A new study conducted by professors at the UC Davis Graduate School of Management, The Haas School of Business (Berkeley) and the Department of Accounting at the University of Otago shows that investors take an active interest in companies' greenhouse gas disclosures and that the amount of such emissions is an important factor in the valuation of their stocks.

The researchers - Paul Griffin from the University of California, Davis and colleagues David H. Lont of the University of Otago in New Zealand and Yuan Sun of the University of California, Berkeley -- analyzed four years of data (2006-09) on firms listed in the Standard & Poor's 500 and five years of data (2005-09) for the top 200 publicly traded firms in Canada. They found that the higher the carbon emissions by a company, lower its stocks when all other factors were the same.

Mathematical analysis of the data also showed that while the correlation was evident in companies across all industries, it held most strongly for energy companies and utilities.

Tracking around 1400 instances of firms that filed formal notices with the US Securities and Exchange Commission (SEC) and issued press releases around events that could impact climate change, the research found that markets responded almost immediately as such events were reported with stock values adjusting on the same day as the disclosure. The researchers feel that this could be because investors feel that the environmental footprint of a company is bound to have an impact on the long terms costs related to  mitigation, regulation and taxes, and hence on its profitability.

The findings are expected to give a boost to the demands of investor groups, environmental advocates and watchdog organizations who have been asking for greater disclosure of company actions that affect climate change. Currently, the SEC does not require all companies to report greenhouse gas emissions, but this could change if the above findings are validated, since it is mandatory for firms to disclose any information material to stock values.