Does the EU Directive on non‐financial information influence the value relevance of ESG disclosure? Italian evidence

Abstract

The implementation of the EU Directive on non-financial information determines the transition from a voluntary to a mandatory disclosure setting. This paper is a first attempt to investigate if this transition influences the value relevance of non-financial information, which relates to the environmental, social and governance disclosure (ESG) requirements of the Directive. Italy provides an interesting setting as non-financial information was generally voluntary before the Directive, which was implemented with the Italian Legislative Decree 254/2016. To this extent, we examine the non-financial, environmental and social disclosure practices of 231 Italian listed firms in the pre-(2016) and post-(2017) Legislative Decree application. Our results do not show any relevant increase of such disclosures after the Legislative Decree application, as Italian listed firms limit such disclosure to a minimum requirement. Further, this finding is confirmed also for those firms voluntarily providing a non-financial report (sustainability or integrated report) before the Legislative Decree application. Our regression analysis shows that accounting numbers are associated with share prices, while non-financial, environmental and social information are not value-relevant with reference to the pre-and post-Legislative Decree application. This means that the non-financial, environmental and social information beyond the financial accounting information do not explain any incremental value-relevant information to investors in the non-financial mandatory disclosure setting required by the new regulation. Our results enrich previous evidence concerning the value relevance of non-financial and ESG disclosure mainly focused on Anglo-Saxon contexts.

Non-Financial Disclosure and Intra-Industry Comparability: A Macro, Meso and Micro Analysis

“…The purpose would be to check whether the legal system, besides being a determining factor in its level of regulatory compliance [33,95] it is a determining factor of comparability of NFD. Finally, another interesting research could verify the possible presence of a greenwashing phenomenon that would affect the comparability of the NFDs of companies, either in mandatory or voluntary context, to support findings of previous research [27,[44][45][46].…”

“…Regard this [67] (p. 268) note that "GRI claims to provide the basis of worldwide standardized, comparable, reporting on the sustainability of (particularly business) organizations.". Finally, several studies are based on the "grand theory" that the NFD should be comparable from both a temporal and spatial perspective [6,42,53] In fact, some scholars have recognized that mandatory NDF "increases the comparability of reports among firms as well as over time" [44] (p. 3473).…”

“…tend to impact less on the NFD processes, and it seems reasonable to expect emulation behaviors between companies and convergence towards common practices as well as practices to prove to be the "best in class" [42,43]. In addition, some scholars have highlighted that mandatory NDF "increases the comparability of reports among firms as well as over time" [44] (p. 3473) and "promotes better comparability but may also help prevent some companies from "greenwashing" or deliberately manipulating stakeholders' perceptions through discretionary reporting" [45] (p. 20). Other scholars [27,46] argue that sustainability ratings act to deter greenwashing and that they also stimulate the adoption of comparable non-financial information.…”

Non‐financial strategy disclosure and environmental, social and governance score: Insight from a configurational approach

“…Thus, the European Union has developed a policy supporting enterprises' implementation of corporate socially responsible behaviours. This approach has been emphasised by legitimizing several acts to stimulate corporate social reporting as well introducing disclosure requirements (Aureli, Del Baldo, Lombardi, & Nappo, 2020;Cordazzo, Bini, & Marzo, 2020;Mazzotta, Bronzetti, & Veltri, 2020;Muserra, Papa, & Grimaldi, 2020;Veltri, De Luca, & Phan, 2020).…”

ESG Disclosure in an Emerging Market: An Empirical Analysis of the Influence of Board Characteristics and Ownership Structure

“…For instance, using UK data Albitar, Hussainey, Kolade, and Gerged [8] study the moderating role of governance mechanisms on the relation between ESGD and firms' financial performance. Similarly, Cordazzo, Bini, and Marzo [9] investigate the influence of the implementation of the EU Directive on non-financial information on the relevance of non-financial information on the value of a firm. Some studies examine the relationship between financial FP and ESGD beyond the scope of developed economies.…”