Effects of Voluntary ESG Disclosures


An Investigation of The Effects of Voluntary ESG Disclosures on Financial Performance and Implications for Regulatory Policy


Rajiv Kashyap, Sudha Mani, Sam Basu and Peter Caiazzo


BPPI researchers developed and tested a model to explain why firms choose to voluntarily disclose information about their ESG (environmental, social, and governance) activities, how such voluntary disclosures affect market participants, and what impacts voluntary disclosures have on financial performance.

Principal findings and recommendations

  • Firms with higher ESG disclosures exhibit lower risk in capital markets. The study’s findings highlight the positive effects of voluntary disclosures for market participants. From a public policy standpoint, this is good news since mandatory disclosures impose considerable costs and often encounter stiff resistance from market participants. BPPI researchers recommend that policy makers strike a judicious balance between mandatory and voluntary disclosures.
  • Market participants tend to amplify the effects of positive ESG disclosures upon risk as evidenced by subsequent reductions in stock betas and cost of equity. However, there is no effect on risk in the case of negative ESG disclosures. BPPI researchers recommend that managers need to adopt a nuanced approach to designing and reporting ESG related communications to the financial community.