A just-published study by two University of California researchers concludes that there is a noticeable and statistically significant impact on stock price for companies who voluntarily disclose information on greenhouse gas emissions. This is an encouraging finding for investors who believe that such sustainability-related information is important and material in evaluating companies’ future prospects.
Despite the increasing participation in voluntary initiatives like the Carbon Disclosure Project and regulatory initiatives like the SEC’s Climate Change Disclosure guidelines, encouraging more companies to disclose sustainability-related information has been an uphill battle, especially among smaller and medium-sized companies. This study is doubly welcome in that regard because, consistent with underlying theories of voluntary information disclosure, the impact is substantially greater for smaller and medium size companies that have less coverage and visibility in the marketplace.
The study, by authors Paul Griffin of UC Davis and Yuan Sun of UC Berkeley, is an event study. Event studies are an indispensable tool in academic finance. A typical study is a statistical analysis of the change in a company’s stock price (and hence the value of the company) following a single event or type of event, such as the announcement of a merger or acquisition or a release of information. When the study results are statistically significant, it suggests that companies taking such actions are enhancing (or reducing) shareholder value.
The authors examined company news about greenhouse gas emissions released through the Corporate Social Responsibility Newswire (CSRWire) a leading provider of sustainability information from companies and organizations. The disclosures covered the ten-year period between 2000 and 2010; not surprisingly the bulk of the GHG news releases occurred in the more recent past (2007-10). 172 disclosures from 84 companies were able to be analyzed for stock price impact.
The results showed a small, but statistically significant increase in stock price for the companies between the day before and the day after their GHG-related information releases. The authors made the study more robust by also comparing the results against those for a matched set of similar companies over those same days. They found no evidence of an increase among those companies, strengthening the case that it was the GHG information release that was responsible for the stock price increase.
The results for smaller companies with less visibility and less available public information making GHG-related disclosures were more significant, literally and figuratively. Those companies outperformed matched peers in their industry by 2.3% in the days following their announcement (and the outperformance persisted over a 10-day period). This can be a helpful result in working with smaller companies where there may be a greater concern about the relative cost of providing sustainability information.
This is just a single study. But it does provide some statistical evidence that responding to investor demand for greater sustainability disclosure can benefit companies and their shareholders. We can hope that will encourage more companies to provide sustainability disclosures and more researchers to apply the tools of academic finance to this question.
Going Green: Market Reaction to CSR Newswire Releases is available for download from SSRN, the Social Science Research Network.