Sustainability disclosure and financial analysts' accuracy: The European case

Abstract

This study aims to analyze whether the adoption of Directive 2014/95/EU on sustainability disclosure has contributed to more truthful reporting to financial analysts in terms of risks and firms' performance. Financial analysts, as requesters of sustainability reports, are expected to have produced more accurate forecasts as a result of this legal reform. To investigate this, we have examined analysts' earnings per share (EPS) forecasts for 434 companies, 241 of which are classified as low sustainability companies, from 2008 to 2017. To detect a possible increase in EPS forecast accuracy after the enforcement of the directive, we perform an analysis based on panel regression specifications. The results show that EPS forecast accuracy has increased due to the higher levels of both sustainability disclosure and reporting quality after the enforcement of Directive 2014/95/EU.

Enhancing environmental information transparency through corporate social responsibility reporting regulation

“…In this sense, the adoption of less sophisticated accounting tools represents a signal of non‐orientation towards environmental practices. Yet integrated reporting adoption represents an accountability tool that allows the disclosure of the necessary non‐financial information requested by Directive 2014/95/EU (Ferrer et al, 2020; Nicolò et al, 2020).…”

“…Furthermore, the negative effect of length is related to adopting rhetorical strategies used to engage with stakeholders. In fact, contrary to the first wave of non‐financial reporting practices (Hackston & Milne, 1996), the current scenario is characterised by the disclosure of non‐financial information through an indicator‐based approach (e.g., GRI‐Comprehensive, SDGR and SDG Compass) (Ferrer et al, 2020).…”

Regulating non-financial reporting: evidence from European firms’ environmental, social and governance disclosures and earnings risk

“…Based on mandated integrated reporting in South Africa, Bernardi and Stark (2018) reveal an enhanced quantity of ESG disclosures. Similarly, Ferrer et al (2020) report that a sample of European firms made additional sustainability disclosures in the post-directive period that enhance the sustainability-related information provided to financial market participants.…”

“…This outcome corroborates Bernardi and Stark's (2018) findings regarding the enhanced association between ESG reporting and analyst forecast accuracy after the mandating of integrated reporting in South Africa. Similarly, Ferrer et al (2020) report an increase in analyst earnings forecast accuracy after the implementation of the EU directive. They relate this increase to enhanced disclosures and their quality.…”

Financial analysts' reaction to voluntary integrated reporting: cross-sectional variation in institutional enforcement contexts

“…Moreover, at the regulatory level, the European Union (EU) seems to be particularly active. With its 2014/95/EU Directive (hereafter, Directive) on nonfinancial and diversity information, the EU initiated a process intended to revolutionise the corporate reporting of European companies (Ferrer et al , 2020; Mio et al , 2020). Notably, the EU itself recently published a proposal to revise the Directive (European Commission, 2020) – for which it collected suggestions through a public consultation – in response to academic and professional criticisms about comparability, reliability and relevance (La Torre et al , 2018; Cordazzo et al , 2020; Venturelli et al , 2020).…”