Digitalization and Environmental, Social, and Governance Reporting: Evidence from the US Banking Industry

ABSTRACT We examine the relation between digitalization and environmental, social, and governance (ESG) reporting using a sample of listed US banks from 2010 to 2022. Our study is based on a two‐step theoretical framework, building on voluntary disclosure and signaling theory: First, we expect and find technological progress to enhance internal information quality. Second, we examine whether banks pass on this improved information to stakeholders via ESG reports. Our results suggest that banks are more likely to disclose an ESG report as they become more digitalized. Further, we find that digitalization is related to a higher extent and quality of ESG reporting. A difference‐in‐differences test and a mediation analysis corroborate our findings. Cross‐sectional tests indicate an attenuated association between digitalization and ESG reporting for banks with low data privacy and security disclosure. Our findings have practical implications because they highlight the potential of digitalization to improve ESG reporting but also possible drawbacks as digitalization comes along with certain risks.