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The Stock Market Effects of Committing and Setting GHG Targets: Evidence from the Science-Based Initiative

Author

Listed:
  • Guerrero-Escobar Santiago
  • Hernández-del-Valle Gerardo
  • Hernández Vega Marco
  • De-la-Mora Paula

Abstract

Many companies are setting ambitious targets to reduce their greenhouse gas emissions (GHG) per the Paris Agreement. However, there is limited evidence on the market effects of setting those targets. Using a GARCH model with a trend developed by the authors and a panel fixed effects model, this paper analyzes the short-run effects of committing and setting GHG targets on public companies' stock price returns and volatility. We find no evidence that committing or setting a target yields higher returns but contributes to a reduction in price volatility, albeit the impact is short-lived. In view of these results, we conclude that there are no visible stock market gains in the short term for companies that commit and set GHG targets and that other factors may explain their motivations to engage in GHG mitigation actions.

Suggested Citation

  • Guerrero-Escobar Santiago & Hernández-del-Valle Gerardo & Hernández Vega Marco & De-la-Mora Paula, 2023. "The Stock Market Effects of Committing and Setting GHG Targets: Evidence from the Science-Based Initiative," Working Papers 2023-15, Banco de México.
    • Handle: RePEc:bdm:wpaper:2023-15
    as

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    References listed on IDEAS

    as
    1. Anant K. Sundaram & Andrew C. Inkpen, 2004. "The Corporate Objective Revisited," Organization Science, INFORMS, vol. 15(3), pages 350-363, June.
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    3. Hernández del Valle Gerardo & Juárez-Torres Miriam & Guerrero Santiago, 2016. "A Functional Approach to Test Trending Volatility," Working Papers 2016-04, Banco de México.
    4. Anant K. Sundaram & Andrew C. Inkpen, 2004. "Stakeholder Theory and “The Corporate Objective Revisited”: A Reply," Organization Science, INFORMS, vol. 15(3), pages 370-371, June.
    5. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stock returns; Volatility; GHG emissions; ESG; GARCH;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • I0 - Health, Education, and Welfare - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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