Moskowitz Prize Awarded to Study Finding Markets Value Transparent Reporting of Greenhouse Gas Emissions

The Berkeley-Haas Center for Responsible Business has awarded its 2015 Moskowitz Prize to a paper by University of Geneva Asst. Prof. Philipp Krüger that found the stock market values companies that are mandated to report greenhouse gas emissions and that these effects appear to be strongest in carbon-intensive industries.

Krüger, an assistant professor of responsible finance at the University of Geneva and junior chair of the Swiss Finance Institute, accepted the prize at the 25th annual Socially Responsible Investing (SRI) Conference in Colorado Springs, Colo. on Nov. 4.  He is the author of the winning 2015 study: Climate Change and Firm Valuation: Evidence from a Quasi-Natural Experiment.

Phillip Krüger

Presented by the Center for Responsible Business at Berkeley-Haas since 1996, the Moskowitz Prize is the only global award that recognizes outstanding quantitative research in socially responsible investing.

Krüger’s paper examines the impact of a new mandatory Greenhouse Gas (GHG) Emissions Disclosure Act passed into law in the United Kingdom in 2013. The law applied to firms listed on the Main Market of the London Stock Exchange, and now requires that every UK company report comprehensive data on their GHG emissions in their annual reports. The UK is the first country to introduce mandatory carbon reporting for publicly listed firms.

For his control group in this study, Krüger picked firms within other European exchanges that matched the size and industry of the UK firms. His study found that the firms most heavily affected by the regulation experienced “significantly positive valuation effects,” when compared to the European companies in his control group.

Lisa R. Goldberg, an adjunct professor in UC Berkeley’s Department of Statistics and director of research at the Center for Risk Management Research, said the paper “supports the hypothesis that markets value transparency regarding corporate climate change risk.”

“This fascinating, rigorous, and beautifully written article makes an important contribution to the field of sustainable investing and will serve as a model for future research in this subject,” she says.

Nadja Guesnter, professor of international financial management at the Muenster School of Business and Economics at the University of Muenster in Germany and a visiting faculty fellow at Berkeley-Haas, said the study “moves us forward by showing that we are not just looking at correlations.”

“Using a unique setting, the introduction of new carbon disclosure rules in the UK, his work provides evidence of causality between environmental disclosure and firm value,” she says. “His work shows that not only voluntary environmental disclosure, but even mandatory environmental disclosure required by law has a positive effect on firm valuation.”

Judges from both academic and investment circles reviewed 40 papers. The papers were judged on the practical significance to practitioners of socially responsible investing, appropriateness and rigor of quantitative methods, and novelty of results.

The Prize is named for Milton Moskowitz, one of the first investigators to publish comparisons of the financial performance of screened and unscreened portfolios, including “The 100 Best Companies to Work for in America.” Sponsors for the Prize include Calvert Group, First Affirmative Financial Network, Nelson Capital Management, Neuberger Berman, Rockefeller and Co., and Trillium Asset Management.

See the full paper.