Small caps, large climate data gaps: disclosure shortfalls and investment implications amid regulation retreats
Year: 2026
Type: article
Abstract: Purpose This study aims to establish small-cap investment relevance, examine portfolio risk exposures of small-cap stocks screened by environmental data availability, and explore disclosure coverage under three Corporate Sustainability Reporting Directive (CSRD) threshold specifications. Design/methodology/approach This study analyses MSCI index returns during 2001–2025 and 2023 Scope 1–3 emissions data availability for 7,895 constituents. We constructs value-weighted portfolios of disclosed and non-disclosed small-cap firms, estimates risk exposure differences using Fama–French six-factor models, and compares climate–data coverage across three CSRD threshold specifications. Findings Small-cap indices recorded higher returns and risk-adjusted performance than mid + large-cap peers, though firm size is not a causal driver. Emissions coverage is lower among small caps, especially for Scope 3 and in Emerging Markets. Non-disclosed-minus-disclosed small-cap portfolios have positive monthly alphas of 1.0–1.5 percentage points and exhibit systematic differences in growth, momentum and, in Developed Markets, profitability exposures. These estimates reflect portfolio-selection effects rather than a causal disclosure effect and may capture omitted firm characteristics or model specification. Applying the original CSRD (the relaxed Omnibus) thresholds leaves 0%–4% (48.5%) of small-cap (Emerging Markets small-cap Scope 3) market value outside the reporting perimeter. Practical implications Climate-conscious investors using climate-data disclosure-based screens may take unintended factor positions when seeking market exposure or benchmark tracking. Lower reporting thresholds expand small-cap coverage, while wider exemptions preserve climate–data gaps. This study’s findings relate to climate accountability (SDG 13) and international disclosure coordination (SDG 17), but not to effects on financing, employment or inequality. Originality/value The study integrates small-cap performance, climate–data availability, portfolio screening and regulatory coverage.
Authors: Huong Dieu Dang, Jan Heldmann
Institutions: University of Canterbury, University of Bayreuth
Language: English
Subfield: Strategy and Management
Domain: Social Sciences
SDG: Climate action
Open Access status: hybrid
OpenAlex ID: W7223956810