Does Going Green Pay Dividends? The Impact of Firm Climate-Related Disclosures on Institutional Investor Behavior

Abstract

In the climate finance space, firms and institutional investors are two major groups of players in the drive towards a potentially more sustainable future. As a result, firms are increasingly being pressured by investors to disclose information surrounding their climate-related risks. In this paper, I study the relation between corporate climate disclosures and institutional investor behavior. I set up three difference-in-differences (DID) models — a two-period DID model, a multiple-period DID model, and a staggered DID model — with disclosure as the treatment. Using data from the CDP and public institutional holdings data, I find an overall negative relationship between firm disclosures and institutional investor holdings, the effect of which is statistically significant at the 95% level in the two-period DID model but not in the multiple-period and staggered DID models. The estimated effects also differ in magnitude and significance based on firms' sectors. In addition, there appears to be no significant effect of climate disclosures on firm revenue. This analysis provides insights into the value that institutional investors place on firm climate disclosures and underscores the importance of establishing a standardized climate risk reporting framework in the United States.