We compare the ESG ratings of MSCI, a global rater, with those of SINO, a local Chinese rater, to evaluate their effectiveness in capturing ESG risks within the Chinese context. Using ESG issues revealed in negative incidents as a proxy for ESG risk, we find that the ratings from the two raters often diverge, with SINO generally outperforming MSCI in predicting ESG risks in China. This divergence is more pronounced for firms with extensive ESG disclosures and when there are significant differences in how the raters define and measure ESG issues. Distance-based information asymmetry does not appear to play a significant role in explaining the performance gap. The advantage of local raters likely stems from their flexibility in tailoring methodologies to reflect country-specific nuances. In contrast, global raters adopt consistent methodologies to meet investor demand for comparability, but this approach may inadvertently reduce their relevance for capturing localized ESG risks. Data Availability: Data are available from sources identified in the text

This paper examines the impact of environmental, social, and governance (ESG) disclosure on firm investment. The analysis characterizes the optimal precision of ESG disclosure that channels investors’ tastes for ESG into firm investment. Although it is tempting to think that the optimal ESG disclosure becomes more precise when investors care more about ESG, I show this intuition is incomplete because it overlooks the fact that stronger tastes for ESG change how investors use information. Applying the analysis to a large economy, I show that mandating more precise climate disclosure than would be voluntarily provided motivates self-interested firms to act on common interests in reducing emissions. That is, a regulator can leverage market forces and a disclosure mandate to achieve a similar result as a Pigovian tax in motivating firms to internalize the externalities created by their climate-related investments

We describe the development of public company auditing in the U.S. in the early 20th century to gain perspective on current developments in environmental, social, and governance (ESG) assurance. Using a broad sample of historical annual reports spanning four decades, we document three facts: first, the spread of public company auditing occurred steadily over the span of several decades. Second, audit services were initially heterogeneous but became standardized through the audit profession’s efforts and interactions with private and public actors. Third, the role of regulation in those early developments was seemingly limited to codifying existing practices, as the first federal audit regulation was introduced only late in the development of the profession and did not significantly impact capital markets. Our historical evidence helps us understand how we arrived at today’s widely accepted and highly regulated financial audits. It uncovers parallels to and offers lessons for current developments in ESG assurance. Data Availability: Data are available from the public sources cited in the text

The world of capital markets is constantly evolving, driven by technological advancements and changing global economies, presenting challenges for accounting practitioners. Amid current dynamic capital markets, this paper proposes a pathway for generating innovative accounting research that addresses practitioners’ needs by focusing on three critical financial reporting areas: contingent claim securities, sustainability/ESG metrics, and cryptocurrencies/digital assets. Secondly, to address the complex research challenges before us, I propose that we, as accounting scholars, embrace educational changes that may enhance the early research career success of our doctoral students and junior scholars, given that the accounting industry is on the brink of a profound technological transformation. Finally, I urge us to foster academic change by leveraging our strengths within and across disciplines to meet the accounting challenges and opportunities ahead