CLIMATE DISCLOSURE AND CORPORATE VALUATION: EVIDENCE FROM S&P 500 COMPANIES
Abstract
This study examines the extent to which climate risk disclosure and company valuation are related to large-cap companies in the S&P 500 index. Using an analytical sample of 110 companies from 11 sectors, we constructed a composite score of climate risk disclosures in which firms earned between zero and four points, as defined by the Task Force on Climate-related Financial Disclosures. These four key pillars are governance, strategy, risk management, and climate-related metrics and targets; the score captures disclosures based on their depth as well as quality. Using multivariate regression models, we investigate how climate risk disclosure quality relates to two measures of firm valuation: market capitalization measured on a log-transformed scale and the price-to-book ratio, while controlling for other firm characteristics such as size, profitability, leverage, carbon emissions, audit quality, board independence, and industry fixed effects. The study finds a strong positive relationship between higher climate risk disclosure scores and higher firm valuation. Price-book ratio model does not reveal significant results for the disclosure score; the fixed effect model indicates a positive relationship, which means that investors with firm-specific differences tend to reward climate transparency better. The interaction model explains that this effect is accentuated in high-emission industries such as energy, utilities, and basic materials, indicating that pollution-intensive sectors are more sensitive to climate disclosure. Thus, these findings lend credence to signaling theory, stakeholder theory, and legitimacy theory, all of which underpin that high-quality disclosures reflect managerial competency, corporate legitimacy, and strategic foresight. The findings bear implications for corporate managers, institutional investors, and policymakers who advocate for standardized and high-quality climate risk reporting across sectors.
Keywords: Climate Risk Disclosure, Firm Valuation, ESG
