Carbon Disclosure Effect, Corporate Fundamentals, and Net-zero Emission Target: Evidence from China

TL;DR

This study investigates how high-quality carbon emissions disclosures influence the financial performance of Chinese companies, revealing positive effects on stock returns, profitability, and market valuation, emphasizing the strategic value of environmental transparency.

Contribution

It introduces an AI-based analysis of carbon disclosures in China and demonstrates their significant positive impact on corporate financial metrics.

Findings

Higher carbon disclosure quality correlates with increased stock returns.

Enhanced disclosures lead to improved return on equity and Tobin's Q.

Better transparency reduces stock price volatility.

Abstract

In response to China's national carbon neutrality goals, this study examines how corporate carbon emissions disclosure affects the financial performance of Chinese A-share listed companies. Leveraging artificial intelligence tools, including natural language processing, we analyzed emissions disclosures for 4,336 companies from 2017 to 2022. The research demonstrates that high-quality carbon disclosure positively impacts financial performance with higher stock returns, improved return on equity, increased Tobin's Q ratio, and reduced stock price volatility. Our findings underscore the emerging importance of carbon transparency in financial markets, highlighting how environmental reporting can serve as a strategic mechanism to create corporate value and adapt to climate change.