Florencio Lopez-de-Silanes is Professor of Finance at SKEMA Business School; Joseph McCahery is Professor of International Economic Law at Tilburg University; and Paul C. Pudschedl is Research Associate in Finance and Applied Economics at the University Wiener Neustadt. This post is based on their recent paper. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here).
Over the last few years, there have been growing interest in the influence of environmental, social and governance (ESG) factors in the investment decisions of institutional investors and future portfolio performance. This coincides with major changes in the market for sustainable investment. In our paper, ESG Performance and Disclosure: A Cross-Country Analysis, we use a unique dataset to examine the relation between ESG disclosure and quality through a cross-country comparison of disclosure requirements and stewardship codes.
Largely in response to the rapid increase in ESG investments, there has been a debate whether corporate reporting on sustainability issues should be mandatory. On the one hand, various voluntary comply-or-explain measures were introduced in Asia and Europe. For some of these new reporting measures, such as in France, the main aim has been to enhance awareness of ESG issues and to elaborate best practices for institutional investors. The effectiveness of comply-or-explain reporting of ESG investments, on the other hand, is limited or not directly comparable across jurisdictions.