Green targets, green gains? The Financial Implications of Adopting Science-Based Targets

Abstract

This study explores the financial implications of adopting Science-Based Targets (SBTs) under the Science-Based Targets initiative (SBTi), assessing whether SBT adoption reduces stock return volatility and benefits shareholders. The study employs a quantitative approach (2022–2025) with 1874 SBT-adopting firms and a control group of 6741 non-adopters, using data from SBTi and S&P Capital IQ. Ordinary Least Squares (OLS) regressions, with log-transformed 3-month, log-transformed 2-year volatility, and return on assets (ROA) as the dependent variable, test three hypotheses: H1 whether SBT adoption reduces financial volatility, H2 whether it aligns with shareholder interests, and H3 whether effects vary by sector and geographic location. Results strongly support H1, showing that SBT adoption on average is associated with a short-term volatility reduction of 8.54%. H2 results are inconclusive, financial volatility declines, however short-term profitability shows a weak negative association with adoption. H3 confirms significant geographic variation, including a notable -19.3% effect in Asia, which is further explored at a regional level. Aligned with Modern Portfolio Theory and Stakeholder Theory, the findings position SBTs as a useful strategic risk management tool. The study contributes to climate finance research and invites further exploration of ESG controls and target ambitions.