This paper examines the predictive ability of ESG risk disclosures for negative ESG outcomes. Using a textual analysis approach applied to the risk factors section of firms’ 10-Ks, we measure material ESG risk disclosures with respect to two benchmarks: industry best practice (discerned via ESG risks disclosed by industry leaders) and SASB recommendations (discerned via the Materiality Map).
Descriptively, we find that firms’ ESG risk disclosures align more with industry best practice versus SASB recommendations, suggesting spillover disclosure effects from industry leaders. We then document that two left-tail outcomes—future ESG penalties and incidents—are predicted by material ESG risk disclosures that align with industry best practice, but not by those deemed as material per the SASB framework. The latter finding does not necessarily imply that the SASB framework is uninformative regarding ESG risks: cross-sectional results suggest that the lack of predictive power for the SASB framework stems from firms’ better management of ESG risk exposures identified as material by SASB. Further, our results suggest that industry best practice regarding ESG disclosures can provide insight to unresolved corporate ESG risk exposures.
Eddie Riedl is the John F. Smith Professor of Management, and Professor of Accounting at the Questrom School of Business. He was Chair of the Accounting Department from 2016-2022. He joined Boston University in 2011; he was previously at the Harvard Business School from 2002-2011. He graduated from Regis High School in New York City, the only all-scholarship high school in the country. He received a combined BBA/MBA at Pace University in 1992, and his PhD from Penn State University in 2002. Prior to entering academia, he worked at a Big 6 auditor, in internal audit at a Fortune 250 oil company, and in corporate reporting at a real estate brokerage house. During his career, he attained the professional designations of CPA, CMA, and CIA.
His research focuses on three mega-trends within financial reporting over the past two decades: fair value accounting, international reporting, and issues relating to ESG (environmental, social, and governance) reporting. He has published in the top-tier accounting (The Accounting Review, Journal of Accounting Research, Review of Accounting Studies, Contemporary Accounting Research) and management journals (Management Science), with over 100 presentations at universities around the world, including Harvard, Stanford, Chicago, London Business School, and Chinese University of Hong Kong. His research is award-winning, including receipt of the Competitive Manuscript Award (given for the top accounting dissertation). He has served on 20+ doctoral committees at both HBS and BU, and published extensively with doctoral students and junior faculty. He has been an editor at the leading accounting research journals of The Accounting Review (2018-2022), as well as at Contemporary Accounting Research (2017-2020).
Eddie teaches classes at the undergraduate, MBA, executive, and doctoral levels. His course ratings consistently rank in the top 1%, averaging 4.95/5.00. He has taught executive programs for a number of Fortune 500 firms, including BP, Ericsson, IBM, and TE Connectivity. His case studies have sold over 100,000 copies to date, with a focus on financial reporting and valuation topics in the real estate, financial services, agriculture, chemical, restaurant, and incarceration industries.
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