The Effect of Mandatory Climate Risk Disclosure on Investment Performance: Evidence from the U.S. Insurance Industry
Prof. Jeffrey Ng
Professor in Accounting and Law
HKU Business School
The University of Hong Kong
We examine how mandatory climate risk disclosure affects insurers’ investment performance in the U.S. insurance industry. We exploit the NAIC’s adoption of the Insurer Climate Risk Disclosure Survey (CRDS), which mandates that qualified insurers report their climate-related risk. Using a difference-in-differences research design, we find a significant decrease in the treated insurers’ investment performance after CRDS adoption. Furthermore, we find that the change in investment yield is concentrated among treated insurers that answer “yes” to a survey question asking whether their investment strategies take climate risk into consideration. We also find that the negative effect of CRDS on investment yield is more pronounced for insurers that were likely to be less conscious of climate-related risk and that were likely to be under poorer information environment prior to the mandated CRDS disclosure, and for insurers that face more product market competition. Taken together, our results suggest that mandatory climate risk disclosure has a causal effect on insurers’ investment performance.
