ESG Materiality Disclosures and Their Impact on Sell-Side Analysts’ Risk Assessments

Amid growing scrutiny of corporate sustainability and regulatory requirements, firms increasingly disclose their environmental, social, and governance (ESG) materiality assessment results. These disclosures can provide insights into the types of stakeholders involved (stakeholder salience) and the level of agreement on ESG priorities (stakeholder consensus). We examine how these disclosures influence sell-side analysts’ ESG risk assessments through a two-phase approach. First, we empirically analyze the ESG materiality disclosures of U.S. firms, revealing significant variation in stakeholder salience and consensus. Second, we conduct an experimental study to test the causal impact of these disclosures on analysts’ risk assessments. We hypothesize that analysts perceive higher ESG risk when stakeholder salience is high but consensus is low, signaling potential future risks from stakeholder disagreement. Contrary to expectations, preliminary results suggest analysts assign the highest ESG risk when both stakeholder salience and consensus are low, interpreting such disclosures as evidence of management’s disregard for meaningful engagement. These findings challenge existing assumptions in the stakeholder engagement literature and offer practical implications for firms crafting ESG disclosure strategies. By highlighting how analysts interpret stakeholder engagement signals, this study advances understanding of ESG risk assessment and informs corporate communication practices.