This study examines how mandatory carbon disclosure shifts corporate investment in and stock investors’ reactions to green innovation. Using a regression discontinuity design, we show that the proposal of the Greenhouse Gas Reporting Program (GHGRP) increases the value of low-carbon patents, identified either through patent office classifications or the large language model BERT. A difference-in-differences analysis suggests that firms with higher estimated CO2 emissions in the past produce more low-carbon patents after the proposal. Also, the values of these firms’ low-carbon patents increase, and their CO2 emissions decrease. These firms hire new inventors with low-carbon expertise rather than convert incumbent inventors’ efforts. The effect of mandatory disclosure is stronger among firms under higher competitive pressure and for stocks with greater price efficiency.
