Stock markets, corporate climate pledges, and the Science-Based Target Initiative

The paper examines whether stock markets reward firms for joining the Science-Based Targets initiative (SBTi), a prominent voluntary environmental program (VEP) that verifies corporate greenhouse gas emission reduction pledges. The context is the twin failure of markets and governments to adequately address climate change, leading to increased reliance on firm-led voluntary actions. While VEPs promise reputational benefits that could translate into economic payoffs (e.g., higher stock prices), they also impose costs through monitoring and verification. The research question is whether S&P 500 firms that commit to or obtain SBTi verification experience stock price gains reflecting such reputational benefits. Given the political controversy around ESG and questions about the credibility of voluntary pledges, it is an open empirical question whether financial markets reward SBTi participation.

The study draws on literature about voluntary environmental programs as club-like institutions that can generate excludable reputational benefits for participants beyond legal requirements. Prior work debates VEP effectiveness, with concerns about greenwashing and the need for credible third-party monitoring and verification. Reputation is argued to affect firm valuation and stakeholder relations, potentially impacting stock prices, regulatory treatment, and capital costs. Financial market actors (credit rating agencies, investors) are increasingly incorporating climate risks into assessments. Evidence specific to SBTi indicates verification can improve emissions inventory reporting quality, but the financial payoff remains uncertain. Political backlash against ESG in the U.S. may dampen investor rewards for such memberships. There are also critiques of SBTi’s verification design (e.g., base-year selection) that could fuel market skepticism.

The authors analyze S&P 500 firms from 2010 to 2023, categorizing them by SBTi status: Tier 1 (verified 1.5 °C; 102 firms), Tier 2 (verified well below 2 °C; 25 firms), Tier 3 (verified 2 °C; 5 firms), Tier 4 (committed to verification; 56 firms), and Tier 5 (non-members; 312 firms). They employ three empirical strategies: (1) Event study analysis using WRDS U.S. Daily Event Study, estimating parameters over a 100-day pre-event estimation window and computing abnormal returns over a [-10, +10] day event window around SBTi commitment/verification events. Robustness checks use the Fama-French Three Factor Model. (2) Coarsened exact matching (CEM) to match SBTi members in each tier to non-members on observed covariates, followed by OLS to estimate sample average treatment effects on quarterly stock prices. (3) Weighted two-way fixed effects models (difference-in-differences with multi-period treatment) using propensity score weights, industry fixed effects, and time and unit fixed effects to account for staggered adoption. Data for stock prices and covariates come from WRDS COMPUSTAT-Capital IQ North America. Covariates include firm size and valuation (total assets, total liabilities, total market value), performance (return on assets, change in revenue vs. prior quarter, dividends per share), liquidity and leverage (cash ratio, debt ratio), and a one-quarter lagged stock price to capture persistence. Industry fixed effects are included. Analyses focus on quarterly stock prices for matching and fixed effects and daily prices for event studies.

• Event study: Across tiers (commitment, 2 °C, well below 2 °C, 1.5 °C), cumulative abnormal returns around SBTi events show no statistically significant positive reactions. Results are robust to Fama-French three-factor adjustments.
• Matching + OLS (sample average treatment effect vs. non-members): Tier 4 (Committed): +1.440 [−0.748, 3.632]; Tier 3 (2 °C): −3.120 [−9.215, 2.971]; Tier 2 (Well below 2 °C): −5.047 [−7.395, −2.699]; Tier 1 (1.5 °C): −3.943 [−6.046, −1.840]. These estimates provide no evidence of increases in stock prices; for Tiers 1 and 2, the average treatment effects are negative with 95% CIs excluding zero.
• Weighted two-way fixed effects (with industry FE and HAC errors): No model shows a statistically significant positive effect of any SBTi tier on stock prices (reported p-values for tier indicators are not significant). Controls behave as expected in some specifications (e.g., lagged price significant in some models). Observation counts: treated firms per model = 56 (Tier 4), 5 (Tier 3), 25 (Tier 2), 102 (Tier 1); controls = 312; total observations range from 13,140 to 17,826. Overall, there is little evidence that SBTi membership, at any tier, increases stock prices for S&P 500 firms in 2010–2023.

The findings indicate that stock markets do not reward S&P 500 firms for SBTi membership or verification, suggesting limited translation of reputational benefits into stock price gains in this context. Possible explanations include market skepticism about the credibility or stringency of SBTi’s verification (e.g., base-year flexibility), heightened political controversy around ESG that may mute investor enthusiasm, and the public-good nature of mitigation benefits that do not readily confer private market rewards. While the results challenge claims that voluntary climate pledges deliver immediate shareholder value, they also suggest that markets, on average, do not penalize such commitments. The implications are that nonfinancial motivations—social and political legitimacy, stakeholder relations, or regulatory goodwill—may be more salient drivers of voluntary climate action than short-term stock market incentives. Future research should test alternative payoff channels (sales growth, employee retention, cost of capital, regulatory outcomes) and assess whether adaptation-focused initiatives, which generate more private benefits, elicit different market responses.

Analyzing S&P 500 firms from 2010–2023 across SBTi membership tiers using event studies, matched OLS, and weighted two-way fixed effects, the study finds little evidence that SBTi participation increases stock prices. This contributes to debates on the effectiveness and payoffs of voluntary environmental programs by demonstrating weak stock market rewards for a high-profile climate VEP. Policy and advocacy strategies seeking corporate decarbonization should consider nonfinancial incentives and legitimacy benefits rather than relying on stock market rewards. Future research should (1) expand beyond S&P 500 to include smaller and less scrutinized firms, (2) examine other outcome domains (sales, labor outcomes, regulatory costs, cost of capital), (3) compare mitigation- versus adaptation-focused initiatives, (4) investigate supply-chain diffusion effects, and (5) improve causal identification with richer covariates and methods for handling missing data (e.g., multiple imputation).

• External validity: The sample is limited to S&P 500 firms; results may not generalize to smaller or non-U.S. firms.
• Sample size imbalance: Few treated firms in some tiers (especially Tiers 2 and 3) reduce statistical power.
• Data constraints: Missing observations for key covariates are more common for smaller firms, limiting broader samples.
• Identification concerns: Matching estimates depend on observed covariates; unobserved factors may still bias results. The matching strategy’s efficacy is sensitive to the chosen covariates; multiple imputation and additional controls could improve robustness.
• Outcome scope: Focus on stock prices may miss other benefit channels (e.g., sales, costs, labor, credit markets).