Carl Philipp Wolff - Essays on Sustainability Performance and Reporting

In recent years, societal awareness of the importance of sustainability performance and reporting has risen significantly and is increasingly shaping the expectations of various stakeholders regarding corporate behavior. Firms are responding with changes in their sustainability performance and with enhanced reporting on sustainability aspects. In this context, this thesis examines the effective design of targeted transparency regulation at the investor level (study 1), the consequences of responsible investors in the ownership structure for firms’ climate disclosure (study 2), and the consequences sustainability restatements in terms of spillover effects from sustainability reporting to financial reporting (study 3).

The first study addresses the question of how sustainable investors can be encouraged to act more responsibly through higher transparency requirements. To this end, the study levers the UN Principles for Responsible Investment (PRI) as a setting for the analysis. The phased introduction of transparency regulation with different requirements for internal reporting processes and external disclosure makes it possible to disentangle and analyze internal learning processes and external pressure separately. The results show a statistically significant relationship between improved corporate sustainability performance and external pressure on responsible investors. In contrast, the mechanism of internal learning is not empirically supported. An alternative empirical specification using an instrumental variable approach as well as fund-level analyses where trading is artificially disabled reinforce the identified relationship and rule out alternative explanations for the observed improvements in sustainability performance following external pressure on responsible investors.

The second study examines the consequences of responsible investors on firms’ climate disclosures. First, the study derives several proxies for climate disclosure quality. Second, the relationship between these quality criteria and responsible investors in the ownership structure of firms is empirically investigated. The results indicate that the involvement of sustainable investors is associated with higher-quality climate reporting. Moreover, cross-sectional analyses reveal that this relationship is particularly pronounced in firms with high financing needs and a dependence on investors during early stages of corporate financing. Methodologically, endogeneity concerns are addressed using propensity score matching, instrumental variables, and fund-level analyses under constant ownership.

The third study investigates sustainability restatements as an impetus for changes in financial reporting, thus addressing a previously underexplored dimension of connectivity between sustainability reporting and financial reporting. The empirical analysis is based on a manually collected sample of firms from the United States and the European Union, whose sustainability reports were examined for restatements of prior-year sustainability information. The results indicate spillover effects from sustainability reporting to financial reporting following sustainability restatements. The findings also show that firms with voluntary sustainability reporting tend to separate sustainability and financial reporting more strongly following sustainability restatements while such a tendency is not observed in companies subject to mandatory sustainability reporting.

Overall, the results of the thesis highlight the effective design of targeted transparency regulation through external pressure and demonstrate the relationship between responsible investors and climate reporting quality. Furthermore, the findings indicate that corrections of sustainability information can provide internal impulses for reshaping sustainability reporting and financial reporting in terms of spillover effects.