Value, Values, and Opportunities in Corporate Environmental Practices

Deqiu Chen | Haoyuan Li | Yujing Ma | Roni Michaely

Jan 15, 2026

Key Takeaways

Research question
- How do sell-side analysts view and act on firms’ environmental practices? To what extent do they pay attention to environmental issues in their research? Do they address these topics solely for value-maximization, or do they also consider broader societal and ethical implications? Do they perceive environmental-change factors only as risks to mitigate, or also as opportunities to capture? And, importantly, do these factors (risk and opportunity of environmental considerations) have any financial materiality? Finally, in their view, which factors move the dial?
Method
- A survey of 505 Chinese sell-side analysts is combined with a textual analysis of 273,664 analyst reports using fine-tuned large language models. The survey captures analysts’ views on corporate environmental practices, whereas the reports, together with their earnings forecasts and stock recommendations, reflect the information they actually convey to the capital market.
Findings
- Analysts pay substantial attention to environmental topics. Environment-related discussions appear in 27.6% of reports, covering 83% of sample firms.
- Despite analysts’ incentives to focus on earnings, profitability, and cashflows, the authors find about 15% of them consider social and ethical considerations consistent with a values-oriented perspective. Nonetheless, most analysts adopt a purely value-driven approach to environmental issues (with a ratio of 5:1).
- They frame environmental factors both as risks and opportunities, often emphasizing green-technology transitions as a key source of opportunity. For brown industries, environmental regulation is among the important risk factors.
- Analysts incorporate their assessment of environmental factors into earnings forecasts and stock recommendations.
- They identify regulations and public/media scrutiny as the most influential forces driving firms’ environmental practices, while viewing investors, employees, and analysts themselves as playing a more limited role.

Source Publication:

Chen, Deqiu, Haoyuan Li, Yujing Ma, and Roni Michaely. (2024) Value, Values, and Opportunities in Corporate Environmental Practices. SSRN Working Paper.

Background and Research Question

Public firms are among the largest greenhouse gas emitters in modern history, making understanding their environmental practices crucial. Sell-side analysts occupy a unique position to provide such insights. They possess in-depth knowledge of the firms they cover and convey valuable information to the capital market, often serving both as market watchdogs and as intermediaries between buy-side investors and firms. Moreover, their opinions and actions often reflect and may potentially influence the broader market behavior.

This study examines analysts’ views and actions regarding corporate environmental practices. Specifically, it investigates how analysts engage with environmental issues: whether their environmental coverage is motivated purely by financial considerations (value) or also by ethical commitments (values); whether they perceive environmental factors as risks to mitigate or also as opportunities to capture; whether they regard environmental factors as financially material and incorporate them into financial forecasts and stock recommendations; and which factors they view as most effective in driving corporate environmental change.

Data and Methodology

The study investigates analysts’ views and actions on corporate environmental practices by combining survey data with large-scale textual analysis of analyst reports. The authors conducted a structured and detailed survey of 505 sell-side analysts in China to capture their viewpoints. They combine the survey evidence with an analysis of 273,664 analyst reports covering 3,931 firms between 2013 and 2022. The paper uses a fine-tuned large language model (Llama-3-8B) to identify environment-related sentences and then classify them along two dimensions: value vs. values and risk vs. opportunity. This combination of survey and textual analysis provides a comprehensive view of analysts’ beliefs and actions regarding corporate environmental practices. Finally, the authors link the textual measures to analysts’ earnings forecasts, stock recommendations, and firms’ subsequent performance to assess both the financial materiality of environmental factors.

Findings and Discussion

1. Substantial attention to environmental topics

Analysts pay substantial attention to environmental topics. Discussions of environmental issues appear in more than one-quarter of all analyst reports and cover over 80% of sample firms, far exceeding other high-profile themes such as artificial intelligence or cybersecurity. Reports that mention environmental issues devote an average of 5.4 sentences, or 13.6% of total content, to these topics, indicating the coverage is relatively in-depth rather than peripheral.

2. Financial value dominates societal and ethical values

As capital market intermediaries, sell-side analysts have incentives to provide accurate financial forecasts and meet their clients’ information demands. If both buy-side and sell-side participants are aligned with value maximization, analysts’ environmental coverage should be driven purely by financial considerations. The paper’s findings indicate that although most analysts adopt a purely value-driven approach to environmental issues, a significant minority also incorporates broader social and ethical considerations consistent with a values-oriented perspective. Survey results show 57.2% of analysts would encourage firms to reduce their environmental impact only when doing so increases firm value, and 14.5% would do so even if it does not.

Textual analysis of analyst reports reveals a similar pattern: approximately 90% of environment-related reports discuss the financial consequences of environmental matters, whereas only about 20% refer to non-financial values-oriented considerations. In both the survey and textual analyses, analysts who place more weight on ethical or social values show greater environmental attention. These analysts also tend to be older, female, and more likely to work at brokerages that promote a sustainability-oriented culture. This orientation also persists over time. Finally, the value-values orientation persists over time.

3. Environmental issues framed as both risks and opportunities

Analysts view and frame environmental factors not only as risks but also as opportunities. In the survey, 70.7% of respondents perceive at least some opportunity in environmental matters, and 86.6% of environment-related reports highlight opportunities, compared with 37.7% that emphasize environmental risks. Transition to green technologies is viewed as the most important opportunity across brown and green industries.

4. Environmental perspectives shape financial outcomes

Analysts view environmental factors as having tangible financial consequences. Reports that emphasize environmental opportunities are associated with higher earnings-per-share forecasts and more favorable stock recommendations, whereas those focusing on environmental risk correspond to lower forecasts and downgraded recommendations. Firms experiencing an aggregate increase in opportunity-oriented environmental discussion subsequently record stronger earnings over the next two years, highlighting the predictive power of analysts’ assessments of environmental factors.

5. Analysts view regulation and public scrutiny as influential forces

Analysts identify government regulation and public/media scrutiny as the most effective drivers of environmental improvement, particularly in carbon-intensive sectors. By contrast, investors, creditors, and employees are viewed as playing a limited role, and analysts perceive their own influence as modest. These findings suggest meaningful changes in corporate environmental practices are more likely to stem from a combination of regulatory frameworks and public oversight rather than from market-driven mechanisms alone.