Market Effects of Voluntary Climate Action by Firms: Evidence from the Chicago Climate Exchange

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Why do for-profit firms take voluntary steps to improve the environment? Brand appeal to green consumers or investors, the ability to influence or avoid regulation, or the experience gained for future regulation, have all been suggested as possible reasons. The empirical evidence is decidedly mixed. This paper uses 19 years of monthly stock price returns to examine the profitability of participation in the world's largest voluntary greenhouse gas mitigation program: the Chicago Climate Exchange. After controlling for systemic market risk as well as industry-specific shocks, we find no statistically significant impact of announcing to join CCX on excess returns. However, the market appeared to be sensitive to changes in abatement costs implied by CCX membership. Most strikingly, the progress of proposed greenhouse gas legislation (the Waxman-Markey bill) had a positive impact on excess returns for CCX member firms, suggesting that the most profitable incentive for firms to join CCX is to prepare for future regulation. Our results imply that relying on voluntary approaches alone to combat climate change may not be enough. Terms of use: Documents inJEL-Code: Q530, Q540.

Voluntary Corporate Climate Initiatives and Regulatory Loom: Batten Down the Hatches

“…New CCX members fared better. Our results cannot reject a neutral market reaction for CCX membership announcements, rectifying previous findings by Gans and Hintermann (2013).…”

“…Gans and Hintermann (2013) assess membership announcement and Waxman-Markey Bill effects for CCX firms and conclude that for both instances, the market reacted highly favorably. However, there are a couple of drawbacks to the research design which cast doubt on the validity of the empirical analysis.…”

Corporate climate change mitigation: a systematic review of the existing empirical evidence

“…The former finding is supported by Nishitani and Kokubu (2012) for listed Japanese manufacturing corporations, Martin et al (2012) for UK production facilities and Chakrabarty and Wang (2013) for US multinationals. Gans and Hintermann (2013) found that corporate participation in the Chicago Climate Exchange is related to significant positive stock returns for US corporations between 1991 and 2009. Finally, Ziegler et al (2011) found that the stock performance, over a six-year period, of corporations that disclose measures to mitigate GHG emissions and that make a public statement on the impact of human-induced climate change, were higher for those European Union corporations and US utilities that disclose than for non-disclosing ones.…”

Opening up the firm: What explains participation and effort in voluntary carbon disclosure by global businesses? An analysis of internal firm factors and dynamics

“…Second, for firms that participate in voluntary carbon disclosure, “going the extra mile” in voluntary carbon disclosure—i.e., engaging in higher levels of carbon disclosure—helps firms to safeguard their brand reputations and to corner new markets; by doing so, they are further signaling to consumers their CSR. Finally, it is in these firms' benefit–cost calculus to execute to a greater extent what they have already adhered to publically in case there are stock market consequences (Fisher‐Vanden & Thorburn, ; Gans & Hintermann, ). Having said that, European firms may not be motivated by these same considerations because of their different national institutional imperatives for social responsibility (Habisch, Jonker, Wegner, & Schmidpeter, ; Matten & Moon, ).Hypothesis (Participation): The likelihood of a firm's participation in voluntary carbon disclosure increases when the firm engages in explicit CSR practices.Hypothesis (Intensity of Participation): A firm's level of voluntary carbon disclosure increases when the firm engages in explicit CSR practices.Hypothesis (All Global 500 versus European firms): For European firms, explicit CSR practices are not associated with a higher propensity of participation or a higher level of voluntary carbon disclosure.…”

“…Second, for firms that participate in voluntary carbon disclosure, "going the extra mile" in voluntary carbon disclosure-i.e., engaging in higher levels of carbon disclosure-helps firms to safeguard their brand reputations and to corner new markets; by doing so, they are further signaling to consumers their CSR. Finally, it is in these firms' benefit-cost calculus to execute to a greater extent what they have already adhered to publically in case there are stock market consequences (Fisher-Vanden & Thorburn, 2011;Gans & Hintermann, 2013). Having said that, European firms may not be motivated by these same considerations because of their different national institutional imperatives for social responsibility (Habisch, Jonker, Wegner, & Schmidpeter, 2005;Matten & Moon, 2008…”