Do Financial Analysts Care about Environmental Disclosures in Corporate Annual Reports

The paper examines the role of environmental disclosures and their effect on the accuracy of financial analysts’ forecasts. Specifically it examines and compares the effects of the volume and quality of disclosure. In doing so, it distinguishes between ‘greenwash’ and more specific, quantified and comparable disclosures that have the potential to provide more effective market signals. The paper demonstrates that there is a significant negative relationship between the quality of disclosure and analyst forecast error. The mere volume of disclosure meanwhile only adds to forecast accuracy in the absence of quality, and to a lesser degree. Disclosure quality therefore is valuable for investment decision makers when evaluating the financial consequences of firm level environmental policies, and potentially in wider contexts.