Does the market value corporate response to climate change?

Motivated by the controversial debate on mandatory reductions of greenhouse gases in the U.S., this study explores whether the market values corporate response to tackle carbon dioxide emissions. We measure corporate responses using the measure of media tone based on the positive and negative words in each news article. Our results show that the market reacts favorably to the negative media exposure of corporate response to climate change over the announcement period and the one-year period, which implies that the socially responsible action to tackle climate change is costly. We further find that the positive response is less pronounced for firms from polluting industries and firms with poor environmental performance.

► We measure corporate response to climate change using the media tone.
► The media tone is based on positive and negative words in each news.
► The market reacts positively to the negative media tone.
► Socially responsible action to tackle climate change is costly.
► The positive response is less pronounced for polluting industries.