No. 187: E&S Information and Analysts’ Forecasts Accuracy: Evidence from Analysts’ Research Reports

This study examines the usefulness of environmental and social (E&S) information for financial analysts by investigating whether analysts who incorporate E&S information in their research reports experience higher or lower forecast errors compared to those who exclude it. Using textual analysis of analyst research reports (ARRs) from the Euro STOXX 600 (2010-2020), we document a negative association between the incorporation of E&S information and analysts’ relative forecast accuracy. This relationship is evident only in voluntary E&S disclosure settings and is particularly pronounced for analysts covering firms with extensive E&S reporting, indicating that such disclosures practices may not enhance analysts’ information endowment but instead function as a tool for impression management. Further analyses indicate that the negative association is primarily driven by relatively pessimistic and uncertain analysts, suggesting that the overestimation of certain E&S risks may be one mechanism underlying this relationship. Overall, our results contribute to the ongoing debate on E&S disclosure regulation by providing insights into which topics may require enhanced standardization to improve financial analysts’ ability to interpret and integrate such information into their decision-making processes.