An Analysis of Carbon-Reduction Pledges of U.S. Oil and Gas Companies

We study carbon-reduction pledges of publicly traded U.S. oil exploration and production (E&P) companies. Of the 69 firms in the sample, 18 have committed to net-zero carbon targets, 14 have announced significant emissions cuts, whereas the remaining 37 firms have not announced any formal commitment to reduce emissions. We find that a firm’s energy production and ownership by BlackRock is positively associated with its decision to announce a net-zero pledge or significant emission cuts. E&P firms are likely to announce such commitments after Engine No. 1 proposed its slate of directors for Exxon’s board. The stock market reacts more negatively to net-zero pledges relative to emission-reduction pledges on average. However, the market reaction is related to the quality and credibility of these pledges. In particular, we find that the negative market reaction to net-zero pledges is mainly driven by firms with post-2030 target years relative to firms that commit to achieving net zero by 2030. We also find that the market reacts more negatively to net-zero pledges when the firm does not show the strength of its commitment via the presence of a board-level committee to monitor the company’s progress toward its emission goals or when the top management’s pay is not linked to specific emission reduction goals. This paper was accepted by Ranjani Krishnan, accounting. Funding: The research was funded by Columbia Business School. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4765 .