To Highlight or Not to Highlight: Costs of Environmental Sustainability

Abstract

With the popularity of corporate environmental sustainability, management scholars have started to call attention to the cost of sustainability pursuit. While corporate sustainability brings about many benefits, implementation is costly. Most firms do not report environmental costs separately from other costs, but some firms do. We explore what drives firms to report environmental costs and how such reporting affects external evaluations such as analyst recommendations. We suggest and find that firms are more likely to reveal environmental costs separately for the purpose of highlighting the costs associated with their sustainability pursuit when faced with conflicting pressure from shareholders for sustainability. We further find that firms that report environmental costs separately generally receive less favorable analyst recommendations and forecasts than those who do not. This effect is mitigated by a greater share ownership from short-term institutional investors.