Financial materiality of ESG disclosure and stock price informativeness

Abstract

This study explores the association between sustainable (ESG) disclosure and the stock price informativeness of Norwegian companies, operating in the Consumer Staples and Consumer Discretionary sectors. Additionally, it examines the influence of legislation regarding ESG disclosure on the quality and quantity of reports. We performed both structural equation modeling (SEM) analysis and automated content analysis, using a panel dataset of 34 companies from 2003 to 2021. The study finds no significant relationship between ESG disclosure and stock price informativeness, or between financial materiality of ESG disclosure and stock price informativeness. However, the study reveals that the social pillar has a more substantial impact on stock price informativeness, compared to the other pillars of ESG. It should be noted, however, that this relationship does not apply to the material ESG scores between the pillars.

Lack of sufficient significant results and disclosed validity concerns warrant careful consideration of these findings. In general, the research suggests that there are various uncontrolled variables in this field of research, to some extent due to a low explanatory power across all models. Overall, the results imply that there is no significant connection between ESG disclosure and stock price informativeness, implying that ESG disclosure does not influence the company's real value. Consequently, this study supports both shareholder and slack resource theory from an investor's perspective.