Determinants and Consequences of Sustainability Narrative and Graphical Disclosures

Abstract

We examine the determinants and consequences of both narrative and graphical presentations of environmental, social, and governance (ESG) sustainability disclosures. Drawing on a sample of hand-collated data of top 200 firms from the US and Europe from 2016-2018, we find that: (1) EU firms under the mandatory ESG disclosure regime disclose better quality and quantity of ESG graphical and narrative presentations than US firms under the voluntary disclosure regime; and (2) firms with low ESG sustainability narratives and graphs quality and quantity exhibit lower financial performance (ROA), lower long-term market performance, and lower financial reporting quality than those with high quality and quantity of ESG narrative and graphical disclosures. Our results are robust after performing additional analyses in addressing potential endogeneity concerns. Overall, our findings provide policy, practice, and research implications as they highlight the importance of more uniform and rigorous ESG graphical and narrative sustainability disclosures.