The Impact of Mandatory Sustainability Reporting on Institutional Investment: The Role of Reporting Location

We investigate whether foreign institutional investors respond to the sustainability disclosures mandated by the EU's Non-financial Reporting Directive, and whether disclosure location affects their response. We find that foreign institutions increase ownership in companies affected by the mandate and that the increase is greater in countries that locate the sustainability disclosures within their annual reports, referred to as combined reporting. This is consistent with combined reporting reducing investors' disclosure processing costs by providing timelier disclosure and better integration of sustainability and financial information. We further find that the increase in ownership is greater in countries that experience a larger increase in the number of firms issuing combined reports, consistent with combined reporting increasing comparability of the sustainability disclosures. Our findings suggest that the location of sustainability reporting plays an important role in cross-border investment decisions, which provides policy implications for the implementation of global sustainability disclosure regulation.