Is the pilot policy for carbon emission trading beneficial for ESG disclosure? Evidence from a quasi-natural experiment in China

Using the pilot policy for carbon emission trading (PPCET) in China as a quasi-natural experiment setting, we construct a staggered difference-in-difference design to examine the impact of PPCET on ESG (Environmental, Social, and Governance) disclosure. Using a sample of Chinese listed firms over 2009–2020, our findings reveal that the degree of ESG disclosure is significantly higher for treatment firms after implementing PPCET than that before implementing. Moreover, the effect of PPCET on ESG disclosure is more pronounced for state-owned enterprises (SOEs) than for non-SOEs. Our findings are robust to a variety of sensitivity tests, are valid after excluding shocks from other policies, and stand after controlling for the endogeneity. Furthermore, the relation between PPCET and ESG disclosure is more pronounced for firms with weak environmental regulation intensity, in non-heavily polluting industries, and with low analyst coverage. Lastly, PPCET promotes environmental and social disclosures, and reduces carbon emission intensity.