Document Type
Article
Publication Date
2022
Abstract
Corporate social responsibility ("CSR") is the notion that corporations should do more for society than simply earn profits for shareholders. This viewpoint is often juxtaposed against the theory that corporations should maximize social value through pure shareholder wealth maximization ("SWM"). Some proponents of CSR have proposed rules mandating "environmental, social, and governance" ("ESG") disclosures. Mandatory ESG disclosures would require corporations to file public reports regarding their activity concerning CSR, sustainability, and other ESG issues. The proposal to mandate ESG disclosures stems from the assumption that these disclosures will lead to more corporations engaging in more CSR activity instead of pure SWM. In other words, the normative goal is to encourage more CSR activity.
However, the assumption that mandatory ESG disclosures will lead to more CSR activity is theoretically and empirically unsound. Instead of leading to more CSR, mandating ESG disclosures could lead to less CSR This paper explains the theoretical mechanism for this counterintuitive result. It then reviews recent empirical studies that tend to show that ESG-related mandatory disclosures are not associated with beneficial real-world outcomes. Finally, it considers the cost of mandating ESG disclosures. The conclusion casts doubt upon that argument and argues that the Securities and Exchange Commission should theoretically and quantitatively consider costs and benefits before mandating ESG disclosures from public corporations.
Recommended Citation
Seth C. Oranburg, The Unintended Consequences of Mandatory ESG Disclosures, 77 Bus. Law. 697 (2022).
