Reactive Disclosure to Environmental Rating Downgrades
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Analyzing Korean listed firms from 2014 to 2022, we report that 1) firms are less likely to issue sustainability reports following environmental rating downgrades, and 2) when they do, they include less green terminology in the reports. Notably, these disclosure patterns are only salient for firms with multiple downgrades (i.e., when multiple ESG raters issue downgrades). Interestingly, downgraded firms with more green terminology reduce carbon emissions to a lesser degree than those with less green terminology. Our results suggest that downgraded firms’ reactive disclosures are more of a strategic response than a demonstration of genuine commitment to environmental improvement.
Abstract
Analyzing Korean listed firms from 2014 to 2022, we report that 1) firms are less likely to issue sustainability reports following environmental rating downgrades, and 2) when they do, they include less green terminology in the reports. Notably, these disclosure patterns are only salient for firms with multiple downgrades (i.e., when multiple ESG raters issue downgrades). Interestingly, downgraded firms with more green terminology reduce carbon emissions to a lesser degree than those with less green terminology. Our results suggest that downgraded firms’ reactive disclosures are more of a strategic response than a demonstration of genuine commitment to environmental improvement.
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