Climate Mitigation Disclosure on Financial Performance and Market Stability: Evidence from South Africa
Date
2023
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Witwatersrand, Johannesburg
Abstract
This paper investigates the impact of climate risk disclosure in South Africa on the market stability and performance. The main proxies of climate risk used in the study are greenhouse gas emission intensity and environmental performance rating. The study uses a difference-in-difference method to isolate the effect of climate risk disclosure on a portfolio of highly exposed firms. Firstly, the results show that high greenhouse gas emitting firms have lower returns and higher volatility before and after controlling for time effects. However, the difference-in-difference coefficient from the analysis shows evidence of a weak correlation at a 10% significance level between disclosure of climate risk on the market performance of high greenhouse gas emitting firms relative to low emitters. Secondly, the study could not establish evidence that stocks of high greenhouse gas emitting firms experience higher volatility after the disclosure of their emission inventory.
Results of the impact of environmental ratings on stock returns after adjusting for the time effect show that firms rated by the Climate Disclosure Project have lower returns than highly rated firms. However, the difference-in-difference coefficient is weak at a 10% significance level. The results are inconsistent with previous studies in developed countries where a strong correlation between climate risk and stock performance has been established. The findings from the study highlight that either climate risk is already factored into the stock prices, or the risk is viewed as immaterial to have an immediate impact on the equity market. The study addresses the existing literature gap on the effect of climate risk on developing countries' market stability and performance. Future work is required considering the evolving global focus on climate risk as a priority and the potential financial impact on firms’ sustainability
Description
A research report submitted in partial fulfillment of the requirements for the degree of Master of Management in Finance and Investment to the Faculty of Commerce, Law and Management, Wits Business School, University of the Witwatersrand, Johannesburg, 2023
Keywords
Climate change, Climate risk, Market stability, Financial performance, UCTD
Citation
Ramafoko, Mokate George. (2023). Climate Mitigation Disclosure on Financial Performance and Market Stability: Evidence from South Africa [Master’s dissertation, University of the Witwatersrand, Johannesburg]. WireDSpace. https://hdl.handle.net/10539/39916