Mandatory ESG disclosure regulation and firms’ competitive position: Evidence from supply-chain contracting

Department : Accounting and Management Control

Speaker : By Professor Peter FIECHTER from University of Neuchâtel

Room : V Ramanantsoa

Abstract:

We examine the impact of ESG disclosure regulation on suppliers’ competitive position in domestic markets. Our research design exploits the staggered adoption of ESG disclosure mandates targeted at public but not private suppliers in 35 countries. We find that public suppliers lose market share following the introduction of ESG disclosure regulation, as corporate customers shift contracts to domestic private suppliers. These effects are stronger for mandates requiring comprehensive disclosures and external verification of ESG reports. We propose two explanations: ESG disclosure regulation (i) imposes direct and indirect costs that reduce public suppliers’ ability to compete on price (price competition), and (ii) facilitates regulatory and public scrutiny of public suppliers, which increases counterparty risk for their customers (counterparty risk). Consistent with these explanations, effects are stronger in industries with more intense price competition and in industries where customers are more vulnerable to increases in counterparty risk.