PREreview del Navigating the Disclosure Dilemma: The Trade-off Between Legitimacy and Market Clarity in the Energy Sector

Summary of the Research

This paper studies how multinational energy companies handle ESG disclosure requirements when they operate in both the European Union and China. It looks specifically at how firms choose between global standards like GRI and SASB and local rules such as the EU CSRD and China’s CSDS. Using data from 2016 to 2023, the author runs fixed effects regressions and event studies to analyze how different disclosure choices affect firm value, financing costs, and profitability.

The main findings are clear. Global ESG standards no longer add much financial value because they have become too common to distinguish firms. Aligning with local mandatory rules produces measurable improvements in firm performance, especially in the EU where compliance with double materiality requirements increases Return on Equity. The paper also identifies a complexity penalty, where using too many disclosure frameworks at once lowers market valuation. The author argues that firms should focus on strategic interoperability, integrating information in a way that avoids confusing investors.

Major Issues

1. The paper relies on a very small and narrow sample

Only 25 multinational energy firms are included, producing around 200 observations. These are firms that already tend to be large, well resourced, and heavily regulated. Because of this, the results may not represent what happens in other sectors or among smaller companies. The paper should discuss more clearly how the sample limits generalization. For example, energy firms have unique reporting pressures and higher baseline adoption of standards like GRI.

2. The measure of complexity may oversimplify actual reporting challenges

The complexity penalty is based on counting how many frameworks a firm uses in a single year. This measure treats all standards as equal even though some frameworks overlap while others conflict in important ways. For example, SASB and ISSB are more aligned than SASB and CSRD. The paper could improve this by discussing how qualitative differences between frameworks influence the observed inverted U shape.

3. The argument that voluntary global standards are fully diluted needs more evidence

The paper states that GRI and SASB adoption no longer matter because they have become ubiquitous. While the descriptive statistics do show high adoption of GRI, the study does not present evidence about how investors use these disclosures. There is no discussion of how investors read reports, whether they still look for specific metrics, or whether dilution varies by region or sector. This weakens the claim that voluntary standards now function as basic hygiene factors.

4. Event study results need more contextual explanation

The paper shows that China’s April 2024 guideline created positive abnormal returns for high ESG firms, while the EU CSRD implementation created negative returns for low readiness firms. However, the paper does not explore what these stock market reactions reflect. For example, how much of the reaction is driven by expectations of compliance costs, how much is influenced by political risk signals in China, or how much is due to broader market trends. Adding context would make the findings stronger.

5. The conceptual framework is described but not fully validated in the results

The paper presents a three channel model: signaling, legitimacy, and information processing. While the findings support the legitimacy and complexity channels, the signaling channel remains weakly supported. The cost of debt results show little difference across standards. The paper should explain more clearly why signaling effects do not appear strongly in the sample, especially since investor focused frameworks like SASB are supposed to influence financing and risk perception.

Minor Issues

1. The introduction repeats similar ideas

The introduction contains multiple statements about regulatory fragmentation and bifurcation. These could be combined into a single, more concise explanation.

2. Some sections introduce theoretical ideas without showing how they relate to the data

For example, the discussion mentions information overload and cognitive costs for investors, but the paper does not show how investors actually reacted or whether analysts flagged disclosure complexity in reports.

3. Figures could be better described in the text

For instance, the paper mentions that multi standard intensity averages 3.57, but the interpretation of the distribution across firms is not discussed.

4. The limitations section should be expanded

The author notes small sample size and self selection bias but does not mention other possible issues such as measurement error from manual coding or inconsistent reporting quality across firms.

5. Some claims about managerial implications are too broad

The paper suggests all firms should adopt a core and satellite disclosure strategy, but the recommendations might differ depending on firm size, regulatory exposure, or investor base.

Competing interests

The author declares that they have no competing interests.

Use of Artificial Intelligence (AI)

The author declares that they did not use generative AI to come up with new ideas for their review.