The Value Relevance of ESG Information: The Role of Recurrent Reporting of ESG Reports
Posted: 29 Apr 2022 Last revised: 24 Sep 2022
Date Written: August 25, 2022
This paper examines the value relevance of environmental, social, and governance (ESG) reports which have been issued over a long-term time horizon. Despite concerns raised about the reliability of ESG reports, these reports have become more prevalent over time, now serving as the main communication tool for a firm’s ESG activities. Using a sample of U.S. firms over the period 2002-2019, we show that investors value ESG activities more for firms with commitment to recurrent reporting of ESG reports. We find no evidence of ESG value relevance for firms that stopped issuing ESG reports. In addition, we find that firms recurrently issuing ESG reports are less subject to greenwashing, as indicated by lower energy consumption and reductions in injury rates. Cross-sectional tests show that the positive relation between the recurrent ESG reporting and value relevance is more pronounced among firms with poor information environment and high agency costs. The results are robust to sample heterogeneity, endogeneity concerns, and other robustness tests. Our findings provide evidence on the mechanism through which investors can better evaluate the credibility of ESG disclosures and inform standard-setters and regulators on ways to enhance the value relevance of ESG information.
Keywords: Environmental, social, and governance (ESG), value relevance, ESG report, recurrent reporting
JEL Classification: M14, M41
Suggested Citation: Suggested Citation