SYNOPSIS
Carbon risk management plays a crucial role in global environmental development, increasing the demand from environmentally conscious investors and stakeholders for carbon disclosure and control. In parallel with the U.S. Securities and Exchange Commission’s (SEC) release of climate rules in 2024 for enhanced carbon disclosure, this study investigates the effect of voluntary carbon disclosure on analyst forecast accuracy. Using a sample of S&P 500 firms from 2009 to 2020, we find that high-quality carbon disclosure and performance is positively associated with earnings forecast accuracy. Superior disclosures reduce firm-level uncertainties and result in more accurate forecasts. The positive effect is strong in firms that voluntarily disclose climate risks because analysts better comprehend the financial implications of firms’ integrated climate-control strategies. This study contributes to environmental, social, and governance (ESG) disclosure practices and offers implications through specific carbon disclosures. Our evidence supports the SEC in validating its move toward enhanced reporting guidelines.
Data Availability: The data for this study are collected from subscription-based databases like Compustat-Capital IQ, I/B/E/S, and Bloomberg and manually from various publicly available sources identified.
JEL Classifications: C36; G32; M14; M41; M48; Q51.
