Shareholder Activism and Firms_ Voluntary Disclosure of Climate Change Risks - Caroline Flammer - ASWQ V3I2 - March 2025

Companies are increasingly pressured by investors to disclose climate change risks, yet many resist due to managerial short-termism and lack of mandatory regulations. A study with over 400 institutional investors shows climate risk reporting is viewed as equally or more important than financial reporting. However, disclosure remains rare due to regulatory gaps and concerns over short-term consequences, such as revealing vulnerabilities or incurring additional costs. Managers often prioritize short-term gains, avoiding disclosures that may hurt current performance—even at the expense of long-term value. Shareholder activism, particularly by long-term institutional investors, can drive voluntary climate risk disclosure. Using data from the Carbon Disclosure Project and ISS, the study finds such activism leads to modest stock price increases (0.91.2%), suggesting improved governance and long-term firm value. While effective, private governance cannot replace public governance. Mandatory, standardized disclosure policies remain essential to combat climate change and foster corporate accountability.