ESG Attention in Capital Markets: Evidence from China’s Carbon Neutrality Pledge Announcement

Abstract

We study investors’ demand for climate-related corporate information and its stock market implications. Using China’s interactive investor platforms, where investors can directly submit questions to firms, we document a significant increase in interest in carbon-related information following the government’s announcement of a commitment to carbon neutrality. The increase in information demand is reflected in questions regarding carbon-related technology, the company’s plans to reduce carbon emissions, and the performance impact of the government’s climate policies. Stock market reactions are more favorable for firms receiving high carbon interest. Analysts also give more bullish EPS forecasts to firms receiving increased climate-related attention, suggesting that investors expect the government’s ESG policies to create growth opportunities. In the long term, we observe an increase in idiosyncratic risk for these firms, consistent with increased uncertainty associated with the energy transition. This uncertainty is not accompanied by higher stock returns, on average.