Cheap Talk and Cherry-Picking: What ClimateBert has to say on Corporate Climate Risk Disclosures
23 Pages Posted: 3 Mar 2021
Date Written: March 2, 2021
Disclosure of climate-related financial risks greatly helps investors assess companies' preparedness for climate change. Voluntary disclosures such as those based on the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD) are being hailed as an effective measure for better climate risk management. We ask whether this expectation is justified. We do so with the help of a deep neural language model, which we christen ClimateBert. We train ClimateBert on thousands of sentences related to climate-risk disclosures aligned with the TCFD recommendations. In analyzing the disclosures of TCFD-supporting firms, ClimateBert comes to the sobering conclusion that the firms' TCFD support is mostly cheap talk and that firms cherry-pick to report primarily non-material climate risk information. From our analysis, we conclude that the only way out of this dilemma is to turn voluntary reporting into regulatory disclosures.
Keywords: Climate-risk disclosure, voluntary reporting, TCFD recommendations,\\ natural language processing
JEL Classification: G2, G38, C8, M48
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