In this study, we examine whether environmental, social, and governance (ESG) funds' investment decisions are sensitive to the existence and extent of firms' voluntary environmental disclosures. We create our measures of voluntary environmental disclosure using bigrams extracted from the Global Reporting Initiative standards. We provide robust evidence that voluntary environmental disclosure in conference calls is associated with greater ESG fund ownership in the subsequent period, incremental to firms' ESG ratings. We also provide evidence that fund managers' reliance on environmental disclosure is concentrated in water, waste, emissions, and compliance disclosures. ESG fund ownership increases with environmental disclosure that is more positive and specific. Our primary finding persists both when we rely on the sustainability report as an alternative proxy for environmental disclosure and when we use fund‐level tests. Overall, our evidence is consistent with ESG funds relying on firms' disclosures when making investing decisions and inconsistent with recent regulatory concerns that ESG fund managers are not following through on their stated investing strategies

Demand for disclosures on environmental, social, and governance (ESG) issues has increased dramatically. Using corporate political spending disclosures as our setting, we conduct a detailed inquiry of 541 political spending‐related shareholder proposals from 2004 to 2012 to highlight the role of shareholder activism as a mechanism to motivate ESG disclosure. Unlike earlier studies, we examine both proposals that went to a vote and proposals that were withdrawn by the activist, allowing us to assess more comprehensively the success of shareholder activism. We find that 20 percent of firms targeted by disclosure proposals begin disclosing in the subsequent year, although implementation rates vary by proposal type—8 percent for proposals subject to a vote versus 56 percent for proposals withdrawn. The sponsor is also important: unions and public pension funds are less likely than other activists to target firms with agency problems and are less successful in having proposals withdrawn, and the implementations they obtain are viewed more negatively by the broader investor base. Our findings highlight shareholder proposals as one mechanism through which investors can successfully express their preferences for corporate disclosure policies. Given activists' long‐standing interest in environmental and social disclosure policies, we believe our findings generalize to a broader set of ESG disclosures