Cross-border Impact of ESG Disclosure Mandate: Evidence from Foreign Government Procurement Contracts

Abstract

This study examines whether and how mandating environmental, social, and governance (ESG) disclosure affects firms’ competitiveness for foreign government procurement contracts. Exploiting the staggered implementation of ESG disclosure mandates across countries, we find that firms are more likely to attain contracts from foreign governments, with higher contract values, after their home countries mandate ESG disclosure. We show that the ESG disclosure mandate affects the global allocation of government procurements through two channels: increased ESG information transparency and enhanced ESG performance. The mandate’s effect is more pronounced when government customers exhibit higher ESG consciousness and when the contracts are green-labeled. The effect of the ESG disclosure mandate is also more pronounced when government customers have a larger pool of potential suppliers and when bidders significantly improve their ESG transparency following the mandate. Overall, our findings shed novel light on the cross-border impact of mandatory ESG disclosures.

Keywords: Government procurement contracts; Environmental, social, and governance (ESG); Mandatory disclosure, transparency, government customers, global market

JEL Classification: G14, G15, K22, M14, M41, M48