GREEN-HUSHING AND STOCK RETURNS: THE VALUATION IMPACT OF UNDERSTATED ESG DISCLOSURES

Abstract

This research explores green-hushing as a phenomenon when the companies disclose or underreport their environmental, social and governance (ESG) practices and compared the effects that it has on stock returns. As the number of people who want corporate sustainability to be transparent has been on the rise, the paper looks at the implication of ESG disclosures that are underrepresented and how such a case impacts investor behavior and company valuation. This is a quantitative, empirical research that analyzes panel data of publicly traded companies in a range of industries, such as FTSE 100 and S & P 500 and DAX 30 index over the time frame of 2015-2023. The first research question is: do companies engaging in green-hushing have different stock returns patterns as the ones with more open disclosure of ESG issues? The evidence shows that firms that disclose low scores of ESG show that the stock returns are considerably low thus showing that investors are punishing underreporting firms in sustainability activities though it could have a high value potential. The authors make DiD estimates and adjust them to consider the company-specific, market and factor effect. The findings indicate that the average annual sales before and after tax of the green-hushing companies is 3 percentage points lower in comparison with the more transparent companies (p-value < 0.05). This study implies that the improvement in the disclosures of ESG will impact the attitude of investors and the value of the company. Businesses which do not put emphasis on their sustainability practices can experience undervaluation.