IDEAS home Printed from https://ideas.repec.org/a/wly/sustdv/v31y2023i2p1008-1026.html
   My bibliography  Save this article

The effect of climate disclosure on stock market performance: Evidence from Norway

Author

Listed:
  • Yevheniia Antoniuk

Abstract

Increased concerns about climate change and its economic impact emphasize the necessity of sustainable investment and have become a demanded research topic. Via voluntary carbon and climate‐related disclosure, companies indicate their exposure to climate change risks and how they counteract them. Investors seeking to reduce the climate risk of their portfolios can utilize this information. Using the 2010–2020 Carbon Disclosure Project scoring for companies in Norway, I formed portfolios of stocks with high, low, and no scores. These portfolios represent lower, higher, and unknown climate risks, respectively. The results suggest that a value‐weighted portfolio of firms with high scores generates an extra 1.3% annualized return over the market. This portfolio steadily outperformed the market in recent years based on the information and Sortino ratios. However, after controlling for recognized risk factors, the high‐score portfolio has no abnormal return unless energy stocks are excluded. In contrast, low‐ and no‐score portfolios were penalized for bearing higher climate risk so that there is a significant climate alpha after 2016. This research highlights that a climate‐aligned investment strategy is profitable while offering lower climate change risk exposure.

Suggested Citation

  • Yevheniia Antoniuk, 2023. "The effect of climate disclosure on stock market performance: Evidence from Norway," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(2), pages 1008-1026, April.
    • Handle: RePEc:wly:sustdv:v:31:y:2023:i:2:p:1008-1026
    DOI: 10.1002/sd.2437
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/sd.2437
    Download Restriction: no
    File URL: https://libkey.io/10.1002/sd.2437?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Derwall, Jeroen & Koedijk, Kees & Ter Horst, Jenke, 2011. "A tale of values-driven and profit-seeking social investors," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2137-2147, August.
    2. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    3. Auke Plantinga & Bert Scholtens, 2021. "The financial impact of fossil fuel divestment," Climate Policy, Taylor & Francis Journals, vol. 21(1), pages 107-119, January.
    4. Cunha, Felipe Arias Fogliano de Souza & Meira, Erick & Orsato, Renato J. & Klotzle, Marcelo Cabus & Lucena, André F.P., 2021. "Do low-carbon investments in emerging economies pay off? Evidence from the Brazilian stock market," International Review of Financial Analysis, Elsevier, vol. 74(C).
    5. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    6. Ziegler, Andreas & Busch, Timo & Hoffmann, Volker H., 2011. "Disclosed corporate responses to climate change and stock performance: An international empirical analysis," Energy Economics, Elsevier, vol. 33(6), pages 1283-1294.
    7. Frauke Urban & Johan Nordensvärd, 2018. "Low Carbon Energy Transitions in the Nordic Countries: Evidence from the Environmental Kuznets Curve," Energies, MDPI, vol. 11(9), pages 1-17, August.
    8. Brett Christophers, 2019. "Environmental Beta or How Institutional Investors Think about Climate Change and Fossil Fuel Risk," Annals of the American Association of Geographers, Taylor & Francis Journals, vol. 109(3), pages 754-774, May.
    9. Frank Schiemann & Alice Sakhel, 2019. "Carbon Disclosure, Contextual Factors, and Information Asymmetry: The Case of Physical Risk Reporting," European Accounting Review, Taylor & Francis Journals, vol. 28(4), pages 791-818, August.
    10. Duojun He & Shenggang Ren & Huixiang Zeng, 2022. "Environmental labeling certification and firm environmental and financial performance: A resource management perspective," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 751-767, March.
    11. repec:eme:mfppss:mf-10-2015-0291 is not listed on IDEAS
    12. D’Orazio, Paola & Popoyan, Lilit, 2019. "Fostering green investments and tackling climate-related financial risks: Which role for macroprudential policies?," Ecological Economics, Elsevier, vol. 160(C), pages 25-37.
    13. Sondre R. Fiskerstrand & Susanne Fjeldavli & Thomas Leirvik & Yevheniia Antoniuk & Oleg Nenadić, 2020. "Sustainable investments in the Norwegian stock market," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 10(3), pages 294-310, July.
    14. Enrico Bernardini & Johnny Di Giampaolo & Ivan Faiella & Riccardo Poli, 2021. "The impact of carbon risk on stock returns: evidence from the European electric utilities," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 11(1), pages 1-26, January.
    15. Auer, Benjamin R. & Schuhmacher, Frank, 2016. "Do socially (ir)responsible investments pay? New evidence from international ESG data," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 51-62.
    16. Andrea Liesen & Frank Figge & Andreas Hoepner & Dennis M. Patten, 2017. "Climate Change and Asset Prices: Are Corporate Carbon Disclosure and Performance Priced Appropriately?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(1-2), pages 35-62, January.
    17. Jennifer Bender & Todd Arthur Bridges & Kushal Shah, 2019. "Reinventing climate investing: building equity portfolios for climate risk mitigation and adaptation," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 9(3), pages 191-213, July.
    18. Juan C. Reboredo & Luis A. Otero González, 2022. "Low carbon transition risk in mutual fund portfolios: Managerial involvement and performance effects," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 950-968, March.
    19. Sovacool, Benjamin K., 2017. "Contestation, contingency, and justice in the Nordic low-carbon energy transition," Energy Policy, Elsevier, vol. 102(C), pages 569-582.
    20. Dan Daugaard, 2020. "Emerging new themes in environmental, social and governance investing: a systematic literature review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1501-1530, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dahlström, Petter & Lööf, Hans & Sahamkhadam, Maziar & Stephan, Andreas, 2023. "Science-based emission targets and risk-adjusted portfolio return: An analysis using global SBTi-validated stocks," Working Paper Series in Economics and Institutions of Innovation 492, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    2. Reboredo, Juan C. & Ugolini, Andrea, 2022. "Climate transition risk, profitability and stock prices," International Review of Financial Analysis, Elsevier, vol. 83(C).
    3. Guillermo Badía & Luis Ferruz & Maria Céu Cortez, 2021. "The performance of social responsible investing from retail investors' perspective: international evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6074-6088, October.
    4. Sebastian Lobe & Christian Walkshäusl, 2016. "Vice versus virtue investing around the world," Review of Managerial Science, Springer, vol. 10(2), pages 303-344, March.
    5. Lars Hornuf & Gül Yüksel, 2022. "The Performance of Socially Responsible Investments: A Meta-Analysis," CESifo Working Paper Series 9724, CESifo.
    6. Mihir Tirodkar & Henk Berkman, 2023. "Are polluters shunned? A study on the institutional ownership and returns of polluter stocks," The Financial Review, Eastern Finance Association, vol. 58(3), pages 513-537, August.
    7. Lioui, Abraham & Tarelli, Andrea, 2022. "Chasing the ESG factor," Journal of Banking & Finance, Elsevier, vol. 139(C).
    8. Ricardo Gimeno & Clara I. González, 2022. "The role of a green factor in stock prices. When Fama & French go green," Working Papers 2207, Banco de España.
    9. Isil Erol & Umut Unal & Yener Coskun, 2021. "ESG Investing and the Financial Performance: A Panel Data Analysis of Developed REIT Markets," MAGKS Papers on Economics 202123, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    10. Khalfaoui, Rabeh & Mefteh-Wali, Salma & Viviani, Jean-Laurent & Ben Jabeur, Sami & Abedin, Mohammad Zoynul & Lucey, Brian M., 2022. "How do climate risk and clean energy spillovers, and uncertainty affect U.S. stock markets?," Technological Forecasting and Social Change, Elsevier, vol. 185(C).
    11. El Ouadghiri, Imane & Guesmi, Khaled & Peillex, Jonathan & Ziegler, Andreas, 2021. "Public Attention to Environmental Issues and Stock Market Returns," Ecological Economics, Elsevier, vol. 180(C).
    12. José Luis Miralles-Quirós & María Mar Miralles-Quirós, 2020. "Who Knocks on the Door of Portfolio Performance Heaven: Sinner or Saint Investors?," Mathematics, MDPI, vol. 8(11), pages 1-18, November.
    13. Patrícia Pereira & Maria Céu Cortez & Florinda Silva, 2019. "Socially responsible investing and the performance of Eurozone corporate bond portfolios," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(6), pages 1407-1422, November.
    14. Carè, R. & Weber, O., 2023. "How much finance is in climate finance? A bibliometric review, critiques, and future research directions," Research in International Business and Finance, Elsevier, vol. 64(C).
    15. Janick Christian Mollet & Andreas Ziegler, 2014. "Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 208-216, November.
    16. Roy Kouwenberg & Chenglong Zheng, 2023. "A Review of the Global Climate Finance Literature," Sustainability, MDPI, vol. 15(2), pages 1-32, January.
    17. Neil Gunningham, 2020. "A Quiet Revolution: Central Banks, Financial Regulators, and Climate Finance," Sustainability, MDPI, vol. 12(22), pages 1-22, November.
    18. Mollet, Janick Christian & Ziegler, Andreas, 2014. "Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets," Review of Financial Economics, Elsevier, vol. 23(4), pages 208-216.
    19. Simone Giansante & Mahmoud Fatouh & Nicholas Dove, 2023. "Carbon Emissions Announcements and Market Returns," Sustainability, MDPI, vol. 15(13), pages 1-16, June.
    20. Cortez, Maria Céu & Andrade, Nuno & Silva, Florinda, 2022. "The environmental and financial performance of green energy investments: European evidence," Ecological Economics, Elsevier, vol. 197(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:sustdv:v:31:y:2023:i:2:p:1008-1026. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-1719 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.