Do ESG progress disclosures influence investment decisions?

Firms frequently provide voluntary environmental, social, and governance (ESG) reports. Our study focuses on the effect of ESG disclosures on investment decisions. We compare the influence of disclosures containing only forward-looking ESG targets with those containing both targets and progress made toward those targets. Specifically, using responsible sourcing issues in chocolate production as a setting, we conduct a survey experiment to examine whether nonprofessional investors assign value to disclosures of ESG progress toward targets, relative to “target-only” disclosures. Based upon our analysis, although ESG disclosures lead participants in both groups to increase their investment allocation on average, we do not find evidence of a significant incremental effect of ESG progress reporting. As progress metrics are expected to enhance a disclosure’s relevance and representational faithfulness, our study draws attention to challenges in nonprofessional investors’ use of ESG disclosure information in their capital allocation choices. Our study also provides insight into how nonprofessional investors, who make up an increasing share of US equity trading activity, perceive ESG disclosures.