Dynamic Green Disclosure Requirements

65 Pages Posted: 20 Sep 2023 Last revised: 2 Jun 2024

See all articles by Deeksha Gupta

Deeksha Gupta

Johns Hopkins University

Jan Starmans

Department of Finance, Stockholm School of Economics

Date Written: June 02, 2024

Abstract

This paper studies the design of green disclosure requirements to support firms' green transition. In our dynamic model with socially responsible investors, firms' green transition is a multi-step process. We show that dynamic green disclosure requirements that become more stringent over time can be preferable to full transparency. While such requirements may slow down the green transition for some firms, they can increase the number of firms that eventually reform, giving rise to a trade-off between the pace and breadth of the green transition when designing green disclosure requirements. Specifically, less stringent initial requirements create a mis-valuation subsidy that can overcome bottlenecks in the early stages of the transition process. In contrast, stricter requirements facilitate the later stages of the green transition. Our results can be applied to recent policy initiatives that introduced mandatory green disclosure requirements, many of which become stricter over time.

Keywords: Socially responsible investing, sustainable investing, ESG, disclosure, non-financial reporting, greenwashing. JEL Classifications: G14, G18, G32, G38, M14

JEL Classification: G14, G18, G32, G38, M14

Suggested Citation

Gupta, Deeksha and Starmans, Jan, Dynamic Green Disclosure Requirements (June 02, 2024). Available at SSRN: https://ssrn.com/abstract=4557187 or http://dx.doi.org/10.2139/ssrn.4557187

Deeksha Gupta

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Jan Starmans (Contact Author)

Department of Finance, Stockholm School of Economics ( email )

+46 8 736 9181 (Phone)

HOME PAGE: http://sites.google.com/site/janstarmans11/

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