The Economic Impact of Integrating Mandatory ESG Disclosures into Financial Reports: Evidence from India's BRR Initiative

Firms are facing growing scrutiny from institutional investors, regulators, and consumers regarding their Environmental, Social, and Governance (ESG) practices. However, the lack of standardized and comparable ESG data presents a significant challenge for effectively incorporating these factors into comprehensive firm assessments. Using India's phased implementation of mandatory Business Responsibility Reports (BRRs) in financial filings as a quasi-experimental setting, we demonstrate that required ESG disclosures substantially boost corporate investment in both physical assets and innovation compared to non-mandated firms. The impact is strongest for companies with greater initial information opacity, suggesting that enhanced transparency alleviates informational barriers that traditionally hinder investment decisions. A fundamental challenge in the ESG literature is distinguishing the impact of disclosure mandates from changes in underlying ESG activities. The Indian regulatory structure provides a unique opportunity to examine ESG disclosure effects while addressing this identification challenge. While BRRs are required only for publicly listed companies, Corporate Social Responsibility (CSR) activities-along with related disclosures-extend to both listed and unlisted entities. This institutional design allows precise identification of the causal role of ESG transparency independent of ESG activity itself. Overall, our results indicate that mandating ESG disclosure embedded within financial statements can stimulate firm investment in capital formation and innovation, potentially contributing to wider economic growth and development.