12 - Shareholders and ESG Disclosure

Summary

The ever-increasing disclosure requirements we impose on public companies are, at best, not read, and at worst, are likely reducing the quality of investor decision-making. More environmental and social (ESG) disclosure has been touted as a popular solution to climate change and social issues. However, the evidence suggests this is highly unlikely, as it is very difficult for shareholders to understand the impact of corporate actions and the viable alternatives. Making matters worse, the very information shareholders require is information that assists a firm’s competitors and therefore is information that, if disclosed, has the effect of reducing the incentives for ESG innovation. Shareholders possess few legal tools capable of constructively engaging with corporate behavior. The empirical evidence about these theoretical points is evaluated, along with an examination of the real-world evidence about the outcomes of shareholder ESG interventions.