A new study says markets respond almost immediately when a company
reports an event that could affect global climate change, with stock
values responding the same day as the disclosure.
“It really does appear to be a valuation factor,” says Paul Griffin, professor of management at University of California, Davis. “Greenhouse gas emissions are important to investors in assessing companies.”
The study, posted on the Social Science Research Network,
a database of social science research, bolsters the arguments of
investor groups, environmental advocates, and watchdog organizations
that have been seeking greater disclosure of company actions that affect
Although the U.S. Securities and Exchange Commission does not require
companies to report greenhouse gas emissions, firms are bound by a rule
that mandates disclosure of any information material to stock values.
Currently, about half of large U.S. firms report greenhouse gas
emissions through the Carbon Disclosure Project, a British organization
representing mostly institutional investors.
Researchers developed mathematical models to analyze data from 2006
to 2009 on firms listed in the Standard & Poor’s 500 and five years
of data (2005-09) for the top 200 publicly traded firms in Canada.
The link between stock values and greenhouse gas emissions held true
in most industries, although the correlation was strongest for energy
companies and utilities.
“After controlling for normal valuation factors like assets and
earnings, we found the value of stocks to be a function of greenhouse
gas emissions,” Griffin says.
Many firms file formal notices with the SEC and issue press releases
following an event that could affect climate change. Researchers
identified approximately 1,400 such reported events by firms in the
study and then tracked movements of stocks on days around when these
events were reported.
“We see a response on exactly the day you would expect to see it, and
that is when the information becomes public,” Griffin says.
Why do investors care about greenhouse gas emissions? Griffin says
markets are always looking forward, and in this case they appear to be
anticipating a time when companies responsible for climate change will
face increased costs for mitigation, regulation, and taxes.
“They are examining the economic impact of what a company is doing on
climate change, and they are assessing whether that is positive or
negative for the company’s value.”
Researchers from the University of California, Berkeley and the University of Otago in New Zealand contributed to the study.
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