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

Guerrero-Escobar Santiago, Gerardo Hernández-del-Valle, Hernández Vega Marco and Paula De-la-Mora

No 2023-15, Working Papers from Banco de México

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.

Keywords: Stock returns; Volatility; GHG emissions; ESG; GARCH (search for similar items in EconPapers)
JEL-codes: C1 E1 I0 O4 (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-ene, nep-env and nep-fmk
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