities. We provide evidence that increased transparency from disclosure, especially of scope 1 and scope 2 emissions, can offset a significant portion of the P/E discount associated with carbon emissions, especially for firms in the energy and industrial sectors. A similar offsetting effect is observed for positive climate-related sentiment during earnings calls Q&A, but not for the management update section of earnings calls. In contrast, decarbonization commitments have a subsequent statistically insignificant impact on valuation.