The Effect of Mandatory Non-financial Reporting on CSR (and Environmentally Sustainable) Investment: a Discontinuity Design Approach

We investigate the effects of the introduction of non-financial reporting (NFR) on investment related to corporate social responsibility (CSR). We focus on environmental sustainability by using as exogenous treatment the Italian implementation of the EU Directive 2014/95 that has made NFR mandatory for companies of 500 employees and above passing threshold levels of either net sales or total assets. We estimate the causal effect on data from the ISTAT Multiscopo Survey (including the universe of middle and large sized Italian companies and a large sample of small companies) with a fuzzy discontinuity design approach and find evidence of a sharp discontinuity around the cutoff. Our empirical findings show that mandatory NFR is associated to significant positive effects on CSR investments in some crucial domains (waste management, recycle/reused material in inputs, pollution control, emission reduction). Their magnitude implies that between 20 to 30 percent of additional firms are involved in CSR investments in general and specifically in all the considered types of environmentally sustainable investment. Policy implications of our findings are that the reduction of the mandatory NFR threshold including also medium sized firms could significantly contribute to extend corporate investment in CSR and, more specifically, in environmental sustainability.