CSR reports on environment cost investors
News Release

Analyze This: Investors Are Paying for Corporate Environmental Disclosures
Disclosures have trickle-down costs; Local religious norms also a factor

Quick Take:

  • Corporate social responsibility disclosures come with a cost of reduced returns and missed opportunities
  • First study to identify costs of producing environmental performance ratings; advocating for new rules and regulation
  • Corporate leaders disclose less when science conflicts with community’s religious norms.

Investors and advocacy groups have lately been calling for more environmental disclosures from public companies.

“That does not come as a free lunch,” says Professor Paul Griffin at the UC Davis Graduate School of Management. “Who pays the costs?”

When companies release corporate social responsibility (CSR) reports, it is up to equity analysts at investment firms to compile environmental performance ratings based on those reports. This adds extra time and expenses to covering company stocks. Investors often consider those analyst ratings in deciding where to allocate funds.

This leaves the same environment-minded investors who call for greater disclosure to be the ones paying for these additional processing costs, according to a new study led by Professor Griffin and published on Aug. 24 in the Journal of Corporate Finance — see also the UC Davis news release.

“Our results have direct implications,” says Griffin, “for firm managers considering voluntary environmental disclosure and for investors deciding what stocks to include in their socially responsible portfolios.”

“The big picture is to really pay close attention to corporations.”

And analyst processing costs are not the only inhibitors to disclosure.

In a separate paper, Griffin and a coauthor found that the local religious norms of company stakeholders are directly connected to when and how often a company releases CSRs—especially when the related science conflicts with the dominant religious views.


Griffin’s previous research on corporate social responsibility showed how companies saw significant increases in their stock prices just days after issuing CSR press releases. This drew positive returns to both shareholders and for smaller companies. More recently, he has questioned whether fossil fuel companies are informing investors well enough about the risks of climate change.

The financial costs of environmental disclosure, however, are virtually unexplored terrain.

“Our findings also have clear implications for market efficiency.”

Griffin teamed up with Assistant Professor Thaddeus Neururer from the University of Akron and Assistant Professor Estelle Sun from Boston University’s Questrom School of Business.

They found that the more environmental performance ratings that investment firm analysts produce, the higher that firm’s proportion of processing costs. Environmental disclosure reports turn out to take longer and be more expensive to process than other types of financial analysis. This leads to less timely information being disclosed by companies.

In searching for causes, the research pointed to a lag in analysts understanding the cost-benefit trade-offs of providing this information to investors—as if environmental sustainability lives separately from financial sustainability. Griffin and his co-authors also suggest that because no standardized framework exists to guide analysts in processing this type of information, each company could be weighing its CSRs through its own set of values. 

For asset managers at investment firms, deciding which stocks to include in environmentally friendly portfolios can be slow and costly. Many tend to have little experience with how environmental performance can produce net gains.

“The higher information processing costs,” the authors conclude, ”could discourage analysts from developing trading strategies to exploit possible mispricing based on that information.”

The result is investors pay the costs in the form of reduced returns and missed opportunities.

The financial costs of environmental disclosure, however, are virtually unexplored terrain.

Griffin calls for a new regulatory arrangement to set the rules. He suggests a long-term, public-private funding mechanism, financed in part by the firms who would benefit most from a standardized system.

Buy-in shouldn’t be hard, he says, since most would agree that the environmental benefits outweigh the costs.


Griffin and Estelle Sun, in a separate paper, also discovered that corporate managers tend to push back on voluntary CSR disclosure when science—namely climate research—conflicts with the dominant religious views of the company’s surrounding community.

Those positions are not always in agreement with the accepted science.

By analyzing a broad archive of CSRwire press releases, they were able to track the dates, frequencies and locations of companies releasing corporate social responsibility reports. They found two interesting results. Firms in high-churchgoer locations disclose CSR activities less frequently. Yet those firms actually disclose CSR activities more frequently when located in areas with high proportions of non-evangelical Christian churchgoers.

One example of this is the U.S. evangelical Christian community. Its representative bodies, such as the Southern Baptist Convention, regularly take conservative positions on environmental and social issues. Those positions are not always in agreement with the accepted science.

Griffin and Sun’s study, “Voluntary corporate social responsibility disclosure and religion,” has been published in a recent issue of the Sustainability Accounting, Management and Policy Journal.

For Griffin, his latest studies and other research on corporate disclosures reinforce the same message for investors.

“The big picture is to really pay close attention to corporations,” says Griffin. “Do not ignore what people are saying in terms of the importance of providing stakeholders information about the role of the firm and its ability to act in a sustainable way.”

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