The impact of Green Capex on ESG disclosure. Evidence from the Italian listed SMEs

This paper investigates the impact of the EU Taxonomy-eligible capital expenditures (Capex) on firms' ESG disclosure quality, as measured by Bloomberg’s ESG Disclosure Score. Following the introduction of the EU Taxonomy regulation (Reg. 852/2020/EU), large European companies were required to report their proportion of Taxonomy-eligible Capex starting in 2021. Using a panel dataset of publicly traded Italian firms, this study employs a multivariate regression model and a Difference-in-Differences approach to assess whether this regulatory change led to improvements in ESG transparency. The regression employs several firm characteristics, such as size, revenues growth, leverage, ROA and presence of institutional investors among the shareholders which are known to affect ESG Disclosure from past studies. The DiD model, on the other hand, test the effectiveness of the Taxonomy on the Score through the comparison of a treatment group (firms that published a Non-Financial Disclosure (NFD) containing Taxonomy-eligible Capex), and a control group made of firms that did not. The findings provide empirical evidence on the relationship between Taxonomy-eligible Capex disclosure and ESG reporting quantity. Preliminary results suggest that Capex did lead to a significant increase in Bloomberg’s ESG Disclosure Score and, therefore, a further investigation on the effectiveness of this regulation in enhancing transparency seems fair. Finally, the study tests the robustness of the findings and examines potential sources of bias