Strategic Climate Disclosures and Investor Skepticism
Open Access DepositedWhen Smoke and Mirrors Fail
This study investigates whether and when firms manage climate disclosure narratives and how investors respond. To estimate the managed component of climate disclosures (AbCC), I measure the residual from a model predicting climate disclosures explained by investor demand (PredCC). The results show that firms engage in AbCC to (ⅰ) distract investors from poor earnings, (ⅱ) manage reputational risks after environmental incidents, and (ⅲ) conform to peer disclosure norms. When investigating the tone of climate disclosures, I find that AbCC is framed more positively than PredCC, indicating opportunistic motives behind managing climate disclosures. However, investors perceive PredCC as informative but not AbCC, suggesting that investors are skeptical about the managed component of climate disclosures. Additionally, I find that public engagement by institutional investors curtails opportunistic incentives in AbCC. Overall, this study provides evidence that while firms attempt to influence investor perceptions through strategic climate communication, the effectiveness of such efforts is limited.
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