Capable CEOs communicate climate risks more consistently
A University of Turku study finds that companies led by CEOs with stronger managerial ability use more consistent climate-risk language from year to year.
Climate disclosures help investors and the public understand how companies view risks such as extreme weather, carbon regulation and the transition to cleaner energy.
“Because these risks are uncertain and forward-looking, company leaders have considerable influence over what is communicated and how, says Postdoctoral Researcher Javad Rajabalizadeh from the University of Turku.
The study examined 2,232 U.S. companies and 12,533 firm-year observations between 2005 and 2023. It compared climate-related sentences in consecutive annual reports and assessed CEO managerial ability using an established measure of how efficiently managers turn company resources into revenue after accounting for company characteristics.
Across six different measures, including an artificial-intelligence method that recognizes similar meaning even when wording changes, higher managerial ability was associated with greater repetition of climate disclosures.
"Repeated climate language is often viewed as boilerplate. Our findings show that the picture is more nuanced. Under capable leadership, repetition may also signal continuity, coherence and a deliberate long-term approach to communicating climate risks," Rajabalizadeh says.
Climate reporting becomes more important
The findings of the research may help regulators, boards and investors interpret repeated climate language more carefully.
“Repetition alone does not reveal whether a disclosure is useful or inadequate. It should be considered together with company circumstances, changing risks and the quality of the information provided,” Rajabalizadeh notes.
As climate reporting becomes more important for investors and regulators, the study suggests that repeated wording should be evaluated together with the firm's strategy and risk environment.
“Although our study examines U.S. companies, its central insight may also be relevant in Finland and other countries: where climate reporting requires managerial judgment, the capabilities of company leaders may shape how consistently climate risks are communicated over time,” Rajabalizadeh says.
The study identifies a robust association, but it does not prove that CEO ability directly causes repetition. The evidence comes from mandatory U.S. filings, so further research is needed in other reporting environments and on how investors respond to repeated versus frequently revised climate disclosures.
