Institutional Investors’ Views and Preferences on Climate Risk Disclosure

Ilhan, Emirhan; Krueger, Philipp; Sautner, Zacharias; Starks, Laura T.

doi:10.2139/ssrn.3437178

Cited by 40 publications

(37 citation statements)

References 27 publications

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“…These arguments are in line with the existing literature's finding that institutional investors tend to actively monitor and engage with their portfolio companies, playing a leading role in shaping their governance (e.g., Bethel & Liebeskind, 1993; Chen, Dong, and Lin, 2020; Dimson, Karakas, & Li, 2015; Gillan & Starks, 2000; Ilhan, Krueger, Sautner, & Starks, 2019; Krueger et al, 2020; Shleifer & Vishny, 1986). 11 Furthermore, shareholder proposals initiated by institutional investors tend to receive more support among other shareholders (e.g., Flammer, 2015; Gillan & Starks, 2000).…”

Section: Theorysupporting

confidence: 83%

Shareholder activism and firms' voluntary disclosure of climate change risks

Flammer

Toffel

Viswanathan

2021

Strategic Management Journal

288

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Research Summary This article examines whether—in the absence of mandated disclosure requirements—shareholder activism can elicit greater disclosure of firms' exposure to climate change risks. We find that environmental shareholder activism increases the voluntary disclosure of climate change risks, especially if initiated by institutional investors, and even more so if initiated by long‐term institutional investors. We also find that companies that voluntarily disclose climate change risks following environmental shareholder activism achieve a higher valuation postdisclosure, suggesting that investors value transparency with respect to firms' exposure to climate change risks. Managerial Summary Climate change poses increasing risks to companies. Yet, despite the growing importance of climate change risks, little is known about companies' exposure to climate change risks, their disclosure of these risks, and what strategic actions they take to manage and mitigate these risks. In this study, we examine whether—in the absence of mandatory disclosure—shareholders can elicit greater corporate transparency with respect to climate change risks. We find that shareholder activism is effective, especially if initiated by long‐term institutional investors. We also find that the stock market reacts positively to companies' climate risk disclosure following environmental shareholder activism, suggesting that investors value transparency with respect to firms' exposure to climate change risks.

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Section: Theorysupporting

confidence: 83%

Shareholder activism and firms' voluntary disclosure of climate change risks

Flammer

Toffel

Viswanathan

2021

Strategic Management Journal

288

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“…Whether climate change news risk affects long-term or short-term bonds is ultimately an empirical question that has not been examined in the corporate bond market. In practice, institutional investors believe that climate risks have already materialized and it is difficult to fully hedge against the risk in the long run as climate change is worsening with time (Ilhan, Krueger, Sautner, and Starks (2019) and Krüger, Sautner, and Starks (2020)). Thus, we state the next hypothesis, as follows:…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Climate Change News Risk and Corporate Bond Returns

Huynh¹,

Xia

2020

J. Financ. Quant. Anal.

291

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We examine whether climate change news risk is priced in corporate bonds. We estimate bond covariance with a climate change news index and find that bonds with a higher climate change news beta earn lower future returns, consistent with the asset pricing implications of demand for bonds with high potential to hedge against climate risk. Moreover, when investors are concerned about climate risk, they are willing to pay higher prices for bonds issued by firms with better environmental performance. Our findings suggest that corporate policies aimed at improving environmental performance pay off when the market is concerned about climate change risk.

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“…Overall, various stakeholders wish for a stronger connection between ESG and financial information (The Corporate Reporting Dialogue, 2019a). Ihan, Krueger, Sautner, & Starks, (2019) found that 59% of investors participating in their research plan to engage companies on reporting in line with TCFD. More than half of the respondents believe that "climate risk reporting is as important as traditional financial reporting" (p. 4).…”

Section: External Factorsmentioning

confidence: 99%

“…More and more institutional investors join organizations such as "Climate Action 100, the Portfolio Decarbonization Project, the Global Investor Coalition on Climate Change, and Principles for Responsible Investment" (p. 1) to address climate-risk related matters together. Many investors believe that the current disclosures on climate risks are not precise enough for investors to evaluate companies properly (Ihan, Krueger, Sautner, & Starks, 2019) and miss an adequate preparation for the physical impacts (Goldstein, Turner, Gladstone & Hole, 2019).…”

Section: Introductionmentioning

confidence: 99%

Transparency of Climate-Related Risks and Opportunities: Determinants Influencing the Disclosure in Line with the Task Force on Climate-Related Financial Disclosures

Achenbach

2021

Glocality

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The number of companies publicly reporting in line with the Task Force on Climate-Related Financial Disclosures (TCFD), a framework introduced in 2015 aiming to improve and increase the reporting regarding climate-related financial information, is still relatively low. In 2019, 42% of corporations with a market capitalization greater than $10 billion disclosed information in line with the TCFD to some extend (TCFD, 2020c). Previous research has shown that economic, political, and institutional factors impact the disclosure of climate-related information. This paper explores the determinants influencing the level of disclosure in line with the TCFD recommendations, across different sectors with a major focus on publicly listed companies in the global North. The study contributes to a better understanding of the approach needed to increase the number of companies reporting in line with TCFD. The research was executed in both quantitative and qualitative methods. The empirical research methods are based on a throughout literature review on climate-related risk disclosure, which is based on scientific literature, reports, and websites of official institutions. An online survey was published to be filled in by professionals with insights into environmental, social, and corporate governance-related topics within their company. Also, eight interviews were conducted with sustainability experts from companies, consultants, policy makers, and investors with a background in climate-related risk disclosure. The interviewees were chosen based on their work experience regarding TCFD disclosure. The research aim was to answer the following question: What are substantial factors that influence whether a company is disclosing information in line with the Task Force on Climate-related Financial Disclosures? Overall, ten determinants have been identified, as they have occurred repeatedly throughout the empirical data collection. They can be divided into factors that derive out of intrinsic and extrinsic motivation. The others emerge from the given characteristics of corporations. Policy and legal reforms, the aim for strategy adaption, the availability of data, and the alignment of other sustainability initiatives with the recommendations of TCFD, were mentioned the most as determinants on the level of disclosure in both the survey and the interviews. Further research might investigate how the identified factors differ in importance across diverse industries.

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Institutional Investors’ Views and Preferences on Climate Risk Disclosure

Cited by 40 publications

References 27 publications

Shareholder activism and firms' voluntary disclosure of climate change risks

Shareholder activism and firms' voluntary disclosure of climate change risks

Climate Change News Risk and Corporate Bond Returns

Transparency of Climate-Related Risks and Opportunities: Determinants Influencing the Disclosure in Line with the Task Force on Climate-Related Financial Disclosures

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