Climate finance: how do firms and markets react to policies?

This study analyses the relationship between firms’ financial performance, distinguishing between short and long-term, and their environmental performance, with a particular focus on greenhouse gas-intensive industries. Using a dataset that contains financial and environmental variables of international listed companies from 2011 to 2023, we estimated the financial impact of firms’ environmental performances, measuring them with multiple indicators that take into account geographical and disclosure aspects. The analysis was conducted across different industry aggregation levels, namely the Global Industry Classification System (GICS) Industry Group, and the GICS Industry. We find that environmental disclosure indexes are mostly not significant after controlling for the environmental performance, suggesting that the effect of environmental disclosure on corporate financial performance is limited, if not altogether absent. In contrast, environmental performance seems to play an important role, at least for what regards firms’ long-term financial performance, and that holds for high-emitting companies. Overall, our results are consistent with the interpretation that financial markets effectively consider the actual environmental performances of listed companies only in specific cases and, when they do so, they rely on pure performance indicators rather than on the quality of their disclosure.