Sustainability Meets Substance: Evaluating ESG Reports in the Context of 10-Ks and Firm Performance

56 Pages Posted: 23 Sep 2022 Last revised: 18 Mar 2024

Date Written: March 15, 2024

Abstract

We use widely adopted voluntary ESG disclosure standards and leading machine learning techniques to quantify and compare the ESG content across a comprehensive sample of public firms’ ESG reports and their 10-Ks. ESG information in both documents is financially material, and the amount of material information has increased over time. While both documents feature financially material ESG information, ESG reports uniquely offer additional material insights not found in the 10-K. Studying the market reaction around the public disclosure of ESG reports, we find the release of reports and the intensity of material information in the reports do not predict changes in returns in the short run. Studying the long term implications, we find that reports with novel material information are related to decreased downside firm risks in subsequent years. Overall, our study underscores the unique value of ESG report data and sheds light on its practical relevance for investors.

Keywords: ESG Reports, Annual Reports, Financial Materiality, SASB, Textual Analysis

JEL Classification: M14, M40

Suggested Citation

Rouen, Ethan and Sachdeva, Kunal and Yoon, Aaron, The Evolution of ESG Reports and the Role of Voluntary Standards (August 11, 2023). Available at SSRN: https://ssrn.com/abstract=4227934 or http://dx.doi.org/10.2139/ssrn.4227934

Ethan Rouen (Contact Author)

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-6275 (Phone)

HOME PAGE: http://www.ethanrouen.com

Kunal Sachdeva

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

HOME PAGE: http://kunalsachdeva.com

Aaron Yoon

Northwestern University - Department of Accounting Information & Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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