This paper investigates how firms adjust their environmental disclosure strategies in response to environmental sanctions. Using natural language processing (NLP) techniques, we analyze the environmental content of earnings conference calls held by U.S.-listed firms from 2012 to 2022, focusing on changes around the announcement of environmental violations.

Our findings document a “green evasion effect”, where CEOs talk less about environmental topics in calls immediately preceding the announcement of environmental penalties. This effect is stronger for firms that are expected to uphold high environmental standards. Conversely, analysts increase their focus on environmental topics after the announcement of an environmental penalty, particularly for firms with higher environmental reputations. We further document that investors respond negatively to environmental sanctions, with more pronounced market reactions to penalties issued to firms perceived as environmentally responsible