Comparative Analysis of Environmental, Social, and Governance Disclosures

We examine the level of environmental, social, and governance (ESG) sustainability disclosure by firms between regimes where disclosure is mandatory versus voluntary.  We use the regulatory environment between the United States (US) and European Union (EU) to compare, since firms in the US are currently under a voluntary disclosure regime whereas those in the EU are under a mandatory disclosure regulatory regime starting in 2017. Our three main findings are (1) for the full sample period, EU firms have an overall higher ESG disclosure relative to US firms; (2) EU firms outperform US firms under voluntary disclosure requirements (2007-2016); (3) after 2017, the ESG disclosure of EU firms further improves relative to US firms. Taken together, our results suggest that the 2017 adoption of disclosure guidelines in the EU is associated with improvements in EU firms’ ESG disclosure. Our results regarding the value-relevance of ESG disclosure support a move toward mandatory ESG disclosure in the context of integrated sustainability reporting promoted by international organizations. Results support current initiatives that have been taken by global regulators and stock exchanges in recommending and/or requiring global listed companies to disclose their ESG sustainability information to portray an accurate and comprehensive corporate reporting. Results also further our understanding of how firms from the different institutional environments may have disclosed their ESG practices and thus provide opportunities and suggestions for future research