Institutional Investors’ Views and Preferences on Climate Risk Disclosure

By Emirhan Ilhan, Philipp Krueger, Zacharias Sautner, Laura T. Starks. Social Science Research Network, 2020

389 citations recorded by the source corpus.

Given ambiguity concerning the effects of disclosure on firm value and markets, we examine the question of whether investors value carbon risk disclosure. Through a survey and empirical tests, we conclude that many institutional investors consider climate risk reporting to be as important as financial reporting. However, systematic variation exists in their opinions depending on firm characteristics, investor characteristics and investor beliefs about climate change. Our empirical tests show that greater institutional ownership, particularly investors from high social norm countries, is associated with a higher propensity of firms to voluntarily disclose their carbon emissions and to provide higher quality information.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/1e4c9279e727e051a6b0e7e4bc672e93bda9f222

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Citations in the corpus

Firm-level Climate Change Exposure (2020, background): “Ilhan et al. (2020) study the preferences of institutional investors with respect to climate risk disclosures, while Flammer, Toffel, and Viswanathan (2019) find that activism by long-term institutional investors increases the voluntary disclosure of climate risks.”
The impact of climate change on the cost of bank loans (2020, background): “In fact, most investors believe that the current disclosure requirements are inadequate, and that climate risk disclosure should be mandatory and standardized very much like financial reporting (Ilhan et al., 2020).”
Investor rewards to environmental responsibility: Evidence from the COVID-19 crisis (2021, positive): “This result complements prior studies documenting that carbon emissions increase downside risk (e.g., Ilhan et al., 2019; Ilhan et al., 2021).”
The Pricing of Carbon Risk in Syndicated Loans: Which Risks are Priced and Why? (2021, neutral): “Ilhan et al. (2020) find that institutional investors have a strong preference for firms that disclose (scope 1) emissions, suggesting that carbon risks are perceived as financially material.”
Does the CDS Market Reflect Regulatory Climate Risk Disclosures? (2020, positive): “Equity prices worldwide contain a ”carbon premium” (Bolton and Kacperczyk, 2020), and also option prices (Ilhan et al., 2019b) indicate greater risk for firms with carbon-intensive business models.”