An Analysis of Carbon-Reduction Pledges of U.S. Oil and Gas Companies

Hemang Desai (), Pauline Lam (), Bin Li () and Shiva Rajgopal ()
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Hemang Desai: Cox School of Business, Southern Methodist University, Dallas, Texas 75275
Pauline Lam: Stern School of Business, New York University, New York, New York 10012
Bin Li: Bauer College of Business, University of Houston, Houston, Texas 77204
Shiva Rajgopal: Columbia Business School, Columbia University, New York, New York 10027

Management Science, 2023, vol. 69, issue 6, 3748-3758

Abstract: We study carbon-reduction pledges of publicly traded U.S. oil exploration and production (E&P) companies. Of the 69 firms in the sample, 18 have committed to net-zero carbon targets, 14 have announced significant emissions cuts, whereas the remaining 37 firms have not announced any formal commitment to reduce emissions. We find that a firm’s energy production and ownership by BlackRock is positively associated with its decision to announce a net-zero pledge or significant emission cuts. E&P firms are likely to announce such commitments after Engine No. 1 proposed its slate of directors for Exxon’s board. The stock market reacts more negatively to net-zero pledges relative to emission-reduction pledges on average. However, the market reaction is related to the quality and credibility of these pledges. In particular, we find that the negative market reaction to net-zero pledges is mainly driven by firms with post-2030 target years relative to firms that commit to achieving net zero by 2030. We also find that the market reacts more negatively to net-zero pledges when the firm does not show the strength of its commitment via the presence of a board-level committee to monitor the company’s progress toward its emission goals or when the top management’s pay is not linked to specific emission reduction goals.

Keywords: net-zero pledges; carbon emissions; E&P firms; Engine No. 1; determinants; stock reaction (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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