No News About Climate Action is Good News for Low-Polluting Firms

Media plays a crucial role in shaping public perception of firms, significantly impacting their operations and performance. Firms often attempt to influence media channels to showcase their climate action initiatives, aiming to enhance their public image, reputation, and stakeholder trust. While firms cannot directly control their media coverage, intentional or unintentional dissemination of their climate action efforts can thrust them into the media spotlight. The implications of this media spotlight remain uncertain. While firms may anticipate positive public relations benefits from such exposure, it may also raise environmental expectations for firms and risk highlighting less favorable aspects of their environmental practices. Despite previous research on the impact of media exposure on firms’ financial outcomes, a notable gap exists in understanding how the media spotlight on firms’ climate actions affects their operational and financial performance. A clear hurdle is the lack of a systematic and objective measurement of such a spotlight. Our study addresses this research gap by developing a machine learning-based framework to derive a climate action vocabulary as a novel information artifact. The vocabulary is subsequently used to measure the intensity of media attention on a firm's climate actions. Our research reveals that an increased media spotlight on climate actions, regardless of their sentiment, has an adverse effect on firms’ financial performance, primarily due to the rise in operational costs. Furthermore, we find that the impact of media spotlight is heterogeneous. Low-polluting firms experience negative financial consequences as the downside of the heightened media spotlight. In contrast, high-polluting firms and those operating in polluting industries may witness an overall positive financial impact. We also find that firms’ market orientation (business-to-business vs. business-to-consumer), durability classification, index constituency (i.e., S&P 500), and greenwashing status significantly moderate the relationship. Our research highlights key considerations for corporate leaders with respect to the drawbacks for low-polluting firms in seeking media attention for their climate actions. Given that the media captures society's limited attention, our research suggests that firms should refrain from promoting superficial narratives about climate change that distract society from more impactful sustainability conversations.