The Relevance to Investors of Greenhouse Gas Emission Disclosures

TLDR

The authors estimate nondisclosing firms’ GHG emissions using a firm‑characteristics and industry model and corroborate the result with an event study of investors’ reactions to emission disclosures in 8‑K filings. Investors discount equity value by GHG emissions, with no difference between CDP‑disclosing and nondisclosing firms, and the market‑implied discount is about $79 per ton—roughly 0.5% of a median S&P 500 firm’s market cap—indicating that GHG information is value‑relevant through channels beyond the CDP.

Abstract

Abstract This study finds that investors price firms' greenhouse gas ( GHG ) emissions as a negative component of equity value, and this valuation discount does not differ between firms that voluntarily disclose to the Carbon Disclosure Project ( CDP ) and nondisclosing firms. We derive the GHG emissions for nondisclosers from an estimation model that incorporates firm characteristics and industry. The finding that investors view CDP amounts and estimates of emissions as equally value‐relevant suggests that equity values reflect GHG information from channels other than the CDP . An event study of investors' response to emission‐related information in firms' 8‐K filings further supports this finding. Economically, our results suggest that, for the median S&P 500 firm, GHG emissions impose a market‐implied equity discount of $79 per ton, representing about one‐half of 1 percent of market capitalization.