Climate Risk Disclosure and Firm Performance: Investigating the Financial Materiality of Climate-Related Reporting

Abstract

As climate change moves to the forefront of global economic and financial concerns, institutional investors and regulators are placing growing pressure on companies to be transparent about the climate-related risks they face. Climate risk disclosures are increasingly seen as essential tools not only for improving capital allocation and managing systemic financial risks, but also for promoting corporate environmental accountability. Yet, a key question remains: Do these disclosures actually matter financially?

This paper explores whether climate related financial disclosures translate into real business outcomes, such as higher firm valuations, lower cost of capital, or stronger investor confidence. Drawing on a global dataset across multiple industries and employing an event study methodology, we investigate how markets respond to such disclosures and what these reactions reveal about their perceived value. The findings offer critical insights for policymakers, corporate leaders, and investors seeking to align financial performance with long-term sustainability goals. In doing so, the paper contributes to the growing debate over the materiality of climate risk and the evolving role of transparency in shaping the future of sustainable finance.

Key words- Climate Risk Disclosure, Firm Performance, Financial Materiality, Sustainability Reporting,  Environmental, Social, and Governance (ESG), Carbon Emissions, Investor Decision-Making, Climate-Related Financial Risks, Corporate Transparency