Disclosure Regulation and ESG Transparency

Regulators around the globe are implementing disclosure regulations to improve transparency on ESG (environmental, social, and governance) issues. At the same time, investors and other stakeholders increasingly demand ESG transparency from firms. In light of this demand, we examine the incremental role of disclosure regulation in shaping ESG transparency. Using a novel transparency proxy and 55 regulatory events over the last 20 years, we find that disclosure regulation matters more about quantitative environmental information from firms, especially related to externalities. Regulatory transparency effects are most pronounced for firms with poor ESG performance, disclosures, and corporate governance and in countries with strong institutions and weak environmental and social norms. Interestingly, we also document crowding out effects for firms with high voluntary ESG disclosures. Overall, these results are consistent with the notion that disclosure regulation plays a meaningful role in creating ESG transparency where market forces and norms are muted.