The effect of climate pacts on the stock market performance of listed firms in Turkey

This study employs the event study method on the daily closing prices of 385 listed firms in Turkey from December 2020 to December 2022 to examine the market reactions to two significant climate-related events: the Glasgow Climate Pact (GCP) and the Sharm el-Sheikh Implementation Plan (SSIP). The GCP event triggered predominantly adverse market reactions, with significant and negative abnormal returns observed before and after the event and an adverse event day return. Conversely, the SSIP event generated a mixed market response, characterized by significant negative abnormal returns before the event and significant positive abnormal returns after the event. Additionally, the energy sector firms have been vulnerable to the SSIP, given their declining returns, while other sectors experienced significant positive returns. The cross-sectional regression analysis highlights the impact of firm-level characteristics on abnormal returns. For the GCP event, firm leverage, firm size, book-to-market ratio, and past returns exhibit significant associations with abnormal returns during different periods. Similarly, for the SSIP event, firm size, book-to-market ratio, past returns, and past volatility demonstrate significant relationships with abnormal returns. The findings suggest that firms should align their strategies with climate goals and capitalize on emerging clean energy and sustainability opportunities to maintain share prices. Investors must carefully evaluate climate-related events’ impact and consider firm-level characteristics when making investment decisions. This study contributes to understanding market reactions to climate events and provides insights for firms and investors in navigating the evolving landscape of climate change.