What Companies Say in ESG Reports Matters More Than You Think
New research by UIC Clinical Professor Özgür Arslan-Ayaydin reveals that what companies disclose in ESG reports — not just whether they disclose — significantly shapes investor understanding and market outcomes.
UIC Finance Professor Co-Authors Study on ESG Reporting and Market Transparency
Özgür Arslan-Ayaydin, Clinical Professor of Finance at UIC Business, has co-authored a new study, “Topics That Matter: ESG Reports and Information Asymmetry,” which has recently been accepted for publication in the Journal of Financial Research.
As ESG reporting becomes nearly universal among large firms, this research offers timely insight into how financial analysts and investors interpret ESG disclosures — and which types matter most. The study examines how the thematic content of ESG disclosures relates to information asymmetry in capital markets.
The findings show that environmental themes are associated with lower levels of analyst disagreement, whereas social themes are associated with higher disagreement. Governance-related disclosures, by contrast, show limited association — possibly because similar information is already captured in required financial filings.
Moving Beyond “More Disclosure Is Better”
While ESG reporting has expanded rapidly in recent years, the study challenges a common assumption: that more disclosure automatically improves transparency.
Instead, the findings show that the specific topics companies choose to emphasize play a critical role in shaping investor understanding.
Using a dataset of more than 7,500 ESG reports from U.S. firms between 1998 and 2023, the study applies advanced machine learning techniques to identify 30 distinct disclosure topics and analyze their impact on market information gaps.
The results demonstrate that these topic-level differences significantly influence how investors interpret ESG disclosures and assess uncertainty.
The study also finds that ESG reports are more informative under certain market conditions, including when analyst coverage is higher, institutional ownership is lower, ESG performance is stronger, and third-party ESG ratings are more consistent.
Key Findings
The study highlights several key insights:
- Environmental disclosures reduce information asymmetry
Topics such as emissions, climate strategy, and supply chain impacts are associated with lower disagreement among financial analysts. - Social disclosures may increase information asymmetry
Areas like community engagement and employee well-being often rely on qualitative narratives, leading to greater variation in interpretation. - Governance disclosures show limited incremental impact
This is likely because governance information is already captured in required financial filings. - First-time ESG reports are especially impactful
Initial disclosures provide new information to markets and are more informative than subsequent reports. - More is not always better
While broader topic coverage can improve transparency, excessive breadth leads to diminishing returns and potential information overload.
Why This Matters for Business Professionals
For executives, investors, and corporate communicators, the research highlights a critical shift in how ESG reporting should be approached.
Rather than focusing solely on volume or completeness, organizations should prioritize clarity and measurability in disclosures, emphasize material topics that directly impact financial performance, and communicate in ways that reduce ambiguity for investors.
The findings underscore that ESG reporting is not just a compliance exercise — it is a strategic communication tool that can influence capital market perceptions.
Advancing ESG Research and Practice
This study contributes to a growing body of research examining the real-world impact of ESG disclosures. By focusing on the content of reports rather than their existence alone, it offers a more nuanced understanding of how sustainability communication affects financial markets.
As regulatory frameworks and investor expectations continue to evolve, this work provides valuable guidance for organizations seeking to improve the effectiveness of their ESG strategies.