Nº 22-01: How Cheap Talk in Climate Disclosures Relates to Climate Initiatives, Corporate Emissions, and Reputation Risk

Navigating the complex landscape of corporate climate disclosures is crucial for managing climate-related financial risks. However, current disclosures suffer from imprecision, inaccuracy, and greenwashing. We introduce \climatebertcti, a deep learning approach analyzing climate-related cheap talk in 14,584 MSCI World index firms' annual reports from 2010-2020. Our results reveal that targeted climate initiatives utilizing the engagement channel effectively reduce cheap talk, while voluntary disclosure frameworks remain susceptible. Moreover, cheap talk correlates significantly with increased negative news coverage and elevated emissions growth. Our findings hold significant implications for investors and financial supervisors assessing corporate climate actions' credibility and real impact.