Shareholder Value Effects of Voluntary Emissions Reduction

The relationship between emissions reduction and firm financial performance has been studied with mixed results. We consider potential sources of this ambiguity by examining announcements of voluntary emissions reduction (VER) from 1990 to 2009. We measure the stock market reaction associated with VER announcements to estimate the effects of time, emissions type, and whether the reduction was announced ex ante or ex post. We find that the market reaction to VER significantly decreased over time. The changing nature of the market reaction to VER over time highlights the importance of evaluating the financial impact of any VER in the current context rather than relying on past findings. We also find that the market reaction is more positive if the reduction is for greenhouse gas (GHG) rather than other emissions types. In light of the increasing concern with GHGs, this finding should be welcome news for managers. Last, we find a more positive market reaction for VER announcements that are pledges or statements of intent rather than realized achievements of VER. Managers contemplating VER might find benefit (and at least no harm) in announcing their intent to reduce emissions rather than waiting until they have achieved the reduction.