Stock market reaction to mandatory carbon disclosure announcements: The role of institutional investors

We examine the stock market reaction to mandatory carbon disclosure (MCD) announcements in the UK, the first country to mandate the disclosure of greenhouse gas (GHG) emissions by listed firms. Our analysis reveals that, while the overall market was not greatly affected, firms with high carbon intensity and substantial institutional ownership experienced negative abnormal stock returns. This effect persists-and even becomes more pronounced-for firms owned by long-term institutional investors and those from countries with strong social norms surrounding climate and sustainability. Additionally, we find that heightened institutional investor attention on announcement days amplified price pressure, leading to more negative stock returns for these firms. Collectively, our findings underscore how mandatory carbon disclosure announcements enhanced the salience of carbon information, prompting institutional investors to incorporate carbon-related considerations into their decision-making processes.