The market reaction of S&P 500 firms to the SEC's mandatory climate disclosure proposal

Abstract

This study examines how investors of S&P 500 firms react to the SEC's mandatory climate disclosure proposal announced on March 21, 2022. The result of the event study with a 3-day window [−1,1] shows a negative 1.1% market reaction to the proposal. The cross-sectional analysis shows that better ESG performers, higher sales growth firms, and firms with higher Tobin's Q alleviate the negative equity market reactions to the proposal. This study shows how equity market participants react to more stringent ESG-related disclosure and how the response may relate to S&P 500 firms’ ESG performance, growth, and market performance.