Stock market reaction to mandatory ESG disclosure

Employing an event-study approach, we examine stock market reaction to the enactment of the Environmental, Social and Governance (ESG) Disclosure Simplification Act of 2021 by the United States House of Representatives. The Act mandates disclosure of standardized ESG metrics among American public companies. A significantly negative reaction of-1.1% is documented across all firms, which does not recover until the fifth day. Carbon-intensive firms and industries are more vulnerable to the negative market reaction. The negative reaction attenuates among firms with higher ESG scores.

Automated summary

Using an event-study approach, this study examines the stock market reaction to the enactment of the Environmental, Social and Governance (ESG) Disclosure Simplification Act of 2021 by the US House of Representatives. The Act requires standardized ESG metric disclosure among American public companies. The findings show a significantly negative reaction of -1.1% for all firms, which takes five days to recover. Carbon-intensive firms and industries are more susceptible to the negative market reaction, while firms with higher ESG scores experience a mitigated negative reaction.