Earnings calls can be stressful events, when a board is forced to defend its most recent set of results. Yet it turns out that it may be a moment when they are most susceptible to pressure over climate and carbon emissions.
Researchers looking at earnings calls that include discussion of climate change find the company reacts by improving its performance on emissions in the 12 months following the call.
The researchers say their results reveal it can “pay for investors and other stakeholders interested in corporate climate actions to pay careful attention to discussion on climate change in earnings calls.”
Earnings are a key event for analysts who often use the information revealed in discussions for analysis of a firm’s prospects. Some experts have argued that the short time framed involved in a call makes it inappropriate for talking over big strategic risks such as climate, while others suggest the companies should air the topic if they and investors are to be seen as serious about sustainability.
Earnings calls and climate
The investigation, conducted by academics in Sweden and Switzerland, examined the transcripts of 350,000 earnings calls covering more than 11,000 firms from around the world from 2002 to 2021 looking for key word combinations.
Their examination revealed that mention of climate began to pick up in 2010, but rose rapidly in 2019. The call data was then cross-checked with carbon emissions and trading data.
The study finds evidence that an increase in “climate-related talk” is associated with a reduction in carbon going into the atmosphere. “This result is consistent with the notion executives are not just producing hot air by talking about climate related issues but also transforming their words into action by reducing emissions,” say the researchers.
The study also finds that stock prices fall after talk about carbon emissions, and the researchers say “this is a potential explanation for the reluctance of managers to talk about climate-related issues during the call”.
Companies are more likely to talk about climate in calls if they are from a sector particularly sensitive to emissions.
Investor influence
The research appears to support other papers claiming that investors can be highly influential. In November, Oxford professor Wolf-Georg Ringe argued that investors are best placed to correct decision-making and behaviour of boards.
Ringe said his work sought to shift the “focus of ESG away from regulatory intervention to instead favour a market-led approach in ESG investments.” He added that “investors’ initiatives and engagement are, and should be, the primary tool to promote sustainability orientations in the market.”
In recent weeks the London School of Business published research claiming that stakeholder capitalism “won’t work”, but conceding that investors need to do more. “In many cases investment processes remains too divorced from the stakeholder context within which business operates today,” the report said.
Climate will continue to be the most serious risk for companies in the foreseeable future. Expect investors to continue the pressure, even on an earnings call.