Materiality Indications as a Double-Edged Sword: Real Effects of Sustainability Disclosure Standards

Abstract

We examine the environmental, social, and governance (ESG) real effects in response to the publication of the Sustainability Accounting Standards Board (SASB) standards through changes in US firms’ ESG incidents. The implemented event study design exploits the staggered release of the SASB standards between 2013 and 2016 and captures post-publication changes in ESG incidents via RepRisk data. According to SASB sector-specific materiality classifications, the RepRisk incident score is divided into financially material and financially immaterial components. Our results indicate that firms significantly reduce their financially material ESG incidents after SASB standard publications, especially when facing shareholder pressure. Simultaneously, we document a significant increase in financially immaterial ESG incidents in the post-publication period, which implies that firms shift their attention and resources from ESG issues classified as financially immaterial to material issues. As such, our findings indicate that the publication of disclosure standards can, irrespective of firms’ adoption decision, trigger real effects, which are beneficial to certain stakeholder groups while potentially imposing costs on other stakeholders. Our study’s insights into these double-edged effects of sustainability standards complement the emerging field of research at the nexus of sustainability disclosure standards and real effects.

Keywords: SASB, Materiality, ESG incidents, Real effects, Event study