Climate Conscious Investors, Carbon Disclosures, And Efficiency

Vedant Agarwal and Javier Suarez

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: We analyze whether carbon disclosures can substitute for carbon emission taxation when emissions generate negative externalities. In our setup, climate conscious investors adjust their funding terms based on their beliefs about firms’ carbon intensities, which firms can choose to disclose at a cost. In equilibrium, the least carbon-intensive firms disclose and are financed at terms based on their carbon intensity, while nondisclosing firms are financed at more expensive pooling terms. Encouraging disclosures reduces investment and therefore emissions by non-disclosing firms, but may increase investment and emissions by newly disclosing firms, overall having ambiguous effects on total emissions and social welfare.

Keywords: Climate-related disclosures; socially responsible investment; carbon pricing; emission taxes; disclosure costs (search for similar items in EconPapers)
JEL-codes: G31 G38 Q52 Q58 (search for similar items in EconPapers)
Pages: 42
Date: 2025-09
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Persistent link: https://EconPapers.repec.org/RePEc:ris:cafral:022260

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