A research team at the The School of Economics and Management at Anhui Normal University examined Environmental Social and Governance (ESG) reporting from Chinese A-shares for the period 2015 to 2024 to see if “The topic complexity of ESG reports is positively associated with firms’ ESG scores.”
They discovered it is, and from this they conclude:
- More comprehensive sustainable development signals can be transmitted to the market by increasing topic complexity.
- This signalling is picked up by rating agencies who reliably give firms adopting the practice higher ESG scores.
- In this process a reference is provided to regulators to guide henceforth “..high[er]-quality disclosure.”
The paper is short and can be read in full by following this link Does ESG Report Topic Complexity Improve Scores?
Personally, I think ESG reporting is one of many first-order governance mistakes regulators and others have imposed on companies around the world in recent years. It sounds like a good idea but from experience as an investor I find it provides no value add, at all.
Corporate communications have gotten longer but no clearer and rogues use ESG especially as a fig-leaf of respectability when reporting allowing them to dodge often more meaningful questions of overall probity.
Finally, and this is my BIGGEST COMPLAINT. There’s a lot of womble about the ‘E’ and the ‘S’ but the ‘G’, which is by far the most important component of how a company actually operates, is nearly always ignored in third party rating assessments.
This discussion has a long antecedence but I lean more toward the Milton Friedman view that the main purpose of a firm is to serve its shareholders which would include being a good corporate citizen, inter alia, in their day to day operations.
The bad practitioners of the ESG reporting and rating process put me in mind of how the framing of loaded questions can be, and is often, abused; ‘Have you stopped beating your wife?‘ being a famous example.
Happy Sunday