What do firms say in reporting on impacts of climate change? An approach to monitoring <scp>ESG</scp> actions and environmental policy

Abstract This article focuses on two research questions arising from the 2010 U.S. Securities and Exchange Commission (SEC) Advisory on climate change reporting: (1) How does the discussion of climate change in SEC filings change after the Advisory? and (2) What are firms talking about when they talk about climate change? Findings were obtained from the 218,000 10‐K filings to the SEC during the 2000–2019 period. The study develops and applies text mining methodology based on extracting information from the “semantic associates” in the “neighborhoods” of indicative terms. On (1) it finds that climate change‐related reporting does increase substantially after the SEC guidance. On (2) a nuanced picture emerges. Firms with comparatively larger transition risks tend to discuss climate change comparatively more, focusing on regulation‐related topics. Firms exposed to the physical risks of climate change tend to discuss climate change somewhat less, focusing on meteorological topics. The results enrich our understanding regarding environmental policies and firms' behaviors regarding climate change. Theoretical and practical implications are provided.