Climate-related finance: studies of disclosure and temperature

Jonathan Harris, PhD
Climate-related Disclosure, Sustainability Disclosure, Long-run Risks, Return Seasonality, Weather Impact, Climate Impact

Abstract :

What drives voluntary greenhouse gas emissions disclosure?: Voluntary disclosure should naturally arise in theory but may not in practice due to real world frictions. This paper investigates climate-related disclosure in a comprehensive, global panel of publicly listed firms from 2010-2017, studying a diverse set of firm, sector and geographic characteristics, as predictors of response to the largest standardized climate-related reporting portal. The patterns I uncover demonstrate evidence of strong behavioral factors as well as being consistent with theories of voluntary disclosure which emphasize the role of disclosure costs and verifiability. Unsurprisingly, I find that firm size, sector, and past response quality predict response. The staged introduction of a reporting fee on the portal provides results that are particularly striking, with the small fee being associated with a significant decrease of up to 3% in the response rate of firms reporting non-assured information and only an insignificant effect on assured reporters. These results have implications for policy makers seeking to make sustainability disclosure an integral part of financial disclosure, as well as for institutional investors seeking to understand the quality of climate-related disclosures.

Multifrequency climate and stock returns: There are long-standing debates in the financial economics literature regarding long-run risks, return seasonality, the impact of weather and the impact of climate. By disentangling the data into different frequencies this paper contributes several results to these topics. I find significant evidence for a negative relationship between the high-minus-low (HML) value portfolio returns and US temperatures shocks. The correlation between temperature innovations and HML returns is on the order of -4% to -8% depending on the horizon. Strikingly, this relationship is weak during periods of long-term cooling and strong during periods of long-term warming. As part of this study I also document several other results from the data including that changes in minimum temperatures appear to be more financially significant than maximum temperatures, and that there is a key link between the January effect and the temperature-return relationship. I conclude by calibrating an asset pricing model that endogenously reproduces the main features of value stocks, growth stocks, and the relationship with temperature news.


Publication date of the thesis

Thesis committee

Supervisor: Laurent Calvet, EDHEC Business School

External reviewer: Federico Bandi, Johns Hopkins Carey Business School

Other committee member: Abraham Lioui, EDHEC Business School