Accounting for societal concerns

Abstract

This dissertation investigates the evolving role of environmental, social, and governance (ESG) disclosures in corporate reporting, focusing on two core questions: (1) to what extent ESG-related risks are integrated into financial reporting, and (2) whether ESG disclosure regulations effectively influence firm behavior and investor perceptions. Together, the three studies shed light on how firms, regulators, and markets interact in shaping the content and consequences of ESG disclosures. The first research question focuses on the incorporation of ESG risks into financial reporting. Using climate change as the setting, the study examines impairment disclosures among the world’s largest carbon emitters. Results show that climate-related disclosures increased significantly after 2019, particularly in Europe, following the Non-Financial Reporting Directive. These disclosures are value relevant to investors, but the association is negative, suggesting that investors interpret climate-related impairments as signals of broader risk exposure. At the same time, firms outside Europe are behind, underscoring the role of regulation and enforcement in ensuring compliance. The findings reveal both the variability of practice and the potential need for stronger regulatory intervention to ensure consistent reflection of material ESG risks in financial statements. The second research question examines whether transparency-based regulations can alter firm behavior and investor reactions in human rights and supply chain governance. Analysis of conflict minerals reporting shows that firms follow persistent disclosure trajectories. Even when enforcement weakens, some firms continue reporting voluntarily, suggesting that reputational and strategic incentives complement regulation. Evidence from human rights abuse incidents shows that markets respond negatively to controversies, but the reactions are economically small and unaffected by the introduction of the UK Modern Slavery Act. This casts doubt on the effectiveness of regimes that rely primarily on transparency to drive change. Overall, the dissertation demonstrates that ESG disclosure is shaped by a complex interplay of regulatory design, enforcement, and firm-level incentives. While transparency regimes can encourage reporting, meaningful change requires complementary mechanisms that strengthen both regulatory oversight and stakeholder pressures.

Affiliated Institutions

• College of Accounting SI

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