Investors Prefer Disclosure when it comes to Climate Risks, a report shows
Researchers at Lazard’s Climate Center said that firms find that investors penalize stocks less for high levels of greenhouse gas emissions when they disclose this data voluntarily.
American regulators are currently formulating new rules and regulations on how companies must provide investors with the information to assess their sustainable environmental impact, As part of their efforts to fight against climate change.
The Lazard bankers, Columbia University professors, and Imperial College London professors found that Russell 3000 firms were better off by being upfront about their emissions.
Price-to-earnings ratio (P/E), the stock price value and industry standard could go down by over one percentage point if 10% more greenhouse gas emissions come from operations at any of these companies.
If the company revealed its Scope 1 emission, it was expected that its P/E would be 0.6% higher. This would effectively offset 48% of any discount applied because of higher emissions. The effect on energy companies was even more dramatic: disclosure increased their P/E ratio by 0.8%.
Lazard’s research suggests that the most likely explanation is that investors price in uncertainty when making an estimate.
Peter Orszag is the chief executive officer of Lazard’s financial advisory.
In recent years, many firms have pledged to reduce their carbon emission. However, according to the report this has had little bearing on their valuation.
The report concluded that the most likely reason for this kind of pledge is linked to a different finding: more than half of the companies sampled were not on track to reach their own targets.
The report stated that “Investors might not view pledges as having material weight but as… boosting public relations.”
Prachi, an accomplished Chief-Editor at The Sustainable Brands Journal, has 15+ years of experience in Europe, the Middle East, and India, managing 90+ global sustainable brands. She’s a prolific writer in sustainability, contributing to various publications. Prachi’s unwavering passion and expertise make her a recognized authority, driving positive change and inspiring a sustainable future.
