COMPREHENSIVE ESG DISCLOSURES: THE COLLECTIVE PATH TO CORPORATE RESPONSIBILITY

Under the Environment, Social, and Governance (ESG) framework, the financial sector is undergoing significant transformations to address the challenges facing global society. With the growing evidence of climate change and the materialization of non-financial risks, sustainability issues have risen to the global political agenda. The ESG framework aims to integrate non-financial considerations—namely ESG risks and opportunities— into traditional financial analysis. This focus extends beyond the investment sector and influences all sectors of the economy, as any organization seeking access to capital markets is now required to enhance transparency and disclose key sustainability-related indicators. The importance of ESG disclosures in promoting transparency and accountability within investment decisions has become particularly critical as all individuals—whether through direct investments, mutual funds, or pension and retirement plans—are increasingly impacted by these developments and need to be properly informed. In a market economy, where the actions of one entity can have wide-reaching effects on others, every organization’s activities contribute to a larger, interconnected system where one’s impact affects the entire ecosystem. The collective responsibility of all market participants to comprehensively disclose their ESG impacts becomes crucial in this context. Without full disclosure from all participants, it is impossible to accurately assess the true impact of economic activities. Achieving true sustainability, therefore, requires a collective effort toward transparency and accountability. Sustainable finance, which seeks to align financial systems with sustainable development by integrating ESG factors into decision-making processes, depends on such collective action. This is essential as it mobilizes capital toward projects and initiatives that contribute to long-term environmental and social well-being, ensuring that economic growth does not come at the expense of future generations. Without transparency and accountability from all market participants, the goal of sustainable finance remains out of reach. However the reliability of disclosed information has become a significant concern (Amel- Zadeh and Serafeim, 2018; Diouf and Boiral, 2017; van Duuren et al., 2016). Various forms of misrepresentation exist: "greenwashing," which involves the overstatement of environmental achievements, and "brownwashing," which refers to the understatement of these achievements. Firms can exploit flexible standards in ESG reporting, often using vague, boilerplate language that obscures their true actions (Crilly et al., 2016). In extreme cases, such as the Volkswagen scandal, companies may engage in deceptive practices that not only contradict their stated ESG commitments but also involve illegal activities to maintain a façade of sustainability leadership (Siano et al., 2017). The motivations behind these practices vary; firms often resort to greenwashing in anticipation of greater stakeholder engagement, while brownwashing becomes more prevalent in deregulated environments where shareholder interests dominate (Kim and Lyon, 2015). Given these challenges, the transition from voluntary to mandatory ESG disclosure represents a critical step in ensuring access to sustainable information, making transparency and sustainability reporting mandatory for all large financial market participants. These regulations aim to enhance transparency, comparability, and accountability by enforcing specific standards. Research shows that mandatory disclosure not only increases ESG information but also improves its quality by imposing stricter reporting frameworks (Krueger et al., 2021). Moreover, external scrutiny from NGOs and regulatory bodies has been shown to effectively reduce misrepresentation practices (Kim and Lyon, 2015). However, the success of these regulations depends on a robust regulatory framework, effective enforcement, and accurate ESG data reporting. As ESG reporting evolves, collaboration among academics, practitioners, and policymakers will be essential in ensuring these disclosures meaningfully reflect organizational sustainability and advance sustainable finance. To address these complexities, this thesis provides a comprehensive examination of the regulatory and strategic dimensions of ESG disclosures. The first chapter of this thesis presents the harmonization challenges faced during the initial efforts to regulate ESG disclosures at the EU level and assesses, based on a comparative analysis of research findings and country-cultural dimensions, the role of cultural and economic contexts in shaping the interpretation and application of these regulatory mandates. Notably, the chapter sheds light on the importance of material and strategic forward-looking information in enhancing the quality of these disclosures, aligning with the forthcoming regulatory revisions. Based on an experimental analysis, the second chapter offers insights into how the time-horizon precision of ESG disclosures influences their perceived credibility among stakeholders, exploring the joint effects of precision and stakeholder experience. The third chapter investigates the relationship between sustainability-forward-looking disclosures and stock liquidity, using empirical analysis to uncover the financial implications of precise ESG reporting. The fourth chapter explores the potential of generative AI in democratizing sustainability assessments, highlighting the opportunities and challenges in broadening access to ESG evaluations.