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Cheap Talk in Corporate Climate Commitments: The Role of Active Institutional Ownership, Signaling, Materiality, and Sentiment

Author

Listed:
  • Julia Anna Bingler

    (ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich)

  • Mathias Kraus

    (University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg)

  • Markus Leippold

    (University of Zurich; Swiss Finance Institute - University of Zurich)

  • Nicolas Webersinke

    (Friedrich-Alexander-Universität Erlangen-Nürnberg)

Abstract

Corporate climate disclosures based on the TCFD recommendations are considered an important prerequisite to managing climate-related financial risks. At the same time, current disclosures are imprecise, inaccurate, and greenwashing-prone. Yet, existing research on this matter suffers from small samples or inaccuracies. Therefore, we introduce a scalable deep learning approach to enable comprehensive climate disclosure analyses of large samples by fine-tuning the ClimateBert model. Our model significantly outperforms previous approaches. We then extract the amount of cheap talk, defined as the share of precise versus imprecise climate commitments, of 14,584 annual reports of the MSCI World index firms from 2010 to 2020. Finally, we use this data to test various hypotheses on the drivers of cheap talk. We find that institutional ownership, targeted institutional investor engagement, materiality and downside risk disclosures are associated with less cheap talk. Signaling by publicly supporting the TCFD is associated with more cheap talk.

Suggested Citation

  • Julia Anna Bingler & Mathias Kraus & Markus Leippold & Nicolas Webersinke, 2022. "Cheap Talk in Corporate Climate Commitments: The Role of Active Institutional Ownership, Signaling, Materiality, and Sentiment," Swiss Finance Institute Research Paper Series 22-01, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2201
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    Cited by:

    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.

    More about this item

    Keywords

    Corporate climate disclosures; voluntary reporting; commitments; TCFD recommendations; textual analysis; natural language processing.;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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