Comparing the informativeness of sustainability disclosures versus ESG disclosure ratings

Abstract

Purpose

The purpose of this paper is to examine the impact of sustainability disclosures and disclosure ratings on firm value. This paper compares the informativeness of sustainability disclosures in company reports versus environmental, social and governance (ESG) disclosure ratings. The authors examine the extent to which they provide incremental information.

Design/methodology/approach

The sample consists of panel data from over 2,600 publicly-listed non-financial US companies for the period 2014–2018. The authors obtain sustainability disclosures from Sustainability Accounting Standards Board (SASB) Navigator and ESG disclosure scores from Bloomberg. The authors regress market value and/or stock price on sustainability disclosures and ESG scores to evaluate information content.

Findings

ESG scores are positively associated with market value and price. Sustainability disclosures in the form of metrics and company-tailored narratives provide incremental information content on market value and/or price. Boilerplate disclosures reduce market value and price. Sustainability disclosures and ESG scores provide incremental information, suggesting that it would be beneficial to harmonize standards for reporting sustainability disclosures.

Research limitations/implications

The limitation is that the authors have only considered sustainability disclosures for a sample of US companies from two sources – SASB Navigator and Bloomberg.

Practical implications

The paper provides some evidence that may be pertinent to the debate on whether to harmonize the guidance on reporting sustainability issues.

Social implications

The paper provides evidence on the benefits to firms for reporting sustainability issues.

Originality/value

This paper is among the first to analyze company sustainability disclosures obtained from two different sources – SASB Navigator and ESG disclosure ratings – and compare them for relevance for company valuation. With SASB Navigator, the authors obtain further refinement into the nature of the information provided in the sustainability disclosures, that is, boilerplate, company-tailored or metrics disclosures.

Citation

Eng, L.L., Fikru, M. and Vichitsarawong, T. (2022), "Comparing the informativeness of sustainability disclosures versus ESG disclosure ratings", Sustainability Accounting, Management and Policy Journal, Vol. 13 No. 2, pp. 494-518. https://doi.org/10.1108/SAMPJ-03-2021-0095