Mandatory Disclosure and ESG Performance: A Difference-in-Differences Evaluation of the EU Non-Financial Reporting Directive

Sammanfattning

This thesis estimates the causal effect of the EU’s Non-Financial Reporting Directive (NFRD) on the ESG performance of listed firms. Prior evidence is thin and conflicting, with existing studies confined to single country samples, disclosure based outcomes or non EU controls that import cross jurisdictional confounders. Using S&P Global ESG pillar scores for a panel of listed firms over 2013-2021, the study applies two complementary difference-in-differences designs that together bound the directive’s effect. The primary specification matches EU treated firms to kernel matched Canadian listed firms operating outside the directive’s scope, using propensity score matching on pretreatment firm characteristics. A secondary within EU specification compares firms above and below the directive’s 500 employee threshold. The primary PSM-DiD estimates a positive and significant effect of approximately 6.5% on overall ESG scores and 10.8% on the social pillar, while the environmental coefficient is positive but imprecise and governance is unidentified due to a failed parallel trends test. The secondary within EU specification yields no statistically significant effect at the 5% level. The contrast between the two designs is consistent with spillover contamination of the within EU control group through anticipation of the Corporate Sustainability Reporting Directive. The findings extend evidence to a broader EU setting and show that the choice of control group materially affects whether a treatment effect can be detected in evaluations of regional mandates.