Disclosure of firms’ environmental performance : does the SV approach reduce efficiency losses from asymmetric information?

Sammanfattning: Sustainability assessment of corporates has been recognized as an important and powerful tool to support a shift towards a sustainable development. In order to regulate activities with negative externalities and make socially responsible investment decisions, information and methods provided by third parties have become key instruments for investors and policy makers to mitigate market failures. However, assessment tools vary largely and despite being carefully developed, may not provide sustainable outcomes according to economic theories. Therefore, this present paper explores and critically examines the Sustainable Value (SV) approach developed by Figge and Hahn (2004) to measure corporate sustainable performance, focusing on the environmental indicator carbon dioxide emission. The objective is to evaluate if the SV approach can reduce efficiency losses from asymmetric information on environmental performance. More specifically, the Sustainable Value of CO2 created by a sample of Swedish corporates in a range of sectors is calculated and analyzed with the ambitious purpose of seeking to determine if the method promotes sustainability according to environmental economics. This is done by calculating and comparing CO2 performance according to the SV method and to social cost calculations for assessing marginal cost of externalities. The study shows, based on empirical and theoretical findings, that the SV approach should not be considered as a fully relevant method for assessing the corporates environmental sustainability performance as it could increase the efficiency losses of asymmetric information if used by socially responsible investors. This is pointed out by comparing rate of return for different information scenarios and shows that while sustainability assessment approaches are needed, the efficiency losses created from using one might actually increase unsustainable outcomes.