Different Risk-Appetite Investors, Third-Party Rating Agency and ESG Information Disclosure Strategy

In response to demands from the investment community and the public, numerous listed companies have proactively begun to provide environmental, social, and governance (ESG) information. Subsequently, the development of an efficacious mechanism for ESG information disclosure is pivotal for providers seeking reliable external financing. Prior scholarly work has not concentrated on the ESG information disclosure strategies of different risk-appetite providers, nor has it examined the influence of third-party rating agencies on the investment landscape. In this study, we construct a risk management model to delineate the decision-making process for information disclosure strategies and to analyze the impact of these strategies on provider payoffs. Within the model, we explore how the effectiveness of information, investor sensitivity to ESG information, and risk aversion influence the optimal strategies for reduced ESG information disclosure. Additionally, we investigate the repercussions of the accuracy of third-party rating agencies on provider disclosure strategies. The findings of our research indicate that: (1) Providers that adopt moderate a less-disclosure strategy can mitigate their information collection and disclosure expenses, thereby maximizing the returns from ESG information disclosure; (2) The sensitivity of investors to ESG information and the risk aversion of enterprises themselves will influence the leeway for enterprises to implement under-disclosure strategies; (3) More accurate rating agencies favor a less-disclosure strategy because they provide strong validation of the provider’s ESG information. Our outcomes can assist less companies in crafting appropriate ESG information disclosure strategies and offer constructive advice on effective information disclosure mechanisms to third-party rating agencies.