Green Disclosure Leads to Rise in Stock Values, Study Finds

DAVIS, Calif. — Companies that are open about being green appear to see their stock values rise as a result, according to a study by University of California researchers.

UC Davis professor Paul Griffin and his co-author, Yuan Sun of UC Berkeley, tracked the stock prices of several companies around the time they issued press releases about their greenhouse gas emissions and carbon reduction strategies.

In the days after the press releases were published, the companies saw their stock prices jump significantly, Griffin and Sun found.

“When a company makes a voluntary disclosure of this kind, it signals to the investment community that this is a firm that is environmentally responsible,” said Griffin, a management professor. “Investors are saying they would prefer to invest in an environmentally responsible firm.”

While many companies have responded to increased pressure from environmental activists and shareholders to disclose their greenhouse gas emissions and develop strategies to reduce them, Griffin said others have balked, fearing the information could be misinterpreted or lead to litigation and a drop in shareholder value.

The study shows those fears are misplaced, he said.

“Companies should not be as reluctant as they have been to provide this information, because we show that it can be shareholder-positive,” he said. “Our message is that it pays to be green.”

The study, titled “Going Green: Market Reaction to CSR Newswire Releases,” used archives from the Corporate Social Responsibility Newswire to identify climate change-related press releases issued between 2000 and 2010 by companies in information technology, health care, telecommunications, financial services, and energy and utilities.

The researchers tracked the companies’ stock changes two days before, and after, a press release was issued. For the 172 companies that voluntarily gave information, average stock prices increased just under a half percent in the five-day span around the disclosures, according to the study.

“This is evidence that managers’ voluntary climate change disclosures generate positive returns for shareholders,” Griffin said.

Because the study looked only at voluntary disclosures, the authors could not definitively determine if required disclosures from all such companies would have yielded similarly favorable stock value increases.

To test their findings, the researchers examined similar companies that did not disclose carbon emission information during the same time periods. Those businesses did not see their stock values increase by a statistically significant amount, they found.

“The matched sample companies do not behave the same way as the companies that disclose,” Griffin said. “If anything, in the matched sample, the price runs in the opposite direction.”

In addition, small companies that disclosed carbon emission information saw a bigger growth in their stock values than larger companies did, the study found — which the co-authors attributed to the fact that small firms are not followed as closely by analysts and investors.

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