How Do Institutional Investors Perceive Mandatory ESG Disclosure: Evidence From SEC’s Mandatory Climate Change Disclosure Proposal

This study examines how institutional investors perceive the SEC’s mandatory climate change disclosure proposal, announced on March 21, 2022. The findings show that investors of US public firms with higher institutional ownership react less negatively to the proposal despite overall negative market reactions. Additional tests show that the main results hold even if an endogeneity concern and greenhouse gas contributors’ effect were tested with the cross-sectional regression models. This research sheds light on the lack of consensus on the impact of institutional investors on ESG disclosure for US public firms, providing evidence that institutional investors contribute to the long-term sustainability and value creation of portfolio firms.