26 / 2024-04-14 22:23:05

Investor-incentive Mechanism for Optimal ESG Disclosure of Public-listed Firms

ESG Disclosure,Incentives,Information Asymmetry,Screening,Investor-driven Mechanism

Public firms are responsible for corporate ESG disclosure. However, public firms incur both direct and indirect costs of effort related to ESG disclosure, leading to difficulty in ESG disclosure onto the public market. A key question is how incentives can be provided to public firms to improve corporate ESG action and to facilitate the subsequent truthful disclosure of ESG private information to the public market. In this research, we have proposed an investor-driven mechanism that would align public firms’ interests with investors’ so that public firms are incentivized to carry out ESG disclosure. By utilizing principal-agent model under asymmetric information context, effective incentive designs are investigated and the impacts on corporate ESG effort level and investors’ ESG motives are compared and analyzed. This raises further ESG implication for policy makers and the overall societal perspective.