The effectiveness of the environmental, social and governance reporting guide on disclosure quality: evidence from Hong Kong

Purpose This study aims to examine the impact of the environmental, social and governance (ESG) guide revision on the quality of ESG disclosure among listed companies in Hong Kong. Design/methodology/approach This study uses a sample of 1,529 companies listed on the Stock Exchange of Hong Kong (SEHK) and uses an ESG disclosure quality scoring system to manually evaluate ESG disclosures for 2019 and 2020. Paired t-test, difference-in-difference (DID) regression using propensity scoring weighting samples, ordinary least squares regression and logistic regression are adopted in quantitative analyses. Findings The results of this study suggest that the overall ESG disclosure quality has improved slightly after the ESG Guide revision. The improvement in the ESG disclosure quality is more prominent for lagging-disclosure firms than leading-disclosure firms under the ESG Guide revision. ESG disclosure quality is positively related to audit quality. Practical implications This study provides insights into sustainability reporting practice in Asia and reveals that the effectiveness of ESG reporting regulations varies due to reporting regimes. Social implications The empirical evidence indicates that enhancing ESG disclosure quality can help to improve the transparency and comparability of non-financial information available to capital-market stakeholders. Originality/value The paper contributes to the extant ESG literature on the hybrid form (i.e. mandatory and comply-or-explain reporting provisions) of ESG reporting regulations and examines the real effects on ESG reporting revision guidelines after implementation.