Abstract: Climate-induced industrial transformations may cause firms to undergo competitive sorting. Drawing inspiration from Roy (1951) – where the best fishers focus on fishing, and the best hunters focus on hunting, – we define climate postures as the focus of firm climate efforts reflecting value-maximizing sorting. Firms reinforcing their position in the status quo economy focus climate efforts on cost efficiencies; firms finding new competitive advantages focus on transition growth opportunities. To test for climate postures, we create a novel dataset capturing corporations’ manual editing of their ESG information as a compendium of snapshots. We posit theories of why managers would edit for better or worse ESG scores, especially in light of not editing being an option. Among theories, the editing signs and predicted market reactions allowing us to identify the existence of climate postures and the effect of societal pressures, controlling for fundamentals of underlying ESG. Our evidence suggests an industry-agnostic effect of value-destroying societal pressures toward improving ESG scores, which is most intensified in mining and minerals. We find little evidence of transition opportunities in Europe and high-environmental policy stringency countries. However, transition opportunity sorting in the US and Canada yields a statistically significant 3% or higher excess two-week return for energy firms and a 2.9% return for industrials firms. Conversely, sorting into status quo climate postures focusing on cost efficiency for industrials and energy firms also yield positive returns in the US and Canada, suggesting active Roy-like sorting. In countries with lower environmental policy stringency, the energy transition opportunities are even more value-creating, but not so for countries with high environmental stringency, thereby suggesting the fiscal versus regulatory policy approaches at work.
Florian Berg, Massachusetts Institute of Technology
Roberto Rigobon, Massachusetts Institute of Technology
Jaime Oliver, Clarity AI
Abstract: Firms that obtain assurance for their carbon accounting report on average a 9.5% higher
carbon intensity than their peers. When controlling for assurance, we do not find evidence
that SBTi target-setters reduce their future emissions. Instead, firms that obtain assurance
reduce their future carbon intensity by 3.3%. This has implications for portfolio managers
and ESG raters as taking reported carbon emissions at face value would lead to penalizing
firms that are more serious about their carbon reductions. It also calls for mandatory
assurance when carbon reporting is mandatory and when reported emissions are generally
relied upon in regulation.
Discussant: Laura Starks, University of Texas-Austin
Abstract: We use plant-level data from the U.S. Census of Manufacturers to study the short- and long-run effects of temperature on manufacturing activity. We find that high-temperature shocks significantly increase energy costs and lower productivity for small plants, while large plants are mostly unaffected. Commuting zones with higher increases in average temperatures between the 1980s and the 2010s experience a decline in the number of small plants, reallocation of labor from small to large plants, and higher local labor market concentration. Differences in costs per unit of energy, managerial skills, and access to finance contribute to explaining our results
