Value Relevance of Environmental, Social, and Governance Disclosure

This paper investigates the impact of Environmental, Social, and Governance (ESG) disclosure by companies around the world on market value. Using a large sample of non-financial companies listed in 38 countries during the period 2008-2012, we test for value relevance by employing the modified version of the Ohlson (1995) model developed by Collins, Maydew, and Weiss (1997). We find support for the value relevance of disclosure of ESG both in aggregate form and for its individual components. These findings support the expectation of disclosure theory that disclosure of relevant information (such as ESG) has a positive impact on value. The results are robust to several alternative specifications. Consistent with the finance literature on the impact of legal origin (La Porta, Lopez de Silanes, & Shleifer, 2006; La Porta, Lopez de Silanes, Shleifer, & Vishny, 1998, 2000, 2002), the results for ESG disclosure are stronger in common-law countries. Our results provide new evidence for researchers, investors, and policy makers of the value relevance of ESG disclosure in a broad international setting. The evidence shows that globally investors benefit from the disclosure of both aggregate ESG and the individual factors and this supports regulators in pushing companies to provide additional ESG information