Climate Regulatory Risk and Insider Trading Profitability: Evidence from State Climate Adaptation Plans

Climate regulatory risk is becoming increasingly important, yet its implications for firms' information environments and insider behavior remain unclear. We examine how climate regulation affects insiders' trading profitability using the staggered finalization of state climate adaptation plans (SCAPs) in the United States over the period 1996 to 2021. Climate regulation may influence insider trading profitability through competing channels. Increased regulatory uncertainty can enhance insiders’ informational advantages, while heightened scrutiny, improved disclosure, and stronger internal monitoring can constrain them. We find that SCAP finalization is associated with a significant decline in insider trading profitability, with stronger effects for firms facing greater climate-related uncertainty and risk exposure.
Overall, the evidence indicates that transparency and monitoring effects dominate, reducing information asymmetry and insider gains. These findings highlight how climate policy shapes firms’ information environments and limits insider advantages, with implications for market transparency and regulatory effectiveness.