Does ESG transparency strengthen carbon risk pricing? Evidence from U.S. capital markets

This study examines how corporate carbon emissions are priced by capital markets and whether ESG transparency strengthens carbon risk pricing. Using a large panel of publicly listed U.S. firms from 2013 to 2022 and data from Bloomberg, the analysis incorporates Scope 1, Scope 2, Scope 3, and total carbon emissions to capture firms’ comprehensive carbon footprints. The results show that the valuation effects of carbon emissions are scope-dependent: aggregate emissions and direct operational emissions are generally penalized by equity markets, while indirect emissions exhibit more precised valuation patterns. ESG disclosure plays a significant moderating role. Rather than mitigating carbon-related valuation penalties, greater transparency intensifies investor sensitivity to carbon risk, strengthening the negative valuation effects of emissions as disclosure quality increases. Disaggregated analyses indicate that environmental and social disclosure drive this amplification effect, whereas governance disclosure exhibits a weaker and less consistent influence. Our findings suggest that ESG transparency enhances market discipline by improving the pricing of carbon-related financial risk, with important implications for regulators, investors, and corporate managers.