“Policies at the national, regional and state levels to regulate Greenhouse Gas emissions, as well as climate change, could adversely impact CP&E's results of operations, financial condition and cash flows. Hazards customary to the power production industry include the potential for unusual weather conditions, which could affect fuel pricing and availability, as well as route to market or access to customers through transmission and distribution lines or to critical plant assets. To the extent that climate change contributes to the frequency or intensity of weather-related events, CP&E's operations could be affected. CP&E operates generating units in New Jersey that are not subject to the Regional Greenhouse Gas Initiative (RGGI), which is a regional cap and trade system. Future state-level legislative changes may result in generating units in New Jersey being subject to RGGI. These new rules could adversely impact CP&E's results of operations, financial condition and cash flows. CP&E competes with both conventional power industries and renewable power industries, which could limit our returns and materially adversely affect our financial condition. The power industry faces intense competition from both conventional and renewable energy providers.”
For this excerpt, 184 total words and ClimateRisk=22. 14 excerpts were identified with 2,528 total words and ClimateRisk=85.
The full disclosure is available in:
https://cookesg.com/abstract.php?isabstract=1&year=2016&analysis=climate&filename=0001144204-16- 083730
Appendix C - Variable Definitions
Variable Definition Source ClimateRisk Raw scores for disclosure extensiveness and relevance Ceres/CookESG database
NClimateRisk Is ClimateRisk, normalized by industry and year Ceres/CookESG database Regulatory The products of the % assigned to regulatory type of climate risk and
NClimateRisk in each fiscal year Ceres/CookESG database
ENV_NET The net score (constructed as strengths minus concerns) based on the KLD
database KLD database
TRI Toxic Release Inventory scaled by sales U.S. EPI website
EMISSIONS Total level of carbon emissions scaled by sales ASSET4 Q Tobin’s Q, the sum of market capitalization and the book value of debt,
divided by the book value of total assets (at-ceq-txdb+ csho*prcc_f)/at The merged CRSP - COMPUSTAT LogMV Log of market value of equity at the end of the fiscal year The merged CRSP -
COMPUSTAT PRICE PRICE is the stock price at three months after fiscal year-end (prcc_q) The merged CRSP -
COMPUSTAT BVE Book value of equity per share (( ceq- pstk)/cshoq) The merged CRSP -
COMPUSTAT EARN Earnings per share (epspx*csho/cshoq) The merged CRSP -
COMPUSTAT EARN_Neg earnings per share to common equity if earnings ≤0, 0 otherwise The merged CRSP -
COMPUSTAT
SALES Log of 1+ sales (log (1+sale)) The merged CRSP -
COMPUSTAT BTM The book-to-market ratio is the book value of equity over the market value of
equity
The merged CRSP - COMPUSTAT LEV Leverage is long-term debt scaled by market value of common equity
((dltt+dlc)/(dltt+dlc+ceq))
The merged CRSP - COMPUSTAT ROA Return on Assets is earnings divided by the book value of total assets (ib/at) The merged CRSP -
COMPUSTAT CapInt Capital intensity is gross property, plant and equipment scaled by total assets
(ppegt/at)
The merged CRSP - COMPUSTAT CapExp Capital expenditure is capital expenditure on property plant and equipment
scaled by total assets (capx/at)
The merged CRSP - COMPUSTAT
ASSET Log of total assets (log (at)) The merged CRSP -
COMPUSTAT R&D Research and Development is research and development expense scaled by
total assets (xrd/at)
The merged CRSP - COMPUSTAT Advert Advertising is advertising expense scaled by total assets (xad/at) The merged CRSP -
COMPUSTAT DIV Dividends is 1 if the firm paid dividends in the fiscal year, 0 otherwise The merged CRSP -
COMPUSTAT PROPDISCL The ratio of the number of firms in the Fama-French 48 industry classification
that provide climate risk disclosure to the total number of firms in the industry in fiscal year t in our sample
MF The number of management forecasts issued by the firm I/B/E/S
II The percentage of total shares outstanding held by institutional investors Thomson Reuter 13-F database FRNSALE The firm’s foreign sales as a percentage of total sales Compustat
Table 1: Sample Selection
Sample Development Table
Obs. N Firms
Climate Risk data 13,848 3,314
Less observations:
For financial services firms (3,286) Negative Book Value (491) Missing financial data (3)
Final Valuation Sample 10,068 2,504 Final Q Sample (Eq. 4) 9,426 2,348
This table presents the sample development process based on Russell 3000 firms in the period 2011–2015. Sample sizes differ across models due to differing data requirements. Equations are fully described in Sections 3 and 6.
Table 2: Frequency and Climate Risk Score by Industry
Notes: The table presents the full sample firm-year observations across the Fama-French 48 Industry Classification. Column (1) reports the total number of firm-year observations for each industry in the sample. Column (2) provides the industry mean Climate Risk Score (ClimateRisk). Columns (3)–(6) report the absolute number and percent of firm-years with climate risk reporting for different types of climate risk within each industry.
(1) (2) (3) (1) (2) (3)
Industry Classification Firm/
Years
Mean Raw Score
Regulatory Firm/
Years
Mean Raw Score
Regulatory Firm/
Years % Firm/
Years %
Agriculture 41 25 31 76% Machinery 421 11 186 44%
Aircraft 76 4 21 28% Measuring and Control 207 3 31 15%
Apparel 122 6 49 40% Medical Equipment 361 1 13 4%
Automobiles and Truck 190 11 92 48% Non-Metallic 76 38 57 75%
Beer & Liquor 37 14 20 54% Personal Services 159 4 31 19%
Business Services 1,372 2 151 11% Petroleum and Natural 551 83 520 94%
Business Supplies 129 18 63 49% Pharmaceutical 937 1 51 5%
Candy & Soda 33 24 20 61% Precious Metals 43 18 31 72%
Chemicals 283 32 202 71% Printing and Publishing 67 1 5 7%
Coal 27 157 27 100% Recreation 56 2 10 18%
Communication 338 2 35 10% Restaurants, Hotels, 193 10 90 47%
Computers 349 3 82 23% Retail 548 9 201 37%
Construction 186 22 105 56% Rubber and Plastic 56 5 10 18%
Construction Material 206 18 87 42% Shipbuilding, Railroads 45 9 23 51%
Consumer Goods 141 9 50 35% Shipping Containers 42 14 42 100%
Defense 22 2 10 45% Steel Works 131 25 87 66%
Electrical Equipment 141 10 55 39% Textiles 27 3 9 33%
Electronic Equipment 713 7 209 29% Tobacco Products 11 9 8 73%
Entertainment 117 11 42 36% Transportation 353 31 274 78%
Fabricated Products 24 11 11 46% Utilities 406 134 378 93%
Food Products 200 13 95 48% Wholesale 320 11 94 29%
Healthcare 170 5 23 14% Other 141 59 78 55%
Total 10,068 3,709
Table 3: Descriptive Statistics for Regression Model Variables
Panel A: Descriptive Statistics
Variables N mean sd p25 p50 p75 min max
Climate risk and environmental performance variables
ClimateRisk 10,068 19.14 48.41 0.00 2.00 14.00 0.00 961.00 NClimateRisk 10,068 -0.02 0.85 -0.47 -0.28 0.10 -1.14 4.08 Regulatory 10,068 0.06 0.30 0.00 0.00 0.00 -1.03 2.86 ENV_NET 5,162 0.28 0.88 0.00 0.02 0.22 -4.00 6.00 TRI 1,767 1.15 7.55 0.013 0.109 0.678 0.00 157.06 EMISSIONS 784 0.67 1.65 0.02 0.06 0.35 0.00 9.26 Dependent variables
PRICE 10,068 39.12 86.48 10.84 25.54 49.13 0.12 4,132.00
Q 10,068 0.58 0.54 0.19 0.47 0.88 -0.34 2.23
Control variables
BVE 10,068 14.44 49.95 4.30 9.59 17.97 0.00 2,456.02 EARN 10,068 1.35 6.55 -0.11 0.92 2.32 -100.34 309.96 EARN_Neg 10,068 -0.41 1.82 -0.11 0.00 0.00 -100.34 0.00 ASSET 10,068 6.64 2.17 5.49 6.75 8.03 0.00 11.37
BTM 10,068 0.53 0.57 0.24 0.42 0.67 0.00 23.81
LEV 10,049 0.30 0.26 0.02 0.28 0.49 0.00 0.95
ROA 10,068 -0.01 0.18 -0.01 0.04 0.08 -0.91 0.28 LogMV 10,068 0.25 1.78 -1.06 0.14 1.39 -5.85 6.44 CapInt 10,064 0.51 0.41 0.17 0.39 0.79 0.01 1.84 CapExp 10,068 0.05 0.06 0.02 0.03 0.06 0.00 0.34 R&D 10,068 0.05 0.11 0.00 0.00 0.06 0.00 0.61 Advert 10,068 0.01 0.03 0.00 0.00 0.01 0.00 0.18
DIV 10,100 0.47 0.50 0.00 0.00 1.00 0.00 1.00
This table presents descriptive information for the full sample. Panel A presents descriptive statistics and Panel B presents Pearson pair-wise correlations for variables in the various regression models used in the study based on Russell 3000 firms in the period 2011-2015.
Variable definitions: ClimateRisk is the Ceres/CookESG Research score for extensiveness of total climate risk disclosure in the 10-K based;
NClimateRisk is ClimateRisk, normalized to industry and year; ENV_NET is the net score (constructed as strengths minus concerns) based on the KLD database, normalized by industry and year; TRI is the Toxic Release Inventory scaled by sales; EMISSIONS is the total level of CO2 emissions scaled by sales; PRICE is the stock price three months after the end of fiscal year; Q is Tobin’s Q, calculated as the sum of market capitalization and the book value of debt, divided by the book value of total assets; BVE is book value per share of common equity; EARN is earnings per share to common equity; Earn_Neg is earnings per share to common equity if earnings ≤0, 0 otherwise. *,**,*** denote correlations that are significant at the 0.10, 0.05 and 0.01 level, respectively. See Appendix C for more detailed variable definitions.
Panel B: Pearson Pair-Wise Correlations Matrix
1 2 3 4 5 6 7 8 9 1 ClimateRisk
2 NClimateRisk 0.50***
3 ENV_NET -0.05*** 0.05***
4 TRI 0.01 0.00 -0.14***
5 EMISSIONS 0.64*** 0.24*** -0.25*** 0.23***
6 PRICE -0.01 -0.02 0.05*** -0.04 -0.03 7 Q -0.22*** -0.13*** 0.03 -0.10*** -0.27*** 0.14***
8 BVE 0.03*** 0.01 0.00 -0.01 0.19*** 0.86*** -0.08***
9 EARN -0.00 -0.00 0.04** -0.03 0.04 0.83*** 0.03** 0.83***
10 EARN_Neg -0.06*** -0.02* 0.04** -0.03 -0.01 0.03** 0.07*** -0.00 0.34***
Table 4: Regression Model Results for Market Value and Climate Risk Dependent Variable: PRICE
(1) (2) (3)
PRICE PRICE PRICE
ClimateRisk -0.019***
(0.000)
NClimateRisk -1.980***
(0.000) NClimateRisk
excl. RegulatoryRisk -2.356**
(0.020)
BVE 0.711*** 0.712*** 0.808***
(0.000) (0.000) (0.000)
EARN 7.160*** 7.155*** 5.931***
(0.000) (0.000) (0.004)
EARN_Neg -7.284*** -7.287*** -6.269**
(0.001) (0.001) (0.038)
Industry FE Yes Yes Yes
Year FE Yes Yes Yes
N 10,068 10,068 6,359
Adj R2 0.805 0.805 0.833
The table presents results for market value, scaled by shares (PRICE). Column (1) reports the result for the market valuation model including ClimateRisk. Columns (2) reports the results for the market valuation model including NClimateRisk. Column (3) reports the result for the market valuation model including NClimateRisk for the sample of firms that do not disclosure any climate risk of a regulatory type.
Variable definitions: ClimateRisk is the Ceres/CookESG Research score for extensiveness of total climate risk disclosure in the 10-K based; NClimateRisk is ClimateRisk, normalized to industry and year; BVE is book value per share of common equity; EARN is earnings per share to common equity; Earn_Neg is earnings per share to common equity if earnings ≤0, 0 otherwise. Two-tailed p-Values are given in parentheses and are based on firm cluster-adjusted standard errors. See Appendix C for more detailed variable definitions. *,**,*** denote differences that are significant at the 0.10, 0.05 and 0.01 level, respectively.
Table 5: Results of Robustness Tests for Regressions of Market Value and Climate Risk
The table presents results of regression models that examine the effect of climate risk on market value (PRICE) as expressed in equation (1) with the inclusion of additional variables capturing additional environmental aspects and disclosure of other risks. Column (1) reports results when we use ENV_NET. In columns (2), we report the results with the inclusion of TRI. Column (3) reports results with the inclusion of EMISSIONS.
Variable definitions: PRICE is the stock price three months after the end of fiscal year; NClimateRisk is ClimateRisk, normalized to industry and year;
ENV_NET is the net score of environmental strengths (constructed as strengths minus concerns) based on the KLD database; TRI is the Toxic Release Inventory scaled by sales; EMISSIONS is the total level of CO2 emissions scaled by sales; BVE is book value per share of common equity; EARN is earnings per share to common equity; Earn_Neg is earnings per share to common equity if earnings ≤0, 0 otherwise. See Appendix C for more detailed variable definitions. Two-tailed p-Values are given in parentheses and are based on firm cluster-adjusted standard errors. *,**,*** denote differences that are significant at the 0.10, 0.05 and 0.01 level, respectively.
(1) (2) (3) PRICE PRICE PRICE
NClimateRisk -2.155*** -1.932*** -2.186**
(0.000) (0.002) (0.027)
ENV_NET 2.619***
(0.002)
TRI -0.176***
(0.008)
EMISSIONS -1.310**
(0.022) BVE 0.723*** 0.971*** 0.356***
(0.000) (0.000) (0.000)
EARN 5.508** 3.909 10.432***
(0.030) (0.126) (0.000)
EARN_Neg -4.687 -2.851 -11.903***
(0.165) (0.436) (0.000)
Industry FE Yes Yes Yes
Year FE Yes Yes Yes
N 5,162 2,303 784
Adj R2 0.928 0.928 0.788
Table 6: Market Valuation of Climate Risk Using a Two-Step Heckman Selection Model to Control for Self-Selection in Disclosing Climate Risk.
Panel A: Step 1 Selection Model Panel B: Step 2
(1) Market Valuation (1) Tobin’s Q (2)
DISCLOSURE
(Y/N) PRICE Q
PROPDISCL 3.174*** NClimateRisk -2.062*** NClimateRisk -0.050***
(0.000) (0.000) (0.000)
ASSET 0.131*** BVE 1.140*** ROA 0.367***
(0.000) (0.000) (0.000)
MF 0.001 EARN 8.174*** LEV 0.087***
(0.843) (0.000) (0.000)
BTM 0.248*** EARN_Neg -8.672*** CapInt -0.154***
(0.000) (0.000) (0.000)
LEV 0.456*** IMR 3.720 CapExp 1.426***
(0.000) (0.382) (0.000)
II -0.270*** LogMV 0.140***
(0.000) (0.000)
FRNSALE -0.114** R&D 1.652***
(0.022) (0.000)
BVE -0.001 Advert 1.261***
(0.446) (0.000)
EARN -0.003 DIV -0.050***
(0.574) (0.000)
EARN_Neg 0.013 IMR 1.003***
(0.343) (0.000)
Industry FE Yes Industry FE Yes Industry FE Yes
Year FE Yes Year FE Yes Year FE Yes
N 9,950 N 5,321 N 5,082
Pseudo R2 0.299 Adj R2 0.682 Adj R2 0.488
The table presents results of the Heckman two-stage selection model. Panel A presents results of the first stage probit regression of disclosure choice. Panel B presents results of the market valuation equation and Tobin’s Q including IMR and NClimateRisk in columns (1) and (2), respectively.
Variable definitions: ClimateRisk is the Ceres/CookESG Research score for extensiveness of total climate risk disclosure in the 10-K based;
DISCLOSURE takes value 1 for ClimateRisk>0 and zero otherwise; NClimateRisk is ClimateRisk, normalized to industry and year; PROPDISCL is ratio of the number of firms in the Fama-French 48 industry classification that provide climate risk disclosure to the total number of firms in the industry and in the same fiscal year; ASSET is the log of the firm’s total assets; MF is the number of management forecasts issued by the firm during the fiscal year; BTM is BVE scaled by PRICE; LEV is total debt scaled by market value of common equity; II is the percentage of total shares outstanding held by institutional investors; book value per share of common equity; FRNSALE is the firm’s foreign sales as a percentage of total sales; EARN is earnings per share to common equity; Earn_Neg is earnings per share to common equity if earnings ≤0, 0 otherwise. IMR is the inverse mills ratio calculated in Step 1 of the selection model. ROA is income before extraordinary items scaled by total assets; CapInt is gross property, plant and equipment scaled by total assets; CapExp is capital expenditure on property plant and equipment scaled by total assets; LogMV is the log of the firm’s market value of equity; R&D is research and development expense scaled by total assets; Advert is advertising expense scaled by total assets. DIV is an indicator variable that gets the value 1 if the firm paid dividends during the current financial year, and 0 otherwise.
See Appendix C for more detailed variable definitions. Two-tailed p-Values are given in parentheses and are based on firm cluster-adjusted standard errors. *,**,*** denote correlations that are significant at the 0.10, 0.05 and 0.01 level, respectively.