Environmental, Social and Governance Sustainability Disclosures: Evidence from EU and US

• In Event: Reporting and Disclosure Considerations

Abstract

We examine whether higher levels of environmental, social, and governance (ESG) sustainability disclosures are attained under voluntary or mandatory disclosure regimes. We use the regulatory differences between the United States (US) and European Union (EU) settings, as firms in the US are currently disclosing ESG information on a voluntary basis, whereas their counterparts in the EU are required to disclose such information starting fiscal year 2017. Drawing on a sample of 2563 firm-year observations from the US and EU in a period from 2007-2019, we report three main findings: (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. We contribute to the literature by examining ESG disclosure under voluntary and mandatory regimes and whether the EU disclosure guidance has influenced disclosure of non-financial ESG sustainability information. Our results are robust after performing additional analyses in addressing potential endogeneity concerns. Overall, our findings have policy, practical, and research implications, as they underscore the importance of more rigorous ESG sustainability disclosures.

Author

• Zabihollah Rezaee, University of Memphis