This study aims to investigate how capital markets respond to the implementation of the EU’s Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). Both instruments are key components of the European Green Deal, designed to provide the standardized sustainability information needed to channel capital toward sustainable activities and strengthen corporate accountability.
The authors conduct an event study on five regulatory milestones – three CSRD-related and two ESRS-related events – using a matched sample of EU- and US-listed firms. In cross-sectional analyses, the authors further examine the moderating role of voluntary disclosure and environmental performance.
The event study results reveal heterogeneous stock market reactions. Reactions to CSRD events are significantly negative, indicating that investors view the new mandate as a cost burden. In contrast, ESRS-related events elicit positive reactions, suggesting that investors value the expected improvements in standardization and information quality. In addition, the cross-sectional analysis shows that voluntary sustainability reporting mitigates negative reactions to CSRD events, while strong environmental performance is associated with more favorable reactions to ESRS events.
The findings provide new evidence of the impact of sustainability reporting mandates on financial market dynamics by disentangling investor reactions to the mandate (CSRD) and its more detailed standards (ESRS). Future work should examine postimplementation effects and cross-country variation in enforcement within the EU.
Policymakers and firms can use these insights to improve the design and communication of sustainability reporting initiatives and to anticipate investor responses. The findings directly relate to the simplification debate that culminated in the revised CSRD (Directive (EU) 2026/470) and the simplified ESRS, highlighting that these reforms should preserve the standardization benefits investors valued in our setting.
The findings show that capital markets value standardized sustainability information, indicating that appropriately designed disclosure mandates can support the financing of the sustainable transition and the societal monitoring of corporate impacts.
This study offers novel evidence separating investor responses to regulatory mandates (CSRD) and standardization instruments (ESRS), highlighting the market relevance of disclosure regulation design.
