Study Overview
We study stock market reactions to corporate announcements of emissions reduction targets. Using generative AI to screen news headlines, we identify 2,417 emissions target announcements from 2006 to 2023 and document three main findings.
Study Results
First, target announcements are associated with negative stock price reactions on average but with significant variations. Second, firms with more credible disclosures—those with higher environmental scores, reasonable assurance of emissions data, and a longer history of emissions reporting—receive more negative reactions. Third, firms with more negative market reactions subsequently reduce their emissions intensity more, consistent with the market correctly anticipating firms that will engage in costly decarbonization efforts. We identify two reasons why firms set targets and follow through despite negative market reactions: (i) benefits are realized later, as seen in less negative market reactions when climate regulation materializes; and (ii) ESG-linked pay incentivizes target announcement and subsequent decarbonization. Our findings shed light on how market values voluntary climate commitments.