Impact of ESG Disclosure on Financial Performance: Mandatory vs. Voluntary Disclosure

Финансы и бизнес. 2023. Vol. 19. No. 3. P. 51–70.

V. V. Nazarova, I. Yu. Churakova, A. O. Dmitriev

To this day, policymakers and company managers are not able to come to the conclusion whether ESG activity is necessary, financially beneficial, and in what way it is better disclosed: voluntary or mandatory (Aghamolla & An, 2021). The outcome of this debate is crucial for the sustainable development of humanity due to the worsening environmental situation.

Among researchers, there is also no consensus about the usefulness of ESG; mainly, this comes from an old fight between stakeholder and shareholder theorists (Friedman, 2007; Freeman et al., 2021). One side argues that by engaging in ESG activities, the company gets rewarded by its stakeholders, while another side counters that ESG activities do not increase shareholder value.

In this work, another part of ESG is considered: the type of disclosure. Many studies have attempted to connect ESG performance to financial performance, but this work is focused on the case of the implementation of mandatory ESG disclosure over voluntary one. By comparing two disclosure types through difference-in-differences regression that utilizes 6310 company — year observations between 2012 and 2021, the author hopes to outline the better of the two types in this still-developing research area.

Keywords: company's financial performance, ESG, ESG disclosure, mandatory ESG