Credible Engagements or Empty Promises? A Study of Investors' Reactions to Commitment to the Science-Based Target Initiative

Abstract: This paper seeks to explore the short-term financial implications of a commitment to the Science-Based Targets Initiative (SBTi), a previously sparsely researched topic in financial literature. By employing an event study methodology, the findings point towards a non-conclusive link between a commitment to the SBTi and abnormal returns around the date of commitment. While the market seems to react negatively to the announcement on the event day, this effect is not strong enough to persist throughout the event window, even for event windows as short as five days. This paper aims to fill the gap in the literature in two ways: Light is shed on the previously unexplored link between stock returns and a commitment to SBTi, and an event study is conducted on events that look virtually identical across firms. The results of the analysis raise questions about whether information about SBTi commitment is not taken into consideration by investors, or if there could be perceived uncertainties around the initiative that result in investor hesitancy.