Voluntary ESG Disclosure and Heterogeneous Beliefs among ESG Investors

54 Pages Posted: 20 Aug 2023 Last revised: 21 Aug 2023

See all articles by Michael D. Kimbrough

Michael D. Kimbrough

University of Maryland - Robert H. Smith School of Business

Cong Tao

ESSEC Business School - Department of Accounting and Management Control

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business

Sijing Wei

Creighton University - Heider College of Business

Date Written: August 19, 2023

Abstract

We examine whether voluntary environmental, social and governance (ESG) reports reduce the dispersion in the excess weights on individual stocks in different actively managed ESG mutual funds’ portfolios. We find that disagreement among investors (both ESG and non-ESG investors) is significantly negatively related to ESG disclosure, consistent with prior conclusions that ESG disclosure aids traditional valuation. In our main test, we find a similar but much more pronounced effect of ESG disclosure on disagreement among ESG investors, indicating that ESG reports have the additional impact of promoting alignment in investors’ assessments of companies’ ESG performance. The effect of ESG disclosure is enhanced when reports are more accessible, when they have more credibility-enhancing features and when they include more discussion of environmental matters. Collectively, the results indicate that ESG reports not only aid traditional valuation but also aid ESG assessments, which are increasingly important elements of modern investment.

Keywords: Environmental, social, and governance (ESG) reporting; Voluntary disclosure; Disagreement; ESG Funds; Mutual Funds; Investment Decisions

JEL Classification: Q56, G2, G11, G38, M14, M41, M48

Suggested Citation

Kimbrough, Michael D. and Tao, Cong and Wang, Xu (Frank) and Wei, Sijing, Voluntary ESG Disclosure and Heterogeneous Beliefs among ESG Investors (August 19, 2023). Available at SSRN: https://ssrn.com/abstract=4546045 or http://dx.doi.org/10.2139/ssrn.4546045

Michael D. Kimbrough (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

Robert H. Smith School of Business
College Park, MD 20742-9157
United States
301-405-8222 (Phone)
301-314-9414 (Fax)

Cong Tao

ESSEC Business School - Department of Accounting and Management Control ( email )

Av Bernard Hirsch
Cergy-Pontoise 95021
France

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

Sijing Wei

Creighton University - Heider College of Business ( email )

602 N 20th St
Omaha, NE Nebraska 68102
United States
402-280-1297 (Phone)

HOME PAGE: http://https://business.creighton.edu/

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