The Economics of ESG Disclosure Regulation

We provide an economics-based review of the pros and cons of ESG disclosures, emphasizing environmental disclosures. Our survey is intended to guide corporate management and regulators in navigating the ESG disclosure landscape. Rather than provide an exhaustive summary of the vast and growing literature on ESG, we assess the main economic arguments for ESG disclosure regulation and the form of this disclosure. We discuss investors’ demand for ESG information and its supply by publicly traded firms. We analyze the case for and the case against mandatory ESG disclosure. Finally, we weigh the efficiency of disclosure-requirement characteristics, assuming mandatory ESG disclosure is warranted. Costs and benefits are difficult to assess and might be unknowable. Even if net benefits are known, people can disagree on ends. Therefore, we intend to be positive rather than prescriptive, giving a line of reasoning readers can employ to reach their own conclusions about what we ought to do.